Corporate tax rate cut will hit super, warns fund manager

Written by Miranda Brownlee Monday, 18 January 2016

The government may discreetly target superannuation by cutting the corporate tax rate in order to reduce franking credits and generate billions in revenue, according to one Australian fund manager.

Head of Clime Asset Management Michael Kloeckner said the most “well-hidden way in which the government can hit super” is by reducing the corporate tax rate from 30 to 25 per cent.

This would mean the calculation of franking credits will also be reduced from 30 per cent to 25 per cent, he said, which would reduce yields for super fund members in pension mode.

“The government wouldn’t have to say anything about the loss of franking credits [to the public] because they’re just reducing the corporate tax rate,” said Mr Kloeckner.

If the government does propose a cut to the corporate tax rate, it is likely it would reduce tax to 25 per cent for small businesses, while large businesses with a turnover of around $100 million would pay a 5 per cent levy in place of the reduction in the tax.

“That way the company still keeps paying 30 per cent but the super fund holder is down to 25 per cent,” he explained.

The government would then likely retain the 5 per cent levy from these larger companies for revenue, he said.

“So then you’re actually benefiting the small guys, which is what Malcolm Turnbull would be happy to do, and [with] the big guys you say, you’re big and you can afford to pay tax,” he said

“But in the meantime the amount in franking the [government will] save from super is going to be in the billions.”

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+4 #6 Dr Terry Dwyer, Dwyer Lawyers 2016-01-19 20:44
1. The proposal was to add 5% levy on a 25% tax rate which would not be frankable.

2. Franking credits should be refundable as they are like PAYG credits. The income is imputed to the ultimate beneficial owner.

3. A cut in the corporate tax rate by itself is indeed a nothing as far as domestic shareholders are concerned but it does result in a net revenue loss because of foreign shareholders. That's why proposals usually also add on an attack on imputation. That is, Australian shareholders should pay for tax cuts for foreign shareholders. I am not sure I like that idea.
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-2 #5 Ramani 2016-01-19 13:59
Tax avoidance at any cost now seems embedded in some planner genes. This genetic mutation removes basic understanding of public finance: tax funds services; imputation seeks to refund tax paid to ultimate owners in Australia; previously the proposals clarified that despite reduced corporate tax, imputation will continue at 30%.
Those determined to see mythical ghosts will scream at their own shadows, like here.
If you accept this fallacy, the conclusion will be: by abolishing all taxes, Government will cleverly target the taxpayers!
Perhaps we should go back to our cave days, where the only tax is being clubbed on the head from behind.
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+1 #4 Cam 2016-01-19 09:11
Where it may impact is someone looking to put money into super and having it locked away for 30 or more years may see a 25% company tax rate as not too bad given money can be accessed immediately
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+2 #3 Cam 2016-01-19 08:53
Really! The company profits are unaffected, it will just mean the $100 total dividend will become $75 cash and $25 franking credit instead of $70 and $30. A fund in pension mode, after the tax refund of franking credits, ends up with $100 in the bank either way. A lower company tax rate means the fund has more cash early.
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0 #2 Peter matters 2016-01-19 08:52
I have never understood why imputation credits are handed back to super accounts in zero tax pension phase.
Fair enough to allow offset to PAYG tax, but ccnsolidated revenue should retsin the 30% company tax paid.
Why is it do?
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+3 #1 Dr Terry Dwyer, Dwyer Lawyers 2016-01-18 08:44
This would be mad. The extra levy would be an income tax and should be frankable. Further, it would complicate double tax treaties and may be in breach of some.

It would have all the hallmarks of a clever and stupid bureaucratic game. Cunning and clever cosmetically, stupid in its substance.
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