Dividend Imputation Credits

You might have heard a lot of lies from Scott Morrison and Josh Frydenberg about Labor’s policy on dividend imputation credits.

Here are the facts on Labor’s policy so you can read the truth for yourself.

What is Labor’s policy?

A Shorten Labor Government will make the tax system fairer by closing down a concession that gives cash refunds for excess dividend imputation credits.

Labor will have a Pensioner Guarantee – protecting pensioners from changes to excess dividend imputation credits.

The Pensioner Guarantee will protect pensioners who may otherwise be affected by this important reform.

A Shorten Labor Government will close down the concession created by Howard and Costello, and return to the arrangement first introduced by Hawke and Keating – so that imputation credits can be used to reduce tax, but not for cash refunds.

This change only affects a small number of shareholders who have no tax liability and use imputation credits to receive a cash refund.

People will still be able to use imputation credits to reduce their tax liability to zero.

While those people will no longer receive a cash refund, they will not be paying additional tax.

More than 92 per cent of taxpayers do not receive a cash refund for excess imputation credits, and won’t be affected at all by this change.

Australia is the only country in the world with refundable franking credits.

Labor is cracking down on this tax loophole because it will soon cost the budget $8 billion a year.

Much of this goes to high-wealth individuals, with 80 per cent of the benefit accruing to the wealthiest 20 per cent of retirees.

The top one per cent of self-managed superannuation funds received an average cash refund of more than $80,000 in 2014-15.

Labor does not think it is fair to spend $8 billion a year on a tax loophole that mainly benefits millionaires who don’t pay income tax – not when school standards are falling and hospital waiting lists are growing longer.

$8 billion a year is more than we spend on public schools or child care. It’s three times what we spend on the Australian Federal Police.

Charities and not-for-profit institutions, such as universities, are exempt from these changes.

The policy will apply from 1 July 2019, which means it will only affect future earnings and franked dividends that start flowing in following financial year.

More information on Labor’s policy can be found here.

Labor’s Pensioner Guarantee

The Pensioner Guarantee means pensioners and allowance recipients will be protected from the abolition of cash refunds for excess dividend imputation credits when the policy commences in July 2019.

Self-managed superannuation funds with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes.

This means that every pensioner will still be able to benefit from cash refunds.

If you’re a pensioner and you’re told anything different, it’s another Liberal lie.

We are closing down tax loopholes so we can pay for schools and hospitals, but pensioners are not the target of this crackdown.

Coalition’s record of attacking older Australians and pensioners

On the eve of the 2013 election Tony Abbott said there would be “no change to pensions”.

This was a lie.

Under the Abbott-Turnbull-Morrison Government:

Scott Morrison voted four (4) times for the Social Services Legislation Amendment (Omnibus Savings and Child Care Reform) Bill 2017 which would have cut the $365-a-year energy supplement for 400,000 pensioners and more than 2 million Australians.

Scott Morrison voted seven (7) times for the Social Services and Other Legislation Amendment (2014 Budget Measures No. 2) Bill 2014 which increased the retirement age to 70.

Scott Morrison confirms he wants the pension age to be 70, the oldest in the world

Morrison: When I approach the age of whatever the pension age is then, I’m proposing it should be 70, the Labor Party doesn’t agree with me but that’s what we’re proposing.

Source: Address to the National Press Club – Question and Answer – 25 February 2015

Scott Morrison’s Coalition and the Greens teamed up to vote for the Social Services Legislation Amendment (Fair and Sustainable Pensions) Bill 2015 which cut the pensions of nearly 300,000 pensioners by up to $8,000 for a single pensioner and $14,000 for couple pensioners each year.

Because of the Coalition/Greens alliance another 92,300 retirees were kicked off the pension altogether.

Scott Morrison also voted one (1) time on 22 June 2015 and six (6) times on 18 June 2015, for the Social Services Legislation Amendment (Fair and Sustainable Pensions) Bill 2015 which cut the pension of $80 a week cut to the pension over 10 years.

This unfair cut would have ripped $23 billion from the pockets of pensioners in Australia.

Scott Morrison’s Coalition has also tried to:

  • Make pensioners born overseas wait longer to get the Age Pension by increasing the residency requirements from 10 to 15 years
  • Abolish the pension supplement from pensioners who go overseas for more than six weeks, which will rip around $120 million from the pockets of pensioners
  • In the 2014 Budget they cut $1 billion from pensioner concessions – support designed to help pensioners with the cost of living
  • In the 2014 Budget they axed the $900 seniors supplement to self-funded retirees receiving the Commonwealth Seniors Health Card
  • In the 2014 Budget the Liberals tried to reset deeming rates thresholds – a cut that would have seen 500,000 part-pensioners made worse off
  • In the 2016 Budget the Liberals tried to cut the pension to around 190,000 pensioners as part of a plan to limit overseas travel for pensioners to six weeks

Independent analysis of Labor’s Policy

The Australian, Franking credit refunds ‘distort economic system’, 24 January 2019

The chief economist for the government’s 2014 Financial System Inquiry has called for dividend franking credits to be overhauled, hitting out at the “significant economic distortion” created by excess credit refunds for investors who pay no tax.

Kevin Davis, a professor of finance at University of Melbourne who was a panel member on David Murray’s landmark financial system review, said dividend imputation was designed to prevent double taxation of corporate profits.

“It wasn’t meant to lead to zero taxation of corporate income which occurs when dividends are paid to investors on zero marginal tax rates and rebates paid,” Mr Davis told The Australian.

“That has created a significant economic distortion, and while removing the rebate may be painful for those who have structured their investments to maximise gains from this tax arbitrage, such a change is warranted,” he said.



Courier Mail, Ending unaffordable lurk is not a tax grab/ Tax scare campaign has zero substance, 15 March 2018

…while this month former Liberal leader John Hewson said: “I think the bottom line is that, in economic terms, it (cash refunds) doesn’t make any sense at all.”



Former Prime Minister Paul Keating who introduced divided imputation in 1987 – ARF, 13 March 2018

Mr Keating, who as treasurer introduced dividend imputation in 1987, told The Australian Financial Review that the change by the Howard government to introduce cash refunds was never sustainable.

"This is a return to the clarity and simplicity of the dividend imputation that I introduced in 1987," Mr Keating said.

Paul Keating confirmed he was consulted on the Labor policy proposal and gave it his imprimatur. Andrew Meares

"I made no provision for cash back. The cash backs were only ever affordable by a big spike in national income and that spike in national income has long gone.

"The key thing is the Labor Party is still committed to dividend imputation."



Grant Wardell-Johnson is partner, KPMG Economics & Tax Centre

Australia is the only country in the world with refundable franking credits. The UK had a refundable imputation system, but replaced it in 1997 with a non-refundable partial imputation system – four years before we went the other way. Indeed the history of the last two decades is one of countries moving away from full imputation systems for partial ones.



How some of the wealthiest Australians pay 'negative' tax – Ben Oquist, Executive Director of The Australia Institute – 14 March 2018

The benefits flow overwhelmingly to the wealthiest Australians. Australia Institute commissioned modelling showed that 75% of benefits of dividend imputation flowed to households with incomes in the top 10%. Almost half the benefits go to individuals earning over $180,000 who make up only 2.2% of the population.

If we are to have to fund the services, schools, hospitals and infrastructure expected by the community we need a sustainable revenue base. Indeed many in the corporate sector know that ultimately businesses can only really flourish if there is a decent society in place. To pay for that decent society and its infrastructure we can either raise tax rates or close concessions, deductions and loopholes. Our dividend imputation system – that is unlike anywhere else in the world – would be a good place to start.



Saul Eslake, economist and former Young Liberal President

Economist Saul Eslake said imputation “was never designed to generate cash refunds”.

“And the ability to get refunds is particularly valuable for people who are getting tax-free income flows out of their super, so this proposal is also partly an antidote to the dumb 2006 decision to exempt that income totally,” he said.



Dividend Imputation Should Change – Gareth Brown, Senior Analyst, Forager Funds Management – 12 March 2018

For one, it would remove a large distortion in our system, one that sees a dollar retained by a company worth less than one paid out to a low-tax rate shareholder. This explains the immense pressure on Australian companies not to cut dividends unless they’re on their death bed. In a sensible world, there’s no such thing as an underwritten dividend reinvestment plan.

More broadly, though, it’s fairer. If we’re going to have a tax system, why shouldn’t the full profit stream of successful entities like the Commonwealth Bank, Woolworths, BHP or Forager Funds Management Pty Ltd be subject to corporate tax? Or should it only be wage slaves paying for hospitals, schools, defence and roads?




Fairfax, Treasury considered dividend imputation policy reform before 2017 budget, 13 March 2018


ABC Media Watch, 18 March 2018


Fairfax, Real 'victims' of Labor's dividend tax policy are not average Joannes, 24 November 2018


Fairfax, Treasury analysis warned of dividend imputation costs blowing out, 23 July 2018


AFR, Taxable income means nothing in this tax war: experts, 16 March 2018


“The effective tax rate on superannuation fund earnings in the benefits phase is negative since funds pay no tax on earnings but receive full refunds on any unused dividend imputation credits.”

Page 14, The Grattan Institute Super tax targeting, November 2015


“There are some revenue concerns with the refundability of imputation credits.”

Page 86, Liberal Government’s Re-think: Tax Discussion Paper, 2015


“However, our current system of full, refundable dividend imputation is likely to be too generous to domestic Australian investors.”

Page 10, Working Paper 9/2017 – Tax and Transfer Policy Institute – ANU


“The refundability of imputation credits should be addressed. This was introduced for some taxpayers many years after the imputation system commenced.”

Page 9, Deloitte – Submission to the Tax White Paper Task Force – 1 June 2015


Industry Super Australia (ISA) chief executive, David Whiteley – 13 March 2018

The proposal announced by the Australian Labor Party to stop refunding imputation credits even where no tax has been paid by an investor will have little or no impact on the super of most Australians and the savings could modernise the super system if re-invested.

Industry Super Australia (ISA) chief executive, David Whiteley, said the proposal is sensible and could significantly improve the fairness of the super system if some of the savings are reinvested to ensure the system responds to the changing nature of work which is stunting the retirement savings of women and millions of other lower and middle income earners.

“Super funds where most Australians have their retirement savings will be largely unaffected by this proposal because the imputation credits are exhausted offsetting tax liabilities of the fund,” said Whiteley.


The Australia Institute – 21 April 2015

Like most tax loopholes, the ability to convert 'surplus' dividend imputation credits to cash delivers most of its benefits to the wealthiest, with almost half of all franking credits going to the top 2.2% of income earners, and virtually nothing to low income earners.


From the Liberal Government’s Financial System Inquiry

However, the case for retaining imputation is now less clear than it was in the past.