FEDERAL LABOR'S PLAN TO CLOSE A TAX LOOPHOLE
HOW IT WORKS RIGHT NOW
* A company earns $100, pays $30 in tax, and pays $70 to shareholders.
* To ensure that profit isn't taxed twice - once with corporate tax and again on income tax - shareholders get a $30 tax imputation to go with their $70 dividend. This is called dividend imputation.
* Investors can use the imputation to reduce the tax they pay on that dividend.
* But shareholders who pay no tax can also use it to get a cash refund from the government.
* Some investors get $2.5 million in cash from the government each year because they technically pay no tax.
* When John Howard introduced the system in 2000 it cost $550 million a year - now it is above $5 billion a year and growing.
* In 2000/01, the federal budget was billions of dollars in surplus and the economic outlook was strong.
* Today, the budget is in tens of billions of dollar in deficit and the economic outlook is modest, if not still relatively weak.
LABOR'S PLAN
* Shareholders will still get the tax imputation to reduce their tax liability.
* But a federal Labor government will no longer give cash refunds to people whose taxable income is zero.
* No one will pay additional tax, Labor says.
* This will take it back to the original system introduced by Labor's Paul Keating, Labor says.
GOVERNMENT RESPONSE
* Treasurer Scott Morrison says it's "theft".
* Investors will be taxed twice because they will no longer get a cash payment when their taxable income is zero.
* It will hit low-income earners and pensioners with share portfolios.
