The Federal Government’s Financial System Inquiry’s interim report has suggested the removal of dividend imputation. This allows for the claiming of a tax credit, by investors, on the dividend income they receive.

During the 1980’s it was introduced to stop the profits of dividends being taxed twice – the first time as the company declared the earnings, the second time as the shareholder declared the earnings.

It’s introduction gave the entire Australian economy the shot in the arm it needed. Suddenly there was a greater benefit for people to invest their money in capital and growth funds and was an incentive for those funds to invest in domestic businesses.

The interim report, however, disputes the current necessity for dividend imputation saying, “The dividend imputation system creates bias for individuals and institutional investors, including superannuation funds, to invest in domestic equities.”

Yes. And that was the whole point.

Removing tax credits from dividend imputation will see more money flowing overseas, thus

Ian Yates. Photo: www,australianagingagenda.com.au

Ian Yates. Photo: www,australianagingagenda.com.au

further undermining Australian businesses. Australian businesses benefit from paying dividends, instead of holding onto profits and possibly frittering the money away.

Retirees rely heavily on the tax credits as a bonus income. Removing income, through taxing it, this will likely force many to apply for pensions to fill in the gap; and thus further strain an already overworked social security system.

Chief of seniors group COTA Australia, Ian Yates, believes the interim inquiry contains many excellent ideas, the scrapping of dividend imputation not being one of them. No one will benefit from its removal. He is hoping sense will prevail at the political level.

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