The advantage of the imputation tax system is that it reduces the bias in favour of capital gains under a classical tax system where dividends are double taxed but capital gains are not.

Question

Quizplus · Accepted Answer

The statement is correct as the imputation tax system credits the tax paid by the company on its profits as a franking credit to its shareholders, reducing the amount of tax they need to pay on their dividends. This eliminates the double taxation of dividends that exists in a classical tax system and makes them more competitive with capital gains.

The Advantage of the Imputation Tax System Is That It