TAXN301 Advance Domestic Taxation

There are several approaches to the taxation of companies and their shareholders.  The following three approaches have been adopted by different jurisdictions:

• Classical system – Where dividends are paid out of tax-paid profits and are taxed again in shareholders’ hands without any consideration for any income tax paid on the profits from which the dividend is paid.  This usually leads to double taxation of distributed company earnings.

• Imputation – where taxes paid at the corporate level are “passed on” as credits to shareholders receiving dividends (as in New Zealand and Australia).

• Exemption – dividends paid to shareholders are exempt from tax to prevent “double

taxation”.   

Required:

Prepare a report critically comparing the above three approaches to company-shareholder taxation.  Your report should take into the account the impact of each approach on shareholders with high and low incomes as well as the New Zealand Government (who is interested in promoting tax neutrality as well as a robust revenue base).