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Corporate tax strategy in the Australian dividend imputation system


This paper examines the tax strategy of publicly-traded Australian companies in a dividend imputation system where corporate profits, if distributed as dividends, are ultimately taxed at the tax rates of Australian investors and corporate tax is a prepayment of investors’ tax. The study adopts the ratios of two effective tax rate measures to the corporate tax rate as the proxies for tax strategy and tests four hypotheses using the data for the period 1999 to 2003 when the corporate tax rate fell in two steps from 36% to 30%.

The results show that companies distributing franked dividends adopt a more conservative tax strategy than those that are not. Managers remunerated with share options adopt conservative tax strategies. They also do not respond to opportunities to save tax in the years before reductions of corporate tax rate. Further, closer scrutiny by the Australian Taxation Office leads to more conservative tax strategies. The findings have important theoretical and policy implications.

Author profiles

Dr Alfred Tran CTA
Alfred works at the Research School of Accounting, The Australian National University. - Current at 01 April 2016
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Catherine IKIN
Catherine is Lecturer, Research School of Accounting and Business Information Systems, The Australian National University, Australia.
Current at 1 September 2013
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