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The Hon Dr Andrew Leigh MP

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The Hon Dr Andrew Leigh MP The Hon Dr Andrew Leigh MP Shadow Assistant Treasurer Shadow Minister for Competition and Productivity Shadow Minister for Charities and Not-for-Profits Shadow Minister for Trade In Services Member for Fenner 12 March 2019 Ms Sarah Davies Chief Executive Officer Philanthropy Australia 2/55 Collins Street Melbourne, VIC, 3000 Dear Ms Davies I write in relation to Labor’s policy to end the refundability of excess franking credits, and the associated exemptions we have provided to charities and philanthropic entities. I would also like to acknowledge the work of Philanthropy Australia in reflecting the position of the charitable sector in relation to this policy. I thought it would be useful to clarify the protections Labor has built into the policy which ensure the charitable and philanthropic sectors are not adversely affected. Labor’s policy In 2001, John Howard and Peter Costello changed the rules around tax credits for shareholders so that even after shareholders’ taxable income had been reduced to zero, they would receive a cash payout for any excess credits. No other country in the world has such a system. The annual cost is now almost $6 billion, and is projected to soon rise to $8 billion. Labor will reverse the Howard government’s decision, taking the dividend imputation system in Australia back to the original model. This would mean that shareholders who have no income tax to pay will no longer be given a cash refund for corporate taxes. This reform will change franking credits from a refundable tax offset to a non-refundable tax offset. Franking credits will be able to reduce an individual’s tax bill to zero, but the government will no longer send cheques to individuals who are not paying tax. By reforming this tax concession – which is unique to Australia – a Shorten Labor Government will be able to make a range of investments that we know are important to your members. We will extend early childhood to three-year-olds, increase funding for public schools, and expand the number of university places. We will invest in a cleaner environment Parliament House Telephone: 02 6277 4140 CANBERRA ACT 2600 Fax: 02 6277 8469 [email protected] www.andrewleigh.com – for example through our commitment to subsidise home battery installations. We will work to Close the Gap and address the challenge of family violence. Australia can either have the biggest tax loopholes in Australia or the best public services, but we cannot have both. Who is affected, and who is exempt? Independent modelling by the Parliamentary Budget Office shows 92 per cent of taxpayers are not affected by this policy. Pensioners and allowees are not affected by our policy. At present, 80 percent of the benefits from refundable credits flow to the wealthiest 20 percent of people in retirement age. There are exemptions to the policy for: Charities Pensioners and allowance recipients Universities Self-managed superannuation funds with at least one pensioner at the time of the announcement (28 March 2018) Are charities and philanthropy affected? Charities, philanthropic trusts and foundations – including Private Ancillary Funds, Public Ancillary Funds and income tax exempt charitable trusts, are exempt from Labor’s policy. If an entity is registered as a charity by the Australian Charities and Not-for-profits Commission, and has been accordingly endorsed with income tax exempt status by the Australian Taxation Office, they are exempt from this policy and can continue to receive cash refunds from the Australian Taxation Office for excess franking credits. We appreciate that such refunds are an important source of funds for charities and philanthropic entities, and therefore welcome the opportunity to clarify that this exemption will be provided. How are charitable and philanthropic donations currently treated as tax deductions? Individuals can get a tax deduction for donations to eligible charities. This reduces the amount of income that is liable for income tax. Labor’s proposal does not change the status of tax deductible donations. Under Labor’s policy, people will still be able to use franking credits and charitable donations to take their tax liability to zero (separately or in combination). People who receive cash refunds do not have a tax liability, and therefore cannot claim further tax deductions for donations. There is no change to this situation under Labor. 2 this paper contains recycled content and sustainable Australian forest product We understand charities and philanthropic organisations are receiving enquiries from donors about possible interactions between the dividend imputation policy and tax deductions for charitable giving. There is no direct interaction between this policy and the existing mechanisms relating to philanthropic giving or deductible gifts to charities. In summary: 92 percent of Australian taxpayers are unaffected; charities, philanthropic trusts and foundations will continue to be able to access cash refunds for excess franking credits as they currently do; and the policy does not change the status of tax deductible donations to charities. We do not expect our policy to have any negative impact on charitable giving. When Bill Shorten introduced the role of Shadow Minister for Charities and Not-for-profits, (something neither major party had done previously) he gave a clear indication of the regard Labor holds for the work of the not-for-profit and philanthropic sectors. Throughout my time in this role, I have greatly appreciated your engagement with Labor’s work to identify the best ways to support a smart, strong and innovative philanthropic sector in Australia. Labor appreciates and supports the public benefit generated in our philanthropy sector. We have worked closely with Philanthropy Australia to ensure greater awareness within parliament of the benefits and community returns made possible by a healthy giving culture. We have committed to fix the outmoded fundraising regimes that are draining away resources generated by charitable fundraising and philanthropy, and we have fought hard to protect the philanthropy sector from unworkable proposals around the control of foreign donations and funding for public advocacy. Should Labor form government at the election, I look forward to working closely with Australia’s philanthropic sector to create a legislative framework and a public culture that supports your mission to enhance the public good. You are welcome to share this letter with your members. Yours sincerely Andrew Leigh 3 this paper contains recycled content and sustainable Australian forest product .
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