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In Australia, the tax on dividends and capital gains is 15%, the corporate tax rate is 30% and the individual tax on interest payments is
In Australia, the tax on dividends and capital gains is 15%, the corporate tax rate is 30% and the individual tax on interest payments is 50%. (a) Considering personal and corporate taxes, does debt have a net tax advantage in Australia? Assuming that other than tax there are no advantages or disadvantages of debt, what is the optimal leverage ratio (0% to 100%) for companies in Australia? (b) Suppose the new government plans to increase the tax on dividends from 15% to 30%? Should the amount of leverage used by Australian companies increase or decrease? What is the optimal leverage ratio under new tax regime?
In Australia, the tax on dividends and capital gains is 15%, the corporate tax rate is 30% and the individual tax on interest payments is 50%.
(a) Considering personal and corporate taxes, does debt have a net tax advantage in Australia? Assuming that other than tax there are no advantages or disadvantages of debt, what is the optimal leverage ratio (0% to 100%) for companies in Australia?
(b) Suppose the new government plans to increase the tax on dividends from 15% to 30%? Should the amount of leverage used by Australian companies increase or decrease? What is the optimal leverage ratio under new tax regime?
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