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Double taxation of foreign dividends received by individuals is avoided due to the combined mechanism of...

Double taxation of foreign dividends received by individuals is avoided due to the combined mechanism of the dividend gross-up and dividend tax credit. True of False

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Answer #1

Coming to the point directly, the double taxation is not avoided completely but it is reduced comparatively because of these two concepts called dividend gross up and divided tax credit.

The dividend tax credit would only reduce the tax amount liable to be paid by the individual receiving the dividends but it won't completely avoid the tax to be paid. As the tax on dividend is already paid by the corporations on its earnings, the dividend gross up will get you a net figure of tax. There after the dividend tax credit would reduce the amount of tax liable to be paid.

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