Answer: 40%.

## Explanation In a **dividend imputation tax system**, shareholders receive credit for corporate taxes already paid. The calculation is: **Key points:** - Corporate tax rate: 25% - Shareholder marginal tax rate: 40% - Under imputation, the shareholder's tax liability is calculated on the **grossed-up dividend** (pre-tax corporate income) - The shareholder receives credit for the corporate tax already paid **Effective tax rate calculation:** - The shareholder effectively pays their marginal tax rate on the distributed income - Since the corporation distributed all after-tax income, the shareholder's effective tax rate equals their marginal tax rate of 40% This eliminates the **double taxation** that occurs in classical tax systems.

Author: LeetQuiz .