Retirees and the Single Tier Tax Dividend

Here is an interesting note regarding the single tier tax structure announced on the recent Buget. In the announcement it states that dividends at shareholders' are tax exempted.

It has been pointed out that this is rather misleading.

Commentaries has been made to suggest that this is a plus point for the man-in-the-street since the dividends are no longer subject to tax.

However, some opinions differs.

And according to several folks, this new structure will result in a loss to the public; retirees in particular and low income minority shareholders generally.

Let me quote what has ben said:

• What is being said is that dividend income received by shareholders will not be subject to tax. However, at the same time, shareholders will also not be eligible to claim back a rebate in the event that the shareholders tax bracket is lower than the the corporate tax rate.
  
  In truth, at the shareholders level, dividend income has never been subject to tax. Tax has always been paid at the corporate level. So to say that "dividends at shareholders' level are tax-exempted" is utterly confusing, and I am not surprised that most people are happy with this new tax structure, blissfully unaware that they would actually be out of pocket as a result of it.
  
  Let's take an example of a retiree who is not subject to income tax. If he owns shares in Company A, and Company A declares a dividend of RM1,000 to him, the retiree will (under current tax regime) receive RM730 from Company A, and then claim back RM270 from the IRB.
  
  So, even though Company A declares a dividend of RM1,000, the company knows that in terms of cashflow, it is only paying out RM730. The retiree has to claim the rebate RM270 back from the IRB.
  
  If we assume that Company A maintains this cashflow payout of RM730 henceforth, then the retiree is now RM270 short under the new structure since he is no longer able to claim back the rebate from the IRB.
  
  Of course, if Company A is generous and decides to still declare a dividend of RM1000, then there is no loss to the retiree who will get the full RM1000, all from the company. This however is because Company A has increased its cashflow payout, and not a result of the new tax structure.
  
  All said, the big winner is the govt who will no longer need to pay back the rebate to taxpayers whose tax bracket is lower than the prevailing corporate tax.

Would you agree with what has been said?

Me?

I rather agree very much that this new single tier tax structure actually becomes a handicap for the retirees.

And I for one, would rather prefer that this whole issue could have been represented in a much more clearer fashion.