How to best handle Imputation Credit (Australia); Tax related

[Michael Gordon]

David, I've followed your very clear explanation and helpful screen shots
and got that working no problem. After some thought I think I'll vary it
slightly and send the Imputation Credit NOT to an Asset account but to a
Credit/Tax Credit account.
This may be departing from the proper way of handling this, but I'm not too
concerned about strict accuracy as I won't directly use the GnuCash files
for tax reporting, and I want to avoid putting this 'future theoretical'
payment into Assets which will also contain, in the same financial year, an
'actual historical' payment from the Tax Office for the preceding year.
Thanks again for your help,
Mike.


On 15 July 2013 22:34, David Cousens <davidcousens at bigpond.com> wrote:

> Michael,
>
>
>
> There is a Wikipedia article on the Tax imputation system which gives a
> fairly clear description of the operation of the system at
>
> http://en.wikipedia.org/wiki/Dividend_imputation particularly the section
> headed  Operation an extract of which is given below
>
>
>
> "An eligible shareholder receiving a franked dividend declares the cash
> amount plus the franking credit as income, and is credited with the
> franking
> credit against their final tax bill. The effect is as if the tax office
> reversed the company tax by giving back the $0.30 to the shareholder and
> had
> them treat the original $1.00 of profit as income, in the shareholder's
> hands, like the company was merely a conduit."
>
>
>
> The most logical way to handle it would be to create a Tax Credit Asset
> account in which to accumulate your imputation credits. If a dividend is
> paid with an amount FA (franked amount) and an amount UFA (unfranked
> amount)
> and an imputation credit amount IC then you would credit your Share Income
> account with an amount = FA +IC +UFA  and you would debit an amount FA +
> UFA
> to your bank account (i.e. the cheque you put into it) and you would also
> debit the amount IC to the Tax Credits asset account.  See
> Screenshot(1).png
> attached for example.
>
>
>
> At the end of the financial year you would declare the Share Income in your
> taxable income to assess your taxable income.  You would then claim the
> total of your Tax Credit amounts as a deduction from  the tax calculated on
> your total  taxable income.
>
>
>
> i.e.   Tax owable to ATO = Tax calculated on taxable income - Tax Credits
> (sum of imputation credits).  If this is negative you will get a refund of
> the excess of your tax credits over the Tax payable on your taxable income
> and alas if it is positive you pay the difference to the ATO.  The sum of
> your imputation credits is a tax offset.
>
>
>
> If you had a Tax Liability Account against which you recorded your tax
> calculated on your taxable income and a corresponding Tax expense account
> which records your tax  then you could close the Tax Credits account to it
> at the end of the financial year i.e. you credit the Tax Credit asset
> account by the amount in it and debit the Tax Liability Account by that
> amount.  The resulting balance in your Tax Liability account is what you
> owe
> the ATO . Finally when you pay the ATO you credit your bank account by any
> amount you have to pay the ATO ( or debit your bank account by the amount
> of
> the refund) and debit the Tax Liability account by the refund amount. At
> this point your Tax Credit account and Tax liability account should both
> have zero balances.
>
>
>
> If you then close your income and expense accounts to equity you will
> record
> your net increase (or decrease) in net worth (equity) for the year after
> tax.  To make this work for personal finances you need to create separate
> income header  accounts for your taxable and non-taxable income and for tax
> deductible and non-tax deductible expenses so that you have the correct
> balances for calculating your taxable income and gross tax payable under
> total income and total expense header accounts.
>
>
>
> A complication on this will be that your tax will be  due after the end of
> the financial year it is calculated on  and any refund will also  be
> received in the next financial year. These can be recorded in the next
> financial year as long as you carry forward the totals in your asset and
> liability accounts into that year as well. They will not be zero in this
> case as your tax liability falls in the next financial year and not in the
> year on which the tax is paid and calculated.
>
>
>
> David Cousens
>
>
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