This second part of dividend imputation in Australia discusses a previous study on the issue. Remarkably, this part reviews a paper by Cannavan, et al. (2004). Cannavan, et al. (2004) investigate the value of imputation tax credit in Australia. In addition, they examine the effect of the 1997 tightening law on the value of imputation credit.

Imputation can be seen as a pre-collection of personal tax. This pre-collection amount is similar to the value of imputation credit distributed to investors if the company’s profit is immediately distributed to investors. In that case, imputation credit will be valued as one of the firm is owned by investors who can fully utilize the imputation. On the other hand, it will be valued as zero if the investors are exempted from utilizing the credit. For example, those who cannot utilize the imputation credit are foreign investors. Hence, the value of imputation credit is in the range of zero and one, depending on the ability of the investors to utilize the credit.

To test the issue, Cannavan, et al. (2004) used Australian firms during the period of 1994 – 1999. They find that the marginal price-setting investors of large Australian firms are non-residents. They also find that the 1997 tax law amendments influence the value of imputation to be insignificantly different from zero.  Overall, Cannavan, et al. (2004) believe that as long as marginal investors do not value imputation credit, then the cost of capital is not affected by the introduction of the imputation system.


  • Cannavan, D., Finn, F., and Gray, S. (2004). The value of dividend imputation tax credits in Australia. Journal of Financial Economics 73 (1) 167-197.

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