Business

How Abbott's parental leave scheme will affect retirees

APART from the disgraceful personal attacks by both sides and on the PM by Australia's most powerful man, Rupert Murdoch, the standout in the lead up to the election for me has been Tony Abbot's promised paid parental leave scheme.

It inspired a query from one of my clients as to whether claims that it will impact on self-funded retirees are true.

At the risk of sounding like a politician, I am going to take a circuitous route in explaining my answer. But the straight answer is  definitely yes.

To discover why, I should first waltz you through how listed companies pay dividends to shareholders.

Because Mr Abbot says that something like half the cost of the paid parental scheme will be met by companies that post taxable profits greater than $5 million. Most will be listed on the stock exchange.

Let's say Company Z has a taxable profit of $100 million. Tax payable would be $30 million, leaving distributable cash of $70 million.

The CEO and his management team will predict what cash will be needed by the company to run its business, make adequate provisions for expected future expenses and so advise the board.

At that level, the decision is made as to how much of the $70 million in cash reserves will be distributed to shareholders as dividends and a credit for the 30% tax paid by the company will be given along with the cash distributed to each shareholder.

This tax credit is called a franking credit and the dividends are called franked dividends.

Under the Abbott model, Company Z will pay a levy of $1.5 million towards the paid parental leave scheme.

A levy is not a tax, so there would be no franking credit attached. I assume the first levy falls due only once the taxable profit is reported, then a similar amount is paid provisionally monthly going forward.

That would mean that the company would need to set aside from its cash reserves double the levy plus a bit in case profits rise before striking the dividend.

The result: a reduced dividend to shareholders and the double taxation of the levy because of the lack of franking credit.

It's bad enough that this will affect investors with substantial holdings in profitable companies, but its effect on superannuation funds will be quite marked.

Super funds use the difference between their 15% tax rate and the 30% franking credits they receive on share investments to bolster performance outright and to stabilise it by investing in tax-exposed cash and fixed interest.

The unfair double taxation of dividends was the reason Paul Keating brought in franking credits in the first place in 1987.

Bob Lamont is director of Corporate Accountants at the Night Owl centre, Gladstone. Contact him on 1300 450 810 or email boblamont1947@gmail.com.

Topics:  federal election 2013 retirees superannuation tony abbott



How to survive a bushfire in your car

IT SOUNDS like a nightmare, but it can happen.

Eight reasons to join the RFS

SPREAD across 93% of Queensland, the Rural Fire Service has about 36,000 volunteers. And you could be one of them.

What if my insurer gives me grief?

CLAIMING your insurance cover after a natural disaster can go one of two ways. It can be a breeze, or like pulling teeth.

High chance of rain this weekend

Brothers Charity Cricket event. Photo Christopher Chan/The Observer

Rain could be good for fishing

BREAKING: Fire crews rush to Glen Eden fire

Fire crews are working to control a blaze at Glen Eden.

Fire crews work to control a grass fire at Glen Eden.

OPENING SOON: Burgers and beers at Gladstone's latest restaurant

GETTING THE URGE: Gladstone store and operational managers Chase Williams and Justin Charell gearing up ahead of opening.

Gourmet burger restaurant to open at Stocklands

Local Partners

Sia has split from her husband

Sia has split from her husband Erik Anders Lang.

Amy Schumer thanks Barbie trolls for hateful comments

Amy Schumer is in the lead role for the new Barbie movie

Shannen Doherty's husband is suing for destroyed sex life

Shannen Doherty's husband is suing her former manager

Azealia Banks' battery case against Russell Crowe dropped

Russell Crowe will not be charged with battery

Mel Gibson named Best Director at AACTA Awards

Mel Gibson poses in the media room after winning the AACTA Award for Best Direction for Hacksaw Ridge.

HIS wartime drama Hacksaw Ridge sweeps 6th annual awards in Sydney.

Mark Hamill unaware his co-stars were romantically involved

Hamill too "self-involved" at the time to notice, he said

Ipswich City Properties asset portfolio retains its value

Ipswich City Council Administration Building, South Street, Ipswich. Photo: Claudia Baxter / The Queensland Times

New website launched by Ipswich City Council

High profile premier invests in Gladstone industrial facility

Former Queensland premier Campbell Newman heads a group that bought the UGL warehouses in Paget for $10 million.

FORMER PREMIER heads group that's backing Gladstone to bounce back.

INSIDE STORY: The highlights of your $150 million CBD

GRAND PLAN: The highlights of the Ipswich CBD redevelopment and where they will be located.

Work on city heart's radical transformation to begin next year

VOTE IN OUR POLL: Sand mine opponents face serious dilemma

Public meeting for the proposed sand mine at Maroochydore last week.

Coast MP calls on Minister to stop KRA proposal with stroke of a pen

Developer's grand new multi-million dollar estate

NEW ESTATE: This is the only plan revealed by the property developer's new Billabongs Estate in Agnes Water.

DEVELOPER given the go ahead for a massive estate with 149 homes.

Ready to SELL your property?

Post Your Ad Here!