Evidence suggests that the introduction of the imputation tax system has resulted in which of the following changes to capital structure:

Question

Quizplus · Accepted Answer

The imputation tax system encourages companies to issue more dividend payments, as the corporate tax paid on profits becomes a credit for shareholders. As a result, companies are likely to decrease their reliance on debt financing and therefore reduce their financial leverage compared to what is typical under the classical tax system. The evidence suggests that the capital structure of companies has changed as a result of the introduction of this tax system. There is no indication that there has been an increase in financial leverage, so option B is not correct. Option A is also incorrect because evidence suggests that there has been a change in the capital structure of companies. Option D is partially correct, as the imputation tax system incentivizes paying dividends and therefore may decrease the proportion of profits paid out as dividends, but the question specifically asks about changes to capital structure, not payout policy.

Evidence Suggests That the Introduction of the Imputation Tax System