It’s Hard to Admit You Were Wrong When They Won’t Let You
David Richardson, Senior Research Fellow
On Monday 11 March the Australian Financial Review said ‘Richardson’s example is bunkum’.
That was a reference to a Letter to the Editor which said cash dividend refunds peak at “a maximum of $19,446 when your income reaches $180,000 from franked dividends alone.”
I was simply trying to calculate the maximum possible cash refund a person could get from the tax office with cashed out franking credits.
You can see the rest of what they said here.
The reference was to my letter published in the AFR on 18 February (“Letters to the editor: Franking credits where credits are due” 18 February) which you can see here.
I did make an error and it was entirely my fault. Soon after the letter was published I realised my mistake and tried to correct the record with a further letter to the editor which I submitted on 21 February but which, unfortunately, was never published.
So What Happened?
What happened was this: I had used a tax ready reckoner model which I adapted for franking credits to give after-tax income. I included the franking credits in the model but I should have also grossed up the dividend income to give total taxable income in the model.
When the calculations are done properly it reinforces the substance of the letter: anyone claiming to lose much beyond $7,000 (not $19,446) must have some geared shareholding or similar costs related to dividends. That sort of risk-taking involving geared portfolios is less likely among retirees. More likely claims of big losses beyond $7,000 are referring not to themselves but to some self-managed super fund in which they have an interest. It is the SMSF that may lose its cash refund and that may or may not affect how much the retiree draws from the SMSF.
On Tuesday 12 March I tried to submit another letter to the editor making these points. As yet it is not published. So the Financial Review did not publish my correction three days later but was happy to slur me 21 days later.
SMSFs are costly to establish and there is usually some third party collecting ongoing fees. So lower and middle income people tend not to use them. In any case most of the examples we see in the press are from those whom the Member for Goldstein, Tim Wilson, has rallied to appear before the political committee chaired by Mr Wilson and used as a marketing exercise by his cousin Greg Wilson. I myself will be appearing before the committee later this month but will not be pleading hardship on behalf of the rich.
Senior Research Fellow
The Australia Institute