Whitefield pays income tax at the company tax rate on its net taxable investment income (consisting of dividends, distributions and interest net of expenses), and is entitled to the benefit of franking credits on tax it pays or on franked dividends it receives. Whitefield may in turn pay franked dividends to its own shareholders, effectively passing on the benefit of those franking credits to investors.
Whitefield also pays tax at the company tax rate on any net realised capital gains. A large percentage of Whitefield’s capital gains will also be considered LIC Discount Capital Gains for tax purposes.
Qualifying LIC Discount Capital Gains made by Whitefield may be passed through to Whitefield’s underlying shareholders as a fully franked LIC Discount Dividend so that individual shareholders become entitled to the usual 50% capital gains tax discount applicable to that gain. (Superannuation fund shareholders would be entitled to their usual 33% capital gains tax discount on such a gain).
Capital gains made by Whitefield which are not qualifying LIC discount capital gains, are subject to tax in the normal way at company tax rates.