Noel Whittaker's Blog Expect the “retirees tax” to receive plenty of publicity as the federal election draws near. I have written about it extensively, but as a reader points out there is one group who will suffer badly.
Mary is 70, a widow, and who has had no superannuation. Apart from her home, $50,000 in the bank, and $50,000 of personal effects, her main financial asset is an $800,000 portfolio of Australian shares left to her by her late husband.
The dividends on the shares are around $36,000 a year plus she receives franking credits of $15,000 a year. When she does her tax return the franking credits are added to a taxable income which gives her a total taxable income of $51,000 a year. The tax on this is around $8100 plus Medicare levy of around $1100. This gives her a net income after tax of approximately $41,800. There is not much to spare, but she can live on it.
If Labor gets elected next month, she will lose the excess franking credits but will still be liable for the Medicare levy. Therefore, her net after-tax income will drop from $41,800 a year to just $34,900 a year. That’s a reduction of $6900 a year or $133 a week.
This leaves Mary between a rock and a hard place. She is way above the single pensioner homeowner cut-off point of $564,000 so there is little she can do to become eligible for the pension and so get her franking credits back.
The only option will be to draw down on a capital and hope that growth in the share portfolio will more than compensate for the loss of the franking credits. However, it is not impossible that the share market would go through a bad patch in the next few years, leaving her in the unenviable position of having to sell her precious shares at the worst possible time.