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Hello Chris,
I hope you can help with this. It seems to me that the Kaplan and the BPP exam practice kits solved the same (type of) question differently and I was wondering which one was right.
Kaplan. Q9.
Taxable profit $750,000, and pays an equity dividend of $350,000. Tax on profits 30%, shareholder dividend income tax 25%.
The solution goes on saying that the question implied that the dividend paid was “gross” as the Q doesn’t say “net” and uses this assumption to calculate £17,500 shareholder tax under imputation system.BPP Q 33.7
P paid a dividend of $150.000, corporate income tax 25%, personal rate of income tax 30%. Imputation system.
The solution grosses the dividend up and arrives to a shareholder tax payable $10.000, even though nowhere in the question it is mentioned whether the $150.000 is gross or net.What do I do if I get this Q in the exam? Such an easy mark that I’d prefer to get it right.
Thank you
Hi,
I can see the issue in that it isn’t clear if the dividend paid is gross or net. It appears that the BBP text is saying that the dividend received is net, which is what I’d agree with as if you receive a dividend as a shareholder then it would always be net of any tax already suffered.
Is there anything else written in the Kaplan question that implies that the dividend is gross? If you show me the full question then I may be able to shed some light upon it.
Thanks
Thank you very much for you help!!
Kaplan Q: CR is resident in Country X. CR makes a taxable profit of $750,000 and pays an equity dividend of $350,000. CR pays tax on profits at a rate of 25%. Equity shareholders pay tax on their dividend income at a rate of 30%. If CR and its equity shareholders pay a total of $205,000 tax between them, what method of corporate income tax is being used in country X?
BPP Q: P paid a dividend of $150,000 to its shareholders in the year ended 30 June x1. P is resident for tax purposes in Country X where the corporate rate of income tax is 25% and the personal rate of income tax is 30%on dividends received. Country X has an imputation system of tax. How much tax is payable on the dividend received by the shareholders of P?
It seems to me that the 2 Qs are exactly the same, Kaplan didn’t gross dividend up, BPP did. Kaplan even explained in solution that dividend is assumed to be gross from the text.
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