Net income= pretax income ?

Schweser notes 2010 book 2 Page 301, dividend tax under imputation medthod, example on the top of the page. Net income $1/share, all paid in dividend, 100 shares in total, corporate tax rate 30 %, personal tax rate 40%. the answer in the example says that $100 is now “pretax income”, is this the same as incomes statement item EBT per share? i assume net income is already tax and not having to be taxed again under imputation method.

I think $40 would have to paid as taxes, unless stated otherwise.

my question is not how much tax needs to be paid but why is “net income” taxed again before dividend, in which case, income before tax should be used.

It depends on the tax laws of the land. Some tax dividends, some dont, some do but at a lesser rate than personal marginal tax rate.

Three steps to calculate effective tax based on an imputation system: 1) Calculate tax on EBT at the shareholder level 2) Calculate tax on EBT at the corporate level 3) Subtract 2 from 1 to calculate tax due (effective tax) Clearly, the answer only makes sense if the phrase ‘1.00 per share in net income’ is reworded to ‘1.00 per share in EBT’. I think this is another one of those bad wordings on Schweser’s part.

thanks that was really clear.

I haven’t looked at the specific page but i am pretty sure when you use “pretax income” it’s meant to pretax income for the shareholders which is equivalent to the dividend they receive prior to them reporting taxes.