IMPUTATION SYSTEM

A full imputation system was introduced from 1 April, 1988 applying to resident company shareholders.   Since 1 April 1992, imputation credits have been able to be attached to non-cash dividends.  

Under the previous system of taxing dividends, company profits distributed as dividends were subject to double taxation, as first the company was taxed on profits at the corporate tax rate and secondly tax was taken from the recipient individual shareholders at their marginal tax rates.  

Under the full imputation system, dividends paid by a resident company out of income that has borne company tax can be passed on to resident shareholders by attaching imputation credits for company tax paid (currently at 33%).  

The effective tax rate on distributed company profits will then be the shareholders marginal tax rate.  

Thus where both the top individual rate and the company rate are 33%, an individual shareholder will have no further tax to pay on receipt of a fully imputed dividend.   If , however, the individuals marginal tax rate is less tha 33% (i.e. total taxable income is less than $38,000), the individual will get a refund back in respect to the imputed dividend due to the fact a credit of 33% can be claimed relating to this.  

The following table illustrates changes as a consequence of the implementation of the imputation system: 

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