Question

A resident company pays a fully franked dividend of $700 to a resident shareholder. Advise (with section numbers) the income tax implications of the investors if it is:

a) an individual subject to the top marginal tax rate;

b) an individual with marginal tax rate of 19%;

c) a partnership with two resident individual partners sharing equally partnership profits or losses.

Answer 1

Marginal Tax Rates have been revised in 2018 as per Tax Cuts and Jobs Act (TCJA).

Currently, the federal income has tax brackets of %, 12%, 22%, 24%, 32%, 35% & 37%.

(a) As pre highest marginal tax rate, an individual will be charged 37% on 700$, i.e. 259 $

(b) At marginal rate of 19% (although there's no effective rate of 19%), tax amount will be: 19% * 700 $ = 133 $

(c) For two partners with equal profit & loss ratio, the dividend will be divided equally, i.e. 350 $ each and will be taxed individually in their hands.