Ch3-Taxation

Question 1

What is personal taxation?

taxable income examples.

Answer 1

The individual income tax (or personal income tax) is a tax levied on the wages, salaries, dividends, interest, and other income a person earns throughout the year. The tax is generally imposed by the state in which the income is earned.
~it is levied on all financial resources associated with an individual.

~income(wages/salaries or investment income and rent)
~profit from operating as a sole trader
~inherited wealth
~investment gains and
~the value of the asset held.

Question 2

More Information about Personal Taxation.

Answer 2

~Where tax is determined on the value of an asset, you might have to realize the asset in order to generate the income to settle the respective tax.
~There are some times when tax is levied at the source of income, to accelerate the tax cash flows to the government.
~government also ensures that the revenue flows are taxed only once in the hands of the recipients. If tax is also levied on wealth or specific assets, then the revenue may be taxed twice.

Question 3

What are the considerations that need to be taken into account?

what are some of the items that are tax-free in the UK?

Answer 3

~whether the marginal tax should increase, remain constant, or decrease as the individual’s taxable base varies.
~the ‘tax-free’ level of income which may need to reflect personal circumstances
~the age-related allowances for older taxpayers.

~profits from gambling
~forms of social security benefit.
~income from certain types of investment.

~if an employee receives the ‘fringe’ benefit, it is usually included in the taxable income.
~investment income can have tax deducted at source.
~the tax deducted at source can be offset against a person’s tax liability
~

Question 3

What are the considerations that need to be taken into account?

what are some of the items that are tax-free in the UK?

Answer 3

~whether the marginal tax should increase, remain constant, or decrease as the individual’s taxable base varies.
~the ‘tax-free’ level of income which may need to reflect personal circumstances
~the age-related allowances for older taxpayers.

~profits from gambling
~forms of social security benefit.
~income from certain types of investment.

~if an employee receives the ‘fringe’ benefit, it is usually included in the taxable income.
~investment income can have tax deducted at source.
~the tax deducted at source can be offset against a person’s tax liability
~

Question 4

What is capital gains tax?

what is a chargeable gain?

how do we determine the amounts needed to calculate the chargeable gain?

examples of free capital gains tax assets.

what is the marginal tax rate?

Answer 4

~this is the tax on the profit realized on the sale of a non-inventory asset. This is done so that the funds to settle the tax are available.

~Sale price - purchase cost.

~The sale price can be reduced to reflect any costs associated with the sale.
~the purchase cost can be increased by costs
associated with the purchase and the expenditure made to enhance the value of an asset. normally, the purchase cost is the original cost of the asset

~private motor cars
~private residence
~foreign currency obtained for personal use.
~British government securities.

• capital losses can be offset against capital gains.
• for individuals, the amount chargeable to capital gains tax could be added on to the income liable to the income tax and charged to capital gains tax at the individual’s marginal tax rate.

~The marginal tax rate is the tax rate you pay on an additional dollar of income.

Question 5

What is company taxation?

Answer 5

~Corporate income tax on their taxable profits. Taxable profits include both income(less allowable expenses) and capital gains.

Question 6

A company’s tax assessment starts at ‘Profit on ordinary activities before taxation’, what are the adjustments?

Answer 6

~add back business expenses/ potential expenditures shown in the accounts which are not allowable for tax.
~add back charge for depreciation and subtract capital allowances
~deduct special reliefs(e.g development costs, research costs)

*Since dividends are paid from profit after tax, others give relief to shareholders to ensure that dividends are not subject to both personal and corporate tax.
~this ensures that there isn’t any disadvantage faced by the shareholders(as a result of double taxation)

Question 7

What is an offshore investment fund?

Answer 7

~the investments which are housed in a country other than the country the investor resides.

Question 8

What is double taxation relief?

Answer 8

It means that the local tax authority will allow companies and individuals with overseas income or capital gains to offset tax paid overseas against their liability to domesticate tax on that income or capital gains.

Question 9

Other taxes

Answer 9

1) Stamp duty on contract documents
2) Inheritance taxes
3) Property taxes