Webster Holding Ltd is a company which owns a number of fashion brands. If Webster Holding makes a taxable profit of $1 000 000 in the 2016 financial year and chooses to pay 100% of its profit after tax as a dividend, how much tax is paid by shareholders, assuming their marginal tax rate is 45%? Assume the company tax rate is 30%.
A)$15 000
B)$450 000
C)$150 000
D)$300 000

Question

Quizplus · Accepted Answer

The company pays 30% tax on $1,000,000, which is $300,000, leaving $700,000 as profit after tax. If shareholders receive this as a dividend, they pay 45% tax on it, which is $315,000. However, they get a credit for the $300,000 already paid by the company, so they pay an additional $15,000.

Webster Holding Ltd Is a Company Which Owns a Number