Shares and Taxation Taxation implications of owning shares

Tax on Dividends Before 1987 a company would pay tax on their profits (dividends) and then you as a shareholder would pay tax on your income – so the Government was kind of getting 2 lots of tax out of one payment. DIVIDEND IMPUTATION - is a method that gives tax advantages to shareholders who receive dividends. FULLY FRANKED Dividends have the tax paid on them by the company at the company rate 30%. This means when you get the dividend tax has already been paid – giving you the possibility of : –not paying tax on the dividends –Paying reduced tax on the dividends –Getting money back in the form of a tax return –Depending on your marginal tax rate

If your marginal tax rate is below the company tax rate you will get a refund! This system has benefits for shareholders, making dividend payments more attractive.

Calculating the Imputation Credit In all these calculations we assume that the Business Tax rate is 30% 0.24 x x 30/70 30 is the tax rate

ClassRateNo of SharesUnfranked amount Franked amount Imputation credit Ord15 c2530$379.50$ Calculate the tax owing and then the after tax return if you had the shares above and had a marginal tax rate of : (a) 17% and (b) 47%. Income declared = Unfranked amount + Franked amount + Imputation Credit Income Declared = = Tax Liability = Income declared x marginal tax rate Tax Liability = x 17% = $92.16 Tax Owing = Tax liability – Imputation Credit Tax Owing = – = You are owed $70.48.

ClassRateNo of SharesUnfranked amount Franked amount Imputation credit Ord15 c2530$379.50$ Calculate the tax owing and then the after tax return if you had the shares above and had a marginal tax rate of : (a) 17% and (b) 47%. Income declared = Unfranked amount + Franked amount + Imputation Credit Income Declared = = Tax Liability = Income declared x marginal tax rate Tax Liability = x 47% = $ Tax Owing = Tax liability – Imputation Credit Tax Owing = – = You are owe $92.17

Calculating the Imputation Credit In all these calculations we assume that the Business Tax rate is 30% 0.24 x x 30/70 30 is the tax rate