When an individual earns less than $18,200 and pays no tax, then the individual receives a cash refund of 30 per cent. This is only fair. Without cash refunds, the effect on very low-income earners would be a tax of 30 per cent on dividends.Why? How is it that paying no tax on the dividend and not receiving a cash rebate for tax not paid has the effect of a tax of 30 per cent on dividends??
She seems so apparently confident on the point that I don't know whether it is a problem with my English comprehension, or maths comprehension, or am I am simply being gaslighted??
She is using the wrong terminology.
ReplyDeleteIt is a person's TAXABLE income not TOTAL income.
You can earn a hellva lot more than $18,200 yet have a taxable income be,low that figure depending on your deductibles. Important here is if you receive a superannuation pension then no tax is paid on that.
Very few low income earners have shares.
The same linguistic legerdemain is used by negative gearing supporters. In that case, since NG is used to reduce taxable income, it is deceitful.
ReplyDeleteThe Australian tax system works on the underlying logic that a dollar is a dollar and all dollars should be taxed at the same marginal tax rate. There are some exceptions to this - but that is the general principle.
ReplyDeleteIf a taxpayer receives income from two sources - say own funds and say from shareholding the income gets combined and taxed. Imagine that the income is below the tax-free threshold then it is all zero-rated. At that point the pre-paid 30% gets refunded in total. If not then that component of the income would have been taxed at 30%, while the taxpayer is meant to pay zero tax.
Anon: you lose me at the last sentence. And perhaps in the first too.
ReplyDeleteDoes not the taxpayer in your example actually pay zero tax??
How does not actually paying tax on income get turned into "a component has been taxed at 30%" - or at least, in a way that matters to what I understood the aim of dividend imputation was - to prevent the same profit being taxed twice?
It gets taxed once - at the shareholders marginal tax rate - but in this instance the taxpayer is not liable for any tax and so the income gets taxed once at the taxpayers rate of zero. Anything else would mean that the taxpayer is being taxed at a rate other than zero.
ReplyDeleteSorry, that further explanation doesn't help.
ReplyDeleteI sort of understood the Alan Kohler take on why he thought cash payments were justified (if I understood him correctly - as some sort of equity thing when you compare who gets benefit of dividend imputation), but not this explanation you're trying to convey.
Perhaps it needs diagrams or something. And not one of those "magic eye" ones, which is what trying to understand your explanation currently feels like!
To your core question Steve, the explanation of Sloan's statement is I hope relatively simple if I edit the final sentence for accuracy/completeness:
ReplyDeleteWithout cash refunds, the effect on very low-income earners would be a [minimum] tax of 30 per cent on their share of profits of the company* (which is paid by the company as corporate income tax).
So the income/profit has not been taxed twice, it's been taxed once at the corporate rate - which is higher than some taxpayers marginal rate. Whether that is a flaw, or an appropriate outcome, is subjective/debatable.
* There are various assumption implicit in her overall paragraph, including that the Company paid 30% tax on its profits, and can fully frank the dividend. Her editorial of 'fairness' is (obviously) subjective.
Note: Not Trampis's points are valid - but separate.
Anonymous's point is both right and wrong. The idea(s) of treating a dollar as a dollar, and taxing the ultimate recipient (not entities in between), is one of the policy principles that guides tax systems. But to say it is the general principle is an over-claim. There are many different tax treatments of different types of income, and different sources of income.
Thanks, EconoManOz, that does seem the likely explanation, and it is comprehensible in the way you have put it.
ReplyDeleteI still think it was, as you might agree, quite incomprehensible in the way Sloan put it.
I was not surprised that IPA aligned economists, who want government to die off and less revenue is a good way to achieve that, oppose it; but I was surprised to see Alan Kohler mount a fairness argument for it too. But even then he noted how it meant distorted investment into high dividend companies, and nearly seemingly changed his mind.
I think the fairness argument is obvious - if you get a dividend and don't need to pay tax, lucky you; but also throwing you some of the tax the company paid - too much like welfare for those who don't need it.