Letter # 8

For today's joke

to you all,

It's winter time and we have had plenty of rain to refill our tanks which is an ideal opportunity to luxuriate in a hot bath. As I am lying here and the hot water soaks into my (c)old bones, I can't help thinking of Mrs Archimedes who used to fill up her husband's bath right up to the brim.

Good old Mr Archimedes found that the water slopped over the sides when he jumped in, and by weighing the amount of water spilt, and weighing himself, he discovered a formidable argument against baths, or at least full ones, in that a floating body displaces its own weight of water. He also discovered that the displaced water wet the bath-towel and made it so heavy that when he hung it on the towel-rail it pulled out the nails and the rail fell off the wall. So he invented the screw.
On such small incidents hangs the fate of the world!

I doubt I would ever have come up with such wonderful ideas. I have never managed to join Mensa (although, I am sure, if I tried I would be entitled to join their subsidiary organisation, Moron.) I have a hard enough time working my way through the 2003 TAX-PACK which has just landed in my mailbox reminding me that another year's 'Swindle Sheet' is due. Looking at the sheer size of this year's TAX PACK, I am convinced we could solve all our energy problem if we could just find a way to harness all the energy that's spent in filling out our tax forms. Perhaps we need another 'tax reform' of the kind Lady Godiva was offered by her husband Leofric, Earl of Mercia, who promised to reduce the high taxes he levied on the residents of Coventry if she agreed to ride naked through the streets of the town. Luckily, most retired people (of which I am one) are no longer in need of such drastic tax reforms as the most effective way to avoid taxes is to stop having any income.

Or, if you need some income (and don't we all?), then let it be in the form of partly or fully "franked" dividends. Thanks to the Government's dividend imputation rules, franking credits are offset against an individual's personal tax and, from the 2000/01 income year, if those franking credits are in excess of an individual's tax bill, are refunded to the individual. Here is how it works:

Let's assume a very simplistic example whereby you hold shares in a company which pays company tax of 30% on its earnings. The remaining 70% are distributed as dividends. So if you receive (say) $10,000 in dividends, then this amount is "grossed up" again to its pre-company tax level of a 100% (remember that the $10,000 you receive represents only 70% of the company's pre-tax profit!) or $14,285.71. Therefore, you are being taxed on an income of $14,285 even though you only receive $10,000 in cash. So how much tax do you pay on an income of $14,285? (assuming you have no other income) $1,408.45, that's how much. However - and this is where the franking credit kicks in - you receive a credit for the tax the company paid, namely $4,285.71 which is offset against your tax assessment which in this particular example means that you receive a tax refund of $2,877.26. Three cheers for dividend imputation!!!

And so endeth this year's tax lesson! Happy New Tax Year!

Best wishes and from the Riverbend Quartet!
Peter & Padma & Malty & Rover
Sunday, 29 June 2003




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