Last time I showed how the end tax rate with a company holding shares and being taxed on capital gains could be as low as nil – nothing at all!! See Tax Tip 287: How Capital Gains Through a Company can be Tax Free Tax Tip 287: How Capital Gains Through a Company can be Tax Free But it can go the other way too. It could be much more than 30%. This is because the company tax rate of 30% is not the final rate of tax that is paid. Top up tax will need to be paid if the person receiving the dividends is on a tax rate greater than 30%. Example Ned set up a company himself with no legal or taxation advice he then went and bought shares in the company. The shareholder is himself. Net is working in IT and is on $200,000 per year and is paying the top tax rate so the company rate of 30% in tax was the main driving factor in him owning shares through the company. After 2 years the shares have double and there is a $100,000 capital gain when they are sold. Great things Ned The company pays 30% tax and has $70,000 left. Ned then takes that out as a dividend as he wants to reduce his non-deductible debt – something which he has also not taken advice on. Ned receives $70,000 from the company which comes with $30,000 in franking credits Ned’s new income is now $300,000 – his $200,000 from his wage plus his $100,000 from the shares (the $70,000 is grossed up to $100,000). On $200,000 in income Ned was paying $67,097 in tax. On $300,000 in income Ned will pay $114,097 That is an extra $47,000 in tax. Ned has a franking credit of $30,000 but the top up tax will be $17,000 The net result is that Ned has paid 47% on the capital gains on the shares.