One of Australia’s richest men, Dick Smith has admitted to receiving $500,000 in franking credits in a single year, describing it as a “ridiculous” payment, given his massive wealth.
In an interview with The Sydney Morning Herald and The Age, Smith said he received around $500,000 in franking credits in the 2016-17 financial year, before receiving another $250,000 in the 2017-18 financial year.
Franking credits formed a crucial part of the Labor party’s pre-election campaign, with the party arguing the payment of cash refunds on franking credits should be abolished.
What are franking credits?
As it stands, investors receive franking credits which they can use to offset tax on dividend payments.
The idea is that that money has already been taxed at the company level, so it shouldn’t be taxed again at a personal level.
However, as retirees generally don’t pay tax on their income, they are given cash refunds instead of credits as they don’t have any tax to offset, something the Labor party wanted to abolish.
Smith - who has an estimated net worth of $60 million - declared the cash refund system “outrageous”.
"I found I was getting this ridiculous money from the government," Smith said.
"That's wrong, I said - I'm wealthy. My accountant said 'that's how it works, that's what you have to do'. I can't stop it. I think it's outrageous for wealthy people to be getting money from the government."
Enquiry into the “retiree tax”
Labor’s plan to remove cash refunds on franking credits was a highly controversial policy, with the Liberal party describing it as a “retiree tax”.
Following Labor’s pitch, the government launched an inquiry through the House of Economics Committee. Chaired by Liberal MP Tim Wilson, the enquiry and the MP were both accused of bias.
Wilson is related to fund manager Geoff Wilson, who was also campaigning heavily against the policy and who admitted to partly funding stoptheretirementtax.com.au website, which sought to keep the current system in place.
The website was also authorised by Tim Wilson.
Speaking before the election, Shadow Treasurer Chris Bowen said Treasurer Josh Frydenberg should be open about the enquiry and described it as a “taxpayer-funded partisan roadshow for partisan purposes dressed up as a House of Representatives committee”.
So what should Smith do with the money? Australian’s weigh in
Now, Australians are suggesting Smith donate the money to charity.
“Donate your taxpayer franking credits to a charity which helps homeless people. At least that way the government would be improving its funding model,” one person said.
Donate your taxpayer franking credits to a charity which helps homeless people. At least that way the government would be improving its funding model.— genus Casuarius, a ratite (@BarbaraHFlowers) July 16, 2019
But others questioned the timing, and wondered why Smith hadn’t spoken up before the election.
“So Dick Smith you're putting this out there NOW (post election) so the government has support and an excuse to scrap franking credits and save a shitload of money for its surplus. Labor's policy was always valid,” another Twitter user said.
So Dick Smith you're putting this out there NOW (post election) so the government has support and an excuse to scrap franking credits and save a shitload of money for its surplus. Labor's policy was always valid.— Lucy Donoghue (@lucymdonoghue) July 16, 2019
Smith’s admission coincides with the Royal Commission into Aged Care Quality and Safety, which revealed that some retirement villages were spending around $7 a day on meals.
This wasn’t lost on the Australian Council of Social Services.
“Govt sends Dick Smith a $500,000 dividend imputation cheque he doesn’t want, and nursing home residents get $7 meals. Something’s wrong,” the peak community sector body wrote on Twitter.
Govt sends Dick Smith a $500,000 dividend imputation cheque he doesn’t want, and nursing home residents get $7 meals. Something’s wrong https://t.co/JhvWx3K7aI— ACOSS (@ACOSS) July 16, 2019
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