Can someone please explain this formula:
effective tax rate = 1-(1-t)(1-td)
is it the same as corporate tax rate + (1-corporate tax rate)(individual tax rate)
Thanks.
Can someone please explain this formula:
effective tax rate = 1-(1-t)(1-td)
is it the same as corporate tax rate + (1-corporate tax rate)(individual tax rate)
Thanks.
(1-T) is corporate tax rate and this formula shows double taxation of same tax payer. First corporate earnings are taxed on corporate level then by dividend payoff once again is taxed by tax on dividend on personal level.
Yes. If we denote
T=corporation tax
t=personal tax (td=tax on dividends which is taxed on individuals who receive them)
then
1-(1-T)(1-t)
1-(1-t-T+Tt)=1-1+t+T-Tt T+t-Tt T+t(1-T) or Corp +personal(1-corp)
Don’t forget to cross the ts…
So which one should I memorise for the exam?
Ok, i am just seeing this formula, but i think i will stick with the normal one in the corriculum which is {Corp Tax + (1-corp tax)*(ind tax)}
Neither.
You should understand one of them.
I prefer using
1 – (1 – Tc)(1 – Td)
as I can visualize it easily:
Easy-peasey.
Easy! Thank you magician.
You’re welcome.