Question

Pania Biddle owns 500 shares in Mainfreight Ltd (MFT), a company listed on the New Zealand Exchange (NZX). MFT keeps an imputation credit account as required under tax law. On 1 June 2020 declared a fully imputed final dividend of 34 cents per share to be paid to shareholders on 17 July 2020.

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

Also, calculate:
a) the total imputation credits attached to the dividends Pania will receive.
b) the total RWT on the dividends.
c)the total net dividends Pania will be paid.
d) the total gross dividend.

Answer 1

Step 1: INTRODUCTION

Dividend is the amount which is paid by the firm to the shareholders on the amount invested by them. Shareholders prefer to invest in companies declaring higher dividend.

Step 2: SOLUTION

a. Total imputation tax credit can be calculated as follows:

Tax credit=

$Dividend amount /(1−tax rate)-Dividend amount

Tax credit=$500×0.34/(1−0.30)−500×0.34

Tax credit=$72.86

b. Total RWT on dividends can be follows:

RWT=Tax deducted

RWT=$170×30/100

RWT=$51

c. Net dividends can be calculated as follows:

Net dividend=Dividend−Tax

Netdividend=$170-$51

Net dividend=$119

d. Gross dividend will be $170.