Taxation Law

Taxation Law 1
Taxation Law
(Name)
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Institute
Date

Taxation Law 2
1. Why is this tax policy issue significant? (123 words)
Under the current dividend imputation system, a company has the right to pass on the
credit of the tax it has paid off its profits while they issue dividends to shareholders. The
shareholders in return can claim a cash refund if the credit exceeds individual tax liabilities.
The Labor Party is proposing to remove the ability for individuals to get tax refunds on excess
imputation credits. The policy will automatically make imputation credit a non-refundable tax
credit by 1st July 2019. The proposal will however not apply for charities and non-profit
organizations. This proposal that has not yet been approved by law but if it is implemented
shareholders cannot claim cash refunds on imputation credits issued by the companies they
have invested in.
2. Who are the key stakeholders and how does this policy affect them? (375words)
The first group of individuals that are going to be negatively impacted by the policy is
retirees who like to hold their superannuation savings in a self-managed super fund (SMSF)
(IOOF - Helping Australians achieve financial independence since 1846, 2019). The
implementation of this policy will definitely impact negatively on the retirement system and
lead to the reduction of discretionary saving which is regularly referred to as the third pillar of
the retirement system (Arnold et al., 2014). There are indeed loopholes in the current
regulations that enabled people to mislead about the spending of an organization. The
consumption of an organization could be deferred to invest in local companies to sustain a
self-funded retirement scheme.
On an individual level, there will be no tax refund for implications credits issued during
dividends payments. The proposed amendments to the policy is fueled by the fact that not all

Taxation Law 3
retirees own shares but instead almost 80 percent of all stocks owned by retirees are only held
by 20 percent of the wealthiest retirees. The Superannuation payout has been tax-free since
2001, and it does not require one to declare their personal income tax return (Mackenzie and
McKerchar, 2014). The amendment plans to stop any tax refund to those people with no tax
liability implying that retirees will no longer get the refund after it is implemented. The
assumption in the proposed amendment is that a retiree who receives a full pension plus
dividends from invested stock cannot possibly be earning the states $18, 200 per year and if
this is the case then they must be earning a reduced pension or no pension at all.
The Australian Prudency Regulation Authority (APRA) funds that will be affected are
those that do not receive any external funds. This implies that they no longer file for income
tax and mainly rely on imputation refunds from the government as a source of income
(Cummings, 2015). Active funds file for income taxes as they receive new taxable funds on a
regular basis; hence they can continue to collect the credit tax refunds from the government.
A dormant fund, on the other hand, receives no taxable funds; hence they will not be entitled
to a refund under the new amendment.
3. Who are the winners and losers in relation to this tax policy, i.e. what are its pros and
cons from the point of view of the stakeholders identified in relation to question 2? (328
words)
Winners and losers
The dividend imputation credit reform was set up to avoid double taxation on corporate
profits. Change always has winners and losers. For retirees, they will lose the franking credit
if it becomes a zero taxation superannuation policy, but at the same time, the policy will be
able to tax rich retirees who have 0% tax rate margin instead of a 49% rate margin