What Is Dividend Imputation?

Dividend imputation is a tax policy used in Australia and several other countries that eliminates the double taxation of cash payouts from a corporation to its 澳洲幸运5官方开奖结果体彩网:shareholders.

The argument behind dividend imputation is that 澳洲幸运5官方开奖结果体彩网:dividends, as customarily handled under tax law, are an example of doubl𓆉e taxation. That is, a corporation has paid taxes on the income that it then distributes to shareholders in the form of dividends. This after-tax income is then taxed again when the shareholder reports the dividends as income.

Understanding Dividend Imputation

Double taxation is managed through tax credits. Through the use of 澳洲幸运5官方开奖结果体彩网:tax credits called 澳洲幸运5官方开奖结果体彩网:franking credits or imputed tax credits, the tax authorities are notified that a company has already paid the required income tax on the income it distributes as dividends. The shareholder does not then owe taxeౠs on the dividend income.💃

For example, on the Australian Gov. Taxation Office website, it states, "Although the recipients are taxed on the full amount of the profit represented by the distribution and the attached franking credits, they are allowed a credit for the tax already paid by the corporate tax entity."

The distribution 澳洲幸运5官方开奖结果体彩网:comes with the franking credits and is then used to offset the taxes.

The policy is known as imputation because it attributes, or "imputes," taxes owed by the corporation to its shareholders.

Australia, Canada, Chile, Korea, Mexico, and New Zealand have enacted dividend imputation systems.

Proponents of imputation argue that this double taxation causes corporations to prefer taking on debt over 澳洲幸运5官方开奖结果体彩网:issuing stock shares when they want to raise cash. They also may make companies more likely to retain their cash rather than distributing it to shareholders. The effect, they contend, is to drag down economic growth.

Dividend Imputation Around the World

In countries where dividend imputation is offered, it is typically offered as a tax credit. That is, the shareholder's taxable income on the dividends is reduced by a credit that reflects the taxes paid by the company on the cash that was distributed.

Dividend imputation has had a mixed history among nations, as the circumstances of each country’s tax system prompt varying applications. Nine countries that once offered such an arrangement have either changed or ended the practice. These countries include the following:

• United Kingdom
• Ireland
• Germany
• Singapore
• Italy
• Finland
• France
• Norway
• Malaysia

The United Kingdom and Ireland, for example, previously offered partial imputation with tax credits that effectively reduced taxation on the dividends by 12.5% to 25%.

The partial imputation in the United Kingdom provided a 20% refund against a 33% 澳洲幸运5官方开奖结果体彩网:corporate tax rate. Starting in 1997, however, the government moved away from this policy, first by eliminating the refund to tax-exempt shareholders that included pension funds. In 1999, the refund rate was cut to 10%.

Germany, Finland, Norway, and France all previously offered full dividend imputation. France offered tax credits equal to 50% of the face value of the dividend.

Germany did away with its dividend imputation program with the intent of reducing the nation’s corporate tax rate. Finland, likewise, lowered its corporate tax rate after dividend imputation was repealed. Norway, on the other hand, did not lower its corporate tax rate when dividend imputation ended.

After repealing imputation, most of these countries taxed dividends at a r🌄ate of 50% or greater.