Where to now for long term investors of Telstra, page-9969

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patrick2

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13/10/20

05:07

Post #: 48041796
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Originally posted by krugerrands: ↑

The basis for dividend imputation is that you shouldn’t pay tax twice.
Yes, it is to avoid double taxation.

Dividends are derived from profits after tax....
Incorrect.
Not before or after tax.
Dividend is the distribution of profit. ( gross dividend )
This profit then needs to be taxed either in the hands of the taxpayer or the company.
Any tax already paid by the company on the share of the profit distributed to the shareholder is attributed or imputed to the shareholder.

Really it's just a way to have the Shareholder pay tax on his share of the profits and his tax rate and get taxed on it once.

and to treat dividends as income would incur another tax.
Uhmmm this is exacly how it is being done.
Dividends are being treated as income by ATO.
Gross dividend amount is added to the income of the taxpayer.
Since the tax paid by the company is attributed or imputed to the shareholder... you have a tax credit.
Tax rate is then applied to income and you pay an effective rate on all you income INCLUDING your gross dividends.

As a consequence of imputation company tax is held by the ato and then credited to the tax payer.
Correct.
Except this is really income tax since it is income taxed in the hands of the taxpayer.

This has the effect of removing a significant proportion of company tax from revenue.
Not following.
The only way revenue was "removed" is when double taxation was stopped, which is a good thing.
No company tax is removed from revenue.
Either it is taxed in the hands of the company or in the hands of the shareholder as income tax.
What company tax is removed?

The deduction of company tax from income tax is only of benefit to Australian tax payers.
Confusing statement.
No company tax is deducted from income tax.
Profit in the hands of the company is company tax.
Profit in the hands of the shareholder is income tax.
Seeing as the profits was not retained but was distributed it is subject to income tax in the hand of the taxpayers.
Yes, sure only Australian tax payer can claim back the tax credits.

It would be far better to remove imputation and reduce company tax, which would make the ASX more attractive to foreign investors.
Okay so without imputation how is dividends taxed?
And how is double taxation prevented?

In some tax juristictions dividend tax is seperate from income tax.
This is a flat rate, and would benefit some and disadvantage others.
Much like foreign investors are disadvantaged with the current system.

No comment on reducing company tax rates.
But of course that would then motivate companies to retain a higher percentage of the profits or even not pay any dividend.
And really as a shareholder the moment your income taxrate is higher than the company tax rate you WANT the earnings retained and then rather sell some shares and generate a capital gain.

Even now, if you earn a big salary that pushes your effective taxrate above 30% you should probalby NOT invest in companies that pays dividends.

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“Dividend is the distribution of profit. ( gross dividend )”

NPAT

TLS Price at posting: $2.78 Sentiment: Hold Disclosure: Held
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