There have been serious concerns expressed in major media about investors in account-based pensions (they apply to other vehicles as well, but most of the rantis have been about pensions).
Here's the truth about tax and franking credits
The “concern” goes like this: “Because a lower company tax rate will mean companies are paying lower tax, they will have fewer franking credits to pass on and investors will get smaller tax refunds.”
Read more from John Cameron: Wanted: A better way to measure investment risk
Oh, save me. There is a serious misunderstanding here!
Sure, if you look at franking refunds in isolation, this holds true. But the problem with the above rant lies in the rest of the story. If something is part of a much bigger whole, and you pull it out and treat it in isolation (which has happened here), you get a very warped view of the world.
Let’s look at the whole:
This as a very different picture from that generated by the rant. A positive, rather than a negative.
Before I forget, tax refunds of this kind are not a free kick for investors. They are a refund of tax paid, and must be then included in the investor’s taxable income.
Where the tax rate is zero, as in charities and pensions, the result is nothing more to pay.