Why capital gains may be tax-advantage and how to interpret the t(interest)=t(dividend) but t(dividends)>t(capital gains) and hence t(interest)>t(capital gains)? A note about imputation system oftaxationThe imputation system implies that firm income distributed as dividends iseffectively taxed at the shareholder's marginal rate – just like interest income!-But capital gains may be tax-advantaged for some investors. Therefore,tinterest = tDividends but, tpividends > tCapital Gainsand hence,tuterest >t'Capital GainsInterest,• So, there may be a tax-induced reason to issue equity rather than debt whereshareholders generate their returns via capital gains

The Imputation system implies that firm income distributed as dividend effectively taxes at the…

Answered: But capital gains may be tax-advantaged…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Why capital gains may be tax-advantage and how to interpret the t(interest)=t(dividend) but t(dividends)>t(capital gains) and hence t(interest)>t(capital gains)?

A note about imputation system of
taxation
The imputation system implies that firm income distributed as dividends is
effectively taxed at the shareholder's marginal rate – just like interest income!
-
But capital gains may be tax-advantaged for some investors. Therefore,
tinterest = tDividends but, tpividends > t
Capital Gains
and hence,tuterest >t
'Capital Gains
Interest
,
• So, there may be a tax-induced reason to issue equity rather than debt where
shareholders generate their returns via capital gains

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Expert Solution