The House of Representatives Standing Committee on Economics has announced an inquiry into the impact of removing refundable franking credits.
Committee chair and Liberal MP Tim Wilson said the ability for investors to claim full credits is a core part of the tax system and fundamental to the financial security of retirees.
“There has been legitimate community concern about proposals to remove cash refunds for their full allocation of credits for individuals and superannuation funds, and that it amounts to a tax on the savings of retirees,” Wilson said.
“The committee is examining what impacts the removal of refundable franking credits would have, particularly on retirees who have made long-term retirement saving decisions based on their ability to claim refunds on their franking credits and whether it will compromise their financial security.”
The terms of reference for the inquiry are for the committee to examine and report on the use of refundable franking credits, their benefits and the effects of their removal.
This includes analysis of who receives refundable franking credits, the opportunities they provide as an alternative savings and investment vehicle to low and middle-income earners, and their impact on decreasing tax bills.
The inquiry will also consider how refundable franking credits support tax principles, particularly implications for tax neutrality, removal of double taxation and fairness.
It will also look at the expected behavioural changes from the removal, including increased dependence on the pension; if there are carveouts applied, what this might mean for additional complexity, uncertainty and fairness; reduced incentives to save and distortions to which asset classes are invested in and funds are used; and the reliability of providing a sustainable revenue base over the longer term.
Submissions are being sought by 2 November.