Words that matter. What’s a franking credit? What’s dividend imputation? And what’s ‘retiree tax’?



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There are words you’ll need to understand. But imputation is complex, like the tax system.
Wes Mountain/The Conversation, CC BY-ND

Peter Martin, Crawford School of Public Policy, Australian National University

You’re forgiven for being confused.

Newspapers need to economise on words. Television and radio reporters need to economise on seconds. So they use shorthand: words like “dividend imputation”, “franking credits”, and yes, “retiree tax”.

Which is fine if you already know what they mean, and pretty fine if you don’t, because you probably don’t need to. They speed things along.

Until now. Suddenly, because of their prominence in the upcoming election campaign, we are going to have to know what they mean. We are even going to have to know that one of them doesn’t mean what it seems to mean. The election might depend on it.

So here goes:

Taxable profits

If a company’s income exceeds its expenses, it has made a profit, which in ordinary circumstances is taxed at the legislated rate, which for big companies such as Telstra and the big banks is 30 cents in the dollar.

Dividends

After the tax is taken out, companies can pay some of what’s left to shareholders as a dividend, one for each share.

Last September Telstra paid shareholders a dividend of 15.5 cents per share. The previous March it was 11 cents.

Income tax

Australians pay tax on what they earn, unless the income is classified as not taxable or is below the A$18,200 tax-free threshold. The marginal rate (the rate on extra income) climbs with income, so that anyone earning more than A$180,000 (the top threshold) pays 45 cents on each extra dollar earned.

Dividends are taxable and so are taxed along with other income.

Dividend imputation

In 1987 in what he hailed as a world first, Labor treasurer Paul Keating introduced a rebate for each each tax-paying dividend recipient.

Taken off their tax would be the company tax the company had paid on the part of the profit that had been handed to them as a dividend.

It would greatly reduce the existing bias in the tax system which
taxed interest income once, but dividend income twice.

Here’s how it would work at today’s tax rates.

  • Jill owns 1,000 Telstra shares

  • Over the period of a year she gets dividends of A$265

  • To provide them, Telstra made a profit of A$379 on which it paid A$114 tax

  • Jill pays tax on the full $379 but gets a credit of A$114 that can be taken off any other tax she owes that year

  • As with other tax credits, it can be used to cut Jill’s tax bill as far as zero, but not to turn it negative. It can’t be handed to her in cash.

As Keating put it, the tax paid at the company level would be imputed, or allocated to shareholders by means of imputation credits.

But not to all of them. Non-resident (overseas) shareholders couldn’t get them, and nor could shareholders whose dividends hadn’t been franked.

Franking credits

As Keating explained, the tax credit only applied to the extent to which full Australian company tax had been paid; to the extent to which the dividends had been franked (stamped) to indicate that tax had been paid.

Not every company pays the full 30 cents in the dollar in every year. Often it is carrying forward previous losses. Only dividends from profits on which full tax had actually been paid were to be marked “fully franked”. Dividends on which tax had been partly paid were to be marked “partly franked”.

Fully franked dividends became sought after, because they brought with them the biggest franking credits. In a useful side effect, dividend imputation encouraged companies that wanted to look after their shareholders to pay full tax.

Refunds to non taxpayers

Although the particular Australian design arguably was a world first, dividend imputation or something similar is not unusual. Many countries have systems in place that to a greater or lesser degree ensure company profits are taxed only once – among them Canada, New Zealand, Chile, Mexico, Malaysia and Singapore, whose system is called “one-tier” tax.

Many that did adopt it later moved away from it, using the money saved to cut headline tax rates; among them Britain, Ireland Germany and France.

What is unusual is what Australia did next. In 2001 after more than a decade of dividend imputation, the Howard government supercharged it, paying out franking credits in cash to shareholders who didn’t have any or enough tax to offset.

From the point of the view of these non-taxpayers, dividend imputation became a negative income tax: instead of them paying the government money, the government paid them money.

As far as is known, it is an enhancement that has not been copied anywhere.

On one hand, it makes sense because it treats non-taxpayers the same as taxpayers by refunding them the same amount of company tax.

On the other hand, it does not make sense because it means that instead of being taxed once (at either the company or the personal level) as was the original intention, company profits can escape tax altogether.

Untaxed super

From 2007 the change mattered to many more retirees.

The Howard government’s “Simplified Superannuation” package made super benefits paid from a taxed source (that’s most super benefits outside of the public service) tax free when paid to people aged 60 and over.

A quirk in the wording of the Act went further. Not only did super withdrawals become tax free, they also became no longer included in “taxable income” and so didn’t need to be declared on tax forms.

This meant that many retirees on reasonable super incomes were no longer taxed at reasonable rates on their other income, including income from shares which could be untaxed if it fell below the tax free threshold.

And because of the 2001 decision to send dividend imputation cheques to shareholders who were untaxed, these retirees who suddenly found themselves untaxed also got imputation cheques mailed to them from the government.

Self-managed super funds, whose income is tax exempt in the retirement phase, also got imputation cheques.

In July 2017 the Turnbull government wound back tax free super by placing a limiting it to accounts with less than A$1.6 million. The restriction was to hit 1% of super-fund members.

Labor’s proposal

Treasury’s 2015 tax discussion paper prepared for the Abbott government referred to “revenue concerns” about dividend imputation cheques.

They cost the budget just A$550 million in the year the Howard government introduced them, but A$5 billion per year by 2018 and were on track to cost A$8 billion.

Labor’s proposal, announced in mid March 2018, was to return the divided imputation system to where it had been before Howard changed it in 2001, and to where it still is elsewhere. Tax credits could be used to eliminate a tax payment but not to turn it negative.

Labor allowed exceptions for tax exempt bodies such as charities and universities who would continue to receive imputation cheques alongside dividends.

Pensioner guarantee

Two weeks later, in late March, Labor amended its policy by adding a “pensioner guarantee”. Pension and allowance recipients, even part pensioners, would be exempt from the changes and would continue to receive cash payments.

Also exempt would be self-managed super funds with at least one member who was receiving a pension or part-pension at the date of Labor’s announcement, 28 March 2018.

The change cost relatively little (the budget saving over the next four years fell to A$10.7 billion from A$11.4 billion) because most of the imputation cheques go to Australians with too much wealth to get even a part pension.

Self Managed Super Funds

Retail and industry super funds pool their members contributions, and so almost always have tax to reduce, meaning most would be unaffected by the withdrawal of cash credits.

Self Managed funds usually represent just one person, or a couple; their funds aren’t pooled with anyone else’s. This means that in the retirement phase, where fund earnings are untaxed, most do not have enough tax to reduce. So they get imputation cheques, which they would no longer get when Labor’s policy was implemented.

The Parliamentary Budget Office expects some self-managed funds to change their investment mix and some owners of self-managed funds to transfer their investments to retail or industry funds.

Retirement tax

There is no such thing. The phrase is shorthand for Labor’s proposal to withdraw dividend imputation cheques from dividend recipients who are outside the tax system.The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Muslim extremists in Somalia enforce brutal sharia law


Open Doors reports that Islamic extremists in Somalia are beginning to enforce the brutal aspects of Sharia law. In March, Somalia’s cabinet voted to implement it throughout their country, reports MNN.

They’re responding to a recent case involving thieves who were punished by amputation. The punishment was carried out by members of al-Shabaab, an Arabic word meaning “The Lads,” who follow a strict version of Sharia law.

Al-Shabaad also took credit for the assasination of two legislators, the country’s security minister, a member of parliament, and 30 others. According to Compass Direct, it is clear Al-Shabaab has no intention of backing down but every intention of extending its rule politically and spiritually across Somalia.

The Open Doors team expressed concerns over the severity of the punishment for petty crime, wondering what it would be for forsaking Islam. The following story could likely be that answer:

Islamic extremists beheaded two young boys in Somalia because their Christian father refused to divulge information about a church leader; the killers are searching Kenya’s refugee camps to do the same to the boys’ father.

Across the country, evangelism is frowned upon and in many areas, prohibited. Somalia is almost exclusively Sunni Muslim, with 0.05 percent of the population Christian. The persecution of Christians is severe in most regions of Somalia, and many have fled to neighbouring countries.

Only a handful of Somalis are Christians, practicing their faith in secret.

Report from the Christian Telegraph 

Scholars: John Calvin was America’s ‘Founding Father’


More than a thousand attendees are expected to gather for a four-day conference to celebrate John Calvin’s 500th birthday, reports Michael Ireland, chief correspondent, ASSIST News Service.

As America prepares to celebrate Independence Day this July 4, Vision Forum Ministries will be hosting the national celebration to honor the 500th birthday of John Calvin, a man who many scholars recognize as America’s “Founding Father.”

The event — The Reformation 500 Celebration — will take place July 1-4 at the Park Plaza Hotel in downtown Boston, according to a media release about the event.

“Long before America declared its independence, John Calvin declared and defended principles that birthed liberty in the modern world,” noted Doug Phillips, president of Vision Forum Ministries.

“Scholars both critical and sympathetic of the life and theology of Calvin agree on one thing: that this reformer from Geneva was the father of modern liberty as well as the intellectual founding father of America,” he said.

Phillips pointed out: “Jean Jacques Rousseau, a fellow Genevan who was no friend to Christianity, observed: ‘Those who consider Calvin only as a theologian fail to recognize the breadth of his genius. The editing of our wise laws, in which he had a large share, does him as much credit as his Institutes. . . . [S]o long as the love of country and liberty is not extinct amongst us, the memory of this great man will be held in reverence.'”

He continued: “German historian Leopold von Ranke observed that ‘Calvin was virtually the founder of America.’ Harvard historian George Bancroft was no less direct with this remark: ‘He who will not honor the memory and respect the influence of Calvin knows but little of the origin of American liberty.’

“John Adams, America’s second president, agreed with this sentiment and issued this pointed charge: ‘Let not Geneva be forgotten or despised. Religious liberty owes it much respect.’

“As we celebrate America’s Independence this July 4, we would do well to heed John Adams’ admonition and show due respect to the memory of John Calvin whose 500th birthday fall six days later,” Phillips stated.

Calvin, a convert to Reformation Christianity born in Noyon, France, on July 10, 1509, is best known for his influence on the city of Geneva, the media release explains.

“It was there that he modeled many of the principles of liberty later embraced by America’s Founders, including anti-statism, the belief in transcendent principles of law as the foundation of an ethical legal system, free market economics, decentralized authority, an educated citizenry as a safeguard against tyranny, and republican representative government which was accountable to the people and a higher law,” the release states.

The Reformation 500 Celebration will honor Calvin’s legacy, along with other key Protestant reformers, and will feature more than thirty history messages on the impact of the Reformation, Faith & Freedom mini-tours of historic Boston, and a Children’s Parade.

The festivities will climax on America’s Independence Day as attendees join thousands of others for the world-renowned music and fireworks celebration on the Esplanade with the Boston Pops Orchestra.

Report from the Christian Telegraph 

SOMALIA: ISLAMISTS BEHEAD TWO SONS OF CHRISTIAN LEADER


Father refuses to give al Shabaab extremists information about house church pastor.

NAIROBI, Kenya, July 1 (Compass Direct News) – Islamic extremists have beheaded two young boys in Somalia because their Christian father refused to divulge information about a church leader, and the killers are searching Kenya’s refugee camps to do the same to the boys’ father.

Before taking his Somali family to a Kenyan refugee camp in April, 55-year-old Musa Mohammed Yusuf himself was the leader of an underground church in Yonday village, 30 kilometers (19 miles) from Kismayo in Somalia. He had received instruction in the Christian faith from Salat Mberwa.

Militants from the Islamic extremist group al Shabaab entered Yonday village on Feb. 20, went to Yusuf’s house and interrogated him on his relationship with Mberwa, leader of a fellowship of 66 Somali Christians who meet at his home at an undisclosed city. Yusuf told them he knew nothing of Mberwa and had no connection with him. The Islamic extremists left but said they would return the next day.

“Immediately when they left, I decided to flee my house for Kismayo, for I knew for sure they were determined to come back,” Yusuf said.

At noon the next day, as his wife was making lunch for their children in Yonday, the al Shabaab militants showed up. Batula Ali Arbow, Yusuf’s wife, recalled that their youngest son, Innocent, told the group that their father had left the house the previous day.

The Islamic extremists ordered her to stop what she was doing and took hold of three of her sons – 11-year-old Abdi Rahaman Musa Yusuf, 12-year-old Hussein Musa Yusuf and Abdulahi Musa Yusuf, 7. Some neighbors came and pleaded with the militants not to harm the three boys. Their pleas landed on deaf ears.

“I watched my three boys dragged away helplessly as my youngest boy was crying,” Arbow said. “I knew they were going to be slaughtered. Just after some few minutes I heard a wailing cry from Abdulahi running towards the house. I could not hold my breath. I only woke up with all my clothes wet. I knew I had fainted due to the shock.”

With the help of neighbors, Arbow said, she buried the bodies of her two children the following day.

In Kismayo, Yusuf received the news that two of his sons had been killed and that the Islamic militants were looking for him, and he left on foot for Mberwa’s home. It took him a month and three days to reach him, and the Christian fellowship there raised travel funds for him to reach a refugee camp in Kenya.

Later that month his family met up with him at the refugee camp.When the family fled Somalia, they were compelled to leave their 80-year-old grandmother behind and her whereabouts are unknown. Since arriving at the Kenyan refugee camp, the family still has no shelter, though fellow Christians are erecting one for them. Yusuf’s family lives each day without shoes, a mattress or shelter.

But Arbow said she has no wish to return.

“I do not want to go back to Somalia – I don’t want to see the graves of my children,” she said amid sobs.

Mberwa said that Arbow is often deep in thought, at times in a disturbingly otherworldly way.

Border Tensions

Western security services see the al Shabaab ranks, reportedly filled with foreign jihadists, as a proxy for the Islamic extremist al-Qaeda group in Somalia. If the plight of Christians in Somalia is horrific – some are slaughtered, others scarred from beatings – the situation of Somali Christians in refugee camps is fast becoming worse than a matter of open discrimination.

“We have nowhere to run to,” Mberwa told Compass. “The al Shabaab are on our heads, while our Muslim brothers are also discriminating against us. Indeed even here in the refugee camp we are not safe. We need a safe haven elsewhere.”

He said that in April three al Shabaab militants were arrested by Kenyan security agents at Ifo refugee camp in Dadaab and taken to Garissa, Kenya’s North Eastern Province headquarters. But local provincial administrators denied any knowledge of such arrests.

“I don’t know” is all Dadaab District Officer Evans Kyule could say when asked about the arrests.

In Naivasha, Kenya, 19 Somali extremists were arrested last month and are scheduled to appear in a Nairobi court tomorrow, according to Kenyan television network.

Al-Shabaab militants have waged a vicious war against the fragile government of Somali President Sheikh Sharif Sheikh Ahmed. In a show of power in the capital city stronghold of Mogadishu, last week hard-line Islamic insurgents sentenced four young men each to amputation of a hand and a foot as punishment for robbery.

After mosques announced when the amputations would take place, the extremists carried them out by machete in front of about 300 people on Thursday (June 25) at a military camp. It was the first such double amputation in Mogadishu by the rebels, who follow strict sharia (Islamic law) in the parts of south Somalia that they control.

The rebel militants’ strict practices have shocked many Somalis, who are traditionally moderate Muslims, though residents give the insurgents credit for restoring order to regions they control.

Al Shabaab militants are battling Ahmed’s government for control of Mogadishu while fighting government-allied, moderate Islamist militia in the provinces. In the last 18 years of violence in Somalia, a two-and-a-half year Islamist insurgency has killed more than 18,000 civilians, uprooted 1 million people, allowed piracy to flourish offshore, and spread security fears round the region.

Somalia’s government, which controls little more than a few blocks of Mogadishu, has declared a state of emergency and appealed for foreign intervention, including help from Somalia’s neighbors. Kenya recently has stepped up patrols along her common border with Somalia, vowing to respond militarily should militants make any incursions. At the same time, al Shabaab militants have warned that they would invade Kenya should the military patrols persist.

Nearly Losing a Son

On Oct. 7, 2008, al shabaab militia attacked the 28-year-old son of Mberwa in Sinai village, on the outskirts of Mogadishu. They interrogated Mberwa Abdi about the whereabouts of his father, maintaining that they had information that incriminated him as the leader of a Christian group.

Abdi denied having any knowledge of his father’s faith, and the Islamist extremists took Abdi out of the village and threatened to kill him. Covering his eyes and tying his hands behind him as he knelt down, they began beating his back with a gun. Abdi remained silent. The militants fired at his left side near the shoulder, and when Abdi fell they left him for dead.

On hearing the sound of the gunshot, neighbors ran to the scene and found Abdi still alive. They rushed him to Keysany Hospital in Mogadishu, where he underwent surgery.

Salat Mberwa received information from neighbors that his son had been killed on Nov. 1, 2008 by al Shabaab extremists, and that his body was in Keysany Hospital. Later he heard that his son was in a coma and sent 2,500 Kenyan shillings (US$35) for medical care. He also arranged for his wife and two youngest children to flee, knowing that they were the next target. They reached a refugee camp in Kenya in mid-December of last year.

After a month, Abdi was discharged from the hospital and arrived in the same refugee camp on Jan. 8. Medicins San Frontiers provided medicine for the ailing Abdi. Abdi bears the scars of bullet wounds on his body, and he still looks ill.

Asked why he denied his father’s Christian faith, Abdi said Christians are hunted like wild beasts.

“Everybody is afraid of this militia group and always tries to play things safe,” he said. “There is urgent need to help Christians in Somalia to get out as soon as possible, before they are wiped out.”

Salat Mberwa said he is concerned about the way Christians are being mistreated in the refugee camp.

“The Muslims cannot come to our aid in case one of us gets into a problem,” he said. “They always tell us, ‘You are Christians and we cannot help you. Let your religion help you.’”

While thankful for aid from Christian groups in Nairobi, Mberwa lamented that aid agencies and denominational associations have not employed Christian refugees in the camp, though many are qualified as drivers, electricians, carpenters and educators.

Report from Compass Direct News

BAPTIST PASTOR STILL MISSING AFTER TIJUANA KIDNAPPING


More than a week has passed since San Diego pastor Manuel Jesus Tec was kidnapped Oct. 21 in Tijuana, and his family still has not talked with or heard from him, reports Baptist Press.

Originally, the kidnappers demanded a $1-million ransom for Tec’s release, but in two calls Monday night, Oct. 27, the kidnappers lowered that figure to $500,000 and subsequently to $200,000.

“Last night, we also heard a recording of his voice saying he was OK, and he asked us to do all that the kidnappers told us to do because his life was at risk,” Tec’s 30-year-old son Johnny said Oct. 28.

“We are totally hopeful and faith-filled,” Johnny Tec said. “Mom is holding up pretty good. We’ve been having prayer meetings every night here at the house. We give credit to the prayers of so many people out there. We’re hearing from places all over the world where people are praying for us. I don’t know how they found out, but we’re hearing from people all over the U.S. and Mexico, from Japan, the Philippines and even Africa.

“Only God can give us joy in the middle of a storm like this,” Tec said. “But that’s what we’ve been experiencing — the comfort of God and the hope that He will bring our dad back soon.”

Pastor Manuel Tec, 59, was kidnapped after crossing the border from San Diego into Tijuana with wife Maria and his younger son Giovanni. Gunmen stopped the car around 5 a.m. and forcibly abducted Tec, but left his wife and son free and unhurt.

The kidnappers contacted the Tec family for the fourth time Sunday night, Oct. 26, “trying to be intimidating,” Johnny Tec said. He said the kidnappers have not allowed him or his mother to talk to Manuel since abducting him.

The Tecs first heard from the abductors on Oct. 21, the day of the kidnapping, when the kidnappers called the family three times — at 5:15 a.m., 11:45 a.m. and 3:30 p.m. to voice their demands.

“Every time they called, they got more aggressive and more graphic in their threats,” said Tec, adding that the family is in the dark as to why his father was targeted for kidnapping.

“He wasn’t famous so we don’t know why anyone would want to kidnap him. He was friendly, well-liked and popular with his church members and those who knew him. But we don’t know why someone would want to kidnap him for money, especially $1 million.”

Tec added that the kidnappers have instructed the family, “Keep cooperating with us and your dad will be OK.”

“They said to come up with the money -– that this wasn’t a game. They’ve also said they know all of the Tec brothers and sisters and would go after the entire family,” Johnny said.

Manuel and his wife have three sons and two daughters. Though he lives in Tijuana, the pastor travels regularly to his new church plant in San Diego, Iglesia Familiar y Vida. A graduate of the Dr. G.H. Lacy Baptist Seminary in Oaxaca, Mexico, Manuel has pastored numerous Baptist churches south of the border since 1981, his son Johnny said.

“We just say ‘gracias’ to Southern Baptists everywhere for praying during this crisis we’re going through,” Johnny Tec said. “Let Baptists know that their prayers are being heard. We can feel how God has strengthened us. We think God is setting the stage for one more of His miracles that will leave us all in awe. Something grand is going to come out of this to show the world the power of prayer and God.”

Tijuana increasingly has become known as a dangerous border town, with a growing number of kidnappings and murders — often with doctors and other white-collar professionals as targets. The escalating violence is blamed on gangs and drug traffickers. Authorities recently rounded up some of the kidnapping gangs.

“It’s getting worse,” Johnny Tec said. “A lot of people are fleeing the city because the violence has skyrocketed over the past five years. Tijuana’s an unsafe place to be, with a lot of evil on the streets. Ten people a day are showing up dead on the streets of Tijuana.”

Tec said demanding a $1 million — or even a $200,000 ransom — for a Baptist minister makes no sense.

“The first ransom proposals down here seem to always be for $1 million, no matter who they pick out,” said Tec, adding that the latest ransom demand of $200,000 is still “well out of our possibilities.”

Tec said his family has “come to the crossroads,” however, where it may have to begin bargaining with the kidnappers.

Report from the Christian Telegraph