[GNC] recording reinvested earnings

[David Cousens]

Peter,

The real question here becomes whether the dividend income which is
reinvested is taxable in your hands in your jurisdiction and to what extent.
This will likely depend on whether the company pays its dividends out of
taxed or untaxed profit. Most companies would be expected to pay out of
taxed profits depending on the jurisdiction's rules and then the rules on
income taxation in that jurisdiction  Income:taxable and Income:Nontaxable
categories with appropriate sub accounts.  It may be wise to provide 
Income:Dividends And Income:DividendsReinvested as separate categories
depending on how your jurisdiction treats them for tax purposes. In my
casein Australia there is no tax advantage is dividend reinvestment to the
holder.

In Australia, for example, we are only taxed at the difference between our
marginal tax rate and the company tax rate for dividends where the company
has paid tax on the dividends before distributing the dividends. We receive
what is called a franking credit for the company tax paid, which is used as
an offset against any personal income tax on the dividend income.  If the
dividends are paid out of pretax profits at the company level, then we
receive no franking credit with our dividends  and pay the full marginal
rate on the dividends. To complicate it further some stocks can have a
franked component and and unfranked component although that is now very
uncommon. In either case you would record the income as Income:Dividends but
we could potentially have a further sub-account for franked and unfranked
dividends.



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David Cousens
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