Phil is reviewing ABC Company\'s dividend policy as it relates to the firm\'s sh

Question

Phil is reviewing ABC Company's dividend policy as it relates to the firm's shareholders. As part of this review, he wants to divide shareholders into two basic categories in respect to dividend payments. The first group will be shareholders who are taxed on dividend income and the second group will be shareholders who receive some form of tax break on dividend income. Which of the following types of shareholders should be placed in the tax-favored second group?

I. Corporate
II. Pension fund
III. Individuals
IV. Trust funds

I only

III only

I and III only

II and IV only

I, II, and IV only

Explanation / Answer

the corporates get deduction from 70% to 100% on dividend income on thier holdings in corporates issuing dividends , pension funds have 100% rebate on divivdend income and trust funds gets rebate on dividend income , the shareholders of trust fund needs to tax ,

hence I,II and IV only should be put in tax favored shareholder groups

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