Ch 23 - Taxation Flashcards
Factors that need to be considered when attempting to maximise net of tax returns
When Red ROSS
When
-the tax is paid
Rate
-of tax (total) on an investment
Recliam?
-The extent to which tax deducted at source can be reclaimed by the investor
Offset
-The extent to which losses or gains can be offset between different investments or over different time periods for tax purposes
Split
-How the tax is split between income and capital gains
Source
-Whether the tax is deducted at source or has to be paid subsequently
These factors will be affected by:
The overall tax system
The particular rules for individual types of assets
The investor’s own status
The investor’s own financial position
The tax-efficiency of the vehicle used to hold the assets
“bed and breakfasting”
Sale and repurchase of an asset in order to crystallise a capital gain
If the gain from the sale and repurchase is less than the annual tax allowance then no tax liability will be incurred
Thus subsequent capital gains will be taxed at the repurchase price and the eventual tax liability is reduced
Also should consider the extra transaction costs though!
Tax authorities may also insist on a minimum period between selling and repurchasing for the capital gain to be effective - thus, investors will have the risk that prices increase between this time
3 main systems of corporation tax
Classical system
Split-rate system
Imputation system
Classical system
Under which company profits are taxed both in the hands of the company and the investor
One single rate for dividends and retained profits
E.g. Company pays tax on its profits, dividends are then paid out of post-tax profits and the investor is taxed on those dividends
Split-rate system
Which is similar to the classical system except that different rates are levied on distributed profits and retained profits
Imputation system
Under which tax paid by the company is deemed to cover part of the investor’s tax liability
