The dividend imputation system has encouraged Australian companies to adopt higher dividend payout ratios because:
A)tax on dividend income compared to capital gains is effectively lower for resident shareholders.
B)tax on dividend income compared to capital gains is effectively higher for resident shareholders.
C)tax on dividend income compared to capital gains is effectively no different for resident shareholders.
D)resident companies now have higher after-tax profits from which to pay dividends.

Question

Quizplus · Accepted Answer

The dividend imputation system allows Australian resident shareholders to receive a tax credit for the corporate tax already paid by the company distributing dividends. This effectively reduces the tax rate on dividends for resident shareholders, making it more attractive for them to receive dividends than to realize capital gains. As a result, companies are encouraged to adopt higher dividend payout ratios to attract investors who prefer receiving dividends over capital gains.

The Dividend Imputation System Has Encouraged Australian Companies to Adopt