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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 120
This means all subsequent dividends should carry the same imputaon rao as the benchmark
dividend
Variance of the rao can occur with the Commissioner’s consent and the filing of a rao change
declaraon
o
These rules are designed to prevent shareholders streaming ICs to those shareholders who can use them
versus those who can’t – it is an an-avoidance rule
Shareholders that cannot use imputaon credits include charies (because their income is exempt
from tax) and non-residents
RESIDENT WITHHOLDING TAX (RWT)
In addion to imputaon credits, subpart RE provides for a withholding tax regime for dividends as well
o
This tax applies to a resident company paying passive income (e.g. interest, dividends, royales) to a resident
shareholder – the tax must be withheld upon payment of the dividend
Resident withholding tax is a tax usually deducted from a cash dividend and paid by the company directly to the Inland
Revenue
RWT is calculated under secon RE 13 for cash dividends and RE 14 for non-cash dividends
o
Secon RE 13(2)
states that the amount of tax that a person must withhold and pay is calculated using this
formula:
(tax rate x (dividend paid + tax paid or credit aached)) – tax paid or credit aached
The tax rate here is 33% and not 39% (as it is for other instances of withholding tax)
This tax will also be a credit for the shareholder to reduce their tax liability
This tax is refundable (in contrast to imputaon credits) – if the shareholder’s marginal tax rate is less
than 28%, they will get a refund of the RWT (and surplus credits from the imputaon credits)
o
RWT is essenally a top up tax – the formula results in a total of 33% tax on the gross dividends
Example
o
Y Co Ltd declares and pays $1000 as a net cash dividend (i.e. aſter tax) and aaches $388.88 in imputaon
credits
Withholding tax will be deducted even though the imputaon rao is the maximum allowed of
$388.88/$1000 or 28/72
o
Using the formula the calculaon is:
(0.33 x (1000 + 388.88)) – 388.88 = 69.45
o
The RWT is 5% of the gross dividend (cash dividend plus imputaon credit) in circumstances where the
dividend is fully imputed
This is because the company has already paid 28% of tax on the gross dividend, and only needs to pay
an addional 5% to meet the 33% tax rate
The result is that the gross dividend is taxed at 33%
This also means that if less imputaon credits are aached (e.g. 25%), the more RWT that needs to be
withheld (e.g. 8%)
EXAMPLE
Company makes a profit of $138,888.88
Company pays tax on the profit at 28%
o
0.28 x 138,888.88 = 38,888.88 in tax
o
138,888.88 – 38,888.88 = 100,000 in net profit
Company pays $100,000 in net profit as net dividend to shareholder
Calculate max imputaon credits:
o
Cash dividend of $100,000 x 28/72 = $38,888.88 in imputaon credits
o
Imputaon credits go to debit in the company’s imputaon credit account
Calculate resident withholding tax
o
(0.33 x (100,000 + 38,888.88)) – 38,888.88 = $6,944.45 in RWT
Actual cash paid to shareholder
o
100,000 – 6944.45 = $93,055.55
Shareholder receives the income and calculates tax on it (assume they are at 39% marginal rate)
o
The shareholder’s total taxable income: 93,055.55 (dividend) + 6944.45 (RWT) + 38,888.88 (ICs) = 138,888.88
Taxable income includes RWT and imputaon credits (
secon CD 15(1)
)
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Course:
Great resource for chem class. Had all the past labs and assignments
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Santa Clara University
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