Economic recovery and the future Australian tax system

The Australian economy is showing remarkable resilience. And the stock market is showing even more positive signs. Will it be the ‘Nike swoosh’ recovery trend on the graphs? Or the ‘double dip’ ‘big W’? Or something else? I’m not in the business of giving these types of forecasts. But over the last few months, it is clear there has been a lot of value in the markets. However, I also note that those investors that decided to ‘sit it out’ for a while are still getting around 4% ROR on government secured term deposits, which of course is always preferable to taking a loss. But what of the future of investing? What if we lose our imputation credits? What would that mean to many Australian’s retirement savings strategies? In our recent submission on the Henry Tax Review’s second consultation paper, we indicated that CPA Australia was very supportive of the current dividend imputation system and that we did not see a compelling case for a move away from it at this stage. We particularly noted the significant importance of the existing imputation regime for the retirement income strategies of older Australians including self-funded retirees.

We were, therefore, pleased to note that in a recent speech Dr. Henry took the opportunity to provide an insight into the Review Panel’s thinking on Australia’s company tax arrangements, including the imputation system.

While noting Treasury’s earlier concerns as to how dividend imputation could become less relevant in an increasingly globalised economy and the fact that Australia and New Zealand are now the only two OECD countries with such a system, Henry said that he did not now think the time has yet come for dividend imputation to be abandoned.

He noted in this regard the significant benefits arising from dividend imputation including particularly for SMES and the fact that it encourages Australian companies to pay Australian tax.

That said though, it seems likely that Treasury will continue to look in the medium term for alternative means of accessing the benefits of imputation that are better attuned to the needs of a global economy including Australia’s reliance on foreign capital.

Further information on the above and the Henry Review generally are available from the Treasury website.

I’m interested in your thoughts - why not drop me a line and let me know?

Smooth sailing!