LOS 33h: double-taxation, split-rate, tax imputation

[wawa]

I read the examples in Schweser’s books, p. 98-99, and don’t get the difference between the “double-taxation system” and the “split-rate” system. Can someone explain? Or is it that both the split-rate and the imputation tax systems are examples of the double-taxation systems? Seems this could be the case.
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>>“Double taxation”: This problem arises out of the taxation of corporate profits (including retained and distributed profits) at the corporate tax rate and an additional taxation of the distributed profits (dividends) at the shareholders income tax rate.
Double Taxation Reducing Systems partially relief the double taxation of dividends. This can be achieved either at the corporate level or at the shareholder level. At the corporate level … dividends can be partly deducted as business expenses (Dividend Deduction System) or taxed at a lower rate as retained profits (Split Rate System). The Shareholder can be partly relieved by taxing his income from dividends at a lower level than other income (Shareholder Relief System) or by granting a tax credit (Partial Imputation System).<<
(From: Benjamin Mahr’s book on the Comparison of US, UK and German corporate income tax systems with respect to dividend relief; University of Sydney, 2004)

 

[cfafrank]

split-rate and imputation are examples of “Double Taxation Reducing Systems”.
For Double taxation you get mugged twice by Bush—>corporate tax rate + (1-corporate tax rate)*income tax rate
To prevent angry people gunning down Bush, they introduced split-rate—>corporate tax rate for dividend+(1-corporate tax rate for dividend)*income tax rate
Some countries are so afraid of their people they use imputation tax rate, which is individual income tax rate
Note: not responsible for the accurracy of the reply…reserve the ultimate right to explanation.

 

[wyantjs]

As stated above, both are forms of double taxation. Split rate charges a different tax rate on the earnings that are distributed through dividends versus the earnings that are retained. Although imputation is technically double taxation, it is really closer to a single level taxation. The corporation pays the shareholders’ taxes on the dividends, and the shareholders can deduct the amount withheld by the corporation from their personal tax bill.

 

[itfaster]

double tax: 1. corporate pay tax. 2. individual pay personal income tax fro div
split tax: 1 corporate pay earing and div tax at different rate. 2. individual pay personal pay income tax for div
imputation tax. 1. corporate pay tax. 2. individual pay pay tax or get credit depend on difference of corp/indiv tax rate