Assuming this is the only receipt of ABC Co, how much tax will it be required to pay

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Question - ABC Co (a resident private company) owns 20% of the shares in XYX Co (a resident public company). Both companies have a corporate tax rate of 30% and a corporate tax rate for imputation purposes of 30%. XYX Co pays ABC Co a $70,000 dividend which has $12,000 of franking credits allocated to it (i.e. the franking percentage of the dividend is 40%). What are the relevant franking account entries for ABC Co and XYX Co? Assuming this is the only receipt of ABC Co, how much tax will it be required to pay? How would your answer be different if ABC Co was a non-resident company?

Answer -

ABC is a specific company that is able to deal with various kinds of shares that are dependent on a basic concept of taxation practice and law that is Franking percentage. All franking amount is described as a percentage. Amount of franking percentage is 75% partially to determine actual value of franking credit value.

Franking Credit=(Amount of Dividend/(1-Tax Rate on Company Profits))-Amount of Dividend

Above mentioned formula is proper to determine franking percentage as well as franking credit also. Taxable income is an important key factor to evaluate franking credit percentage with accuracy and validity. ABC and XYZ both companies are investing their shares in a very effective way to provide and proceed several pieces of information sequentially.

Franking credit=(40%/(1-30%+30%+20%)-40%

Franking credit=(40%/(1-80%)-40%

Franking credit=(40%/0.2)-40%

Franking credit=0.4/0.2-0.4

Franking credit=2-0.4

Franking credit=1.6

Value of franking credit is 1.6 in case study of ABC and XYZ company.

Total amount of all shares related with ABC and XYZ companies are 30%,30% and another case is 20%. For franking percentage value is 40% that depends on several varieties of different companies respectively. However, overall process is able to determine taxation related laws on various sector based companies (Suárez-Eiroaet al. 2019).

For company ABC and XYZ franking percentage value is 1.6 whereas $82,000 tax will required to pay in a calculation. However, if ABC is a non residential company then taxation cost is less for company ABC.

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