Question

Discuss the concept of a “dividend” under ITA 2007.

Explain the purpose of an imputation credit account (ICA) and provide one example each of credit and debit entries in the ICA with appropriate references to ITA 2007.

Answer 1

A dividend tax is a tax imposed by a jurisdiction on dividends paid by a corporation to its shareholders .The primary tax liability is that of the shareholder, though a tax obligation may also be imposed on the corporation in the form of a withholding tax.

Imputation is a system that allows companies to pass on to their shareholders the benefit of the income tax they have already paid. The purpose of the imputation system is to make sure that, as far as possible, company profits are taxed once only, at the marginal tax rate of the company's shareholders.

Example for Credit entry.

• Imputation credits attached to dividends the company receives from other companies .

• RWT deducted from interest and dividends the company has received..

Example for Debit entry.

• Imputation credits attached to dividends that a company pays to its shareholders.

• An adjustment if the company has made an on-market acquisition of its own shares .