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

Question

Quizplus · Accepted Answer

Under an imputation tax system, the shareholder receives a tax credit for the corporate tax already paid, so no additional tax is paid by the shareholder.

A Firm in Australia Earns a Pretax Profit of $A10