A firm in Australia earns a pretax profit of $A10 per share. It pays a corporate tax of $3 per share (30% tax rate) in taxes. The firm pays the remaining $A7 in dividends to a shareholder in 30% tax bracket. What is the amount of tax paid by the shareholder under the imputation tax system?

Question

Quizplus · Accepted Answer

Under the imputation tax system, the shareholder receives a tax credit for the corporate tax already paid, effectively reducing their personal tax liability on the dividend to zero.

A Firm in Australia Earns a Pretax Profit of $A10