Ross Gittins Sydney Morning Herald economics commentator says

http://business.smh.com.au/business/tailormade-taxes-better-than-fashion-20080810-3t08.html?page=fullpage#contentSwap1

"And where's the evidence we're missing out on our fair share of foreign investment?

"Our company tax take is exaggerated by our full imputation system, something no other country has, bar New Zealand. That system means local shareholders (including everyone with superannuation) have nothing to gain from a cut in the company tax rate.

"Only foreign shareholders stand to benefit (and probably not those whose country's company tax rate is higher than ours, with their government appropriating the difference).

"Our mining companies are reaping super-profits from our mineral riches and are heavily foreign owned. We'd be mugs to cut the company tax they pay unless we first made them subject to a resource rent tax.

"And the push to make us "internationally competitive" by cutting the tax on capital simply doesn't fit with the push to cut our taxes on property.

"If it's true we need to tax capital less because it's now so mobile in a globalised economy, all the more reason we should stick to our taxes on the one resource that's immovable - real estate.

"If we weren't so desperately keen to be dressed in the latest world fashion, we would see that our high reliance on property taxes - including conveyancing duty - puts us at a competitive advantage."

CG I understand your profit trap point.

I disagree with the disadvantage of large v small companies, my business is small but I use a Pty/Ltd entity and apply dividend imputation every year.

The differences it would make would be to encourage more sole traders etc, to regularizes their businesses.

As for partnerships etc. most of them operate in parallel with pty/ltd entities, to limit unlimited liability exposures and the many trusts who are not “not for profit” operate on (post tax) dividend incomes etc only.

Ultimately the difference if companies did not pay income tax on profits, whilst dividend imputation applied, would be the relieve the retained earnings of the company (used for growing the business) from income tax liability, what in the past would have been offset by dividend imputation would instead leave nothing for D/I to be offset against.

Yuyutsu, you need to change your tax accountant.

Instead of paying yourself a salary, you should pay yourself a dividend (from any previously retained profits). This will save you paying income tax on the salary and the tax on the dividend gets offset against the company income tax already paid. The worst that happens is you end up with some cash adjustments between you and the business at tax payment time (this is what I do every year).

Billie “That system means local shareholders (including everyone with superannuation) have nothing to gain from a cut in the company tax rate”

But share holders would lose nothing either. However, the wealth generating business operation would be better off because the element of profits retained to expand and grow the business on would no longer be subject to tax and that becomes a significant difference, saving either dilution of owners equity (from issue of additional shares to fund growth) or the interest payable of loan finance.

Payments to overseas are subject to withholdings tax separate to company income tax.