Chapter 2: Corporate Income Tax and Capital Tax Computations

Question 1

What is the difference between a Balancing ‘Allowance’ and ‘Charge’?

Answer 1

Balancing Allowance – tax loss on disposal

Balancing Charge – tax profit on disposal

Question 2

What are Capital Tax gains?

Answer 2

Gains made on the disposal of investments and other non-current assets. The most common assets taxed are stocks and shares.

Question 3

What are group issues?

Answer 3

Group loss relief – save tax, enable relief to be gained earlier

Appropriations of profit –

Question 4

What are the main systems to deal with double taxation? (pt 1.)

Answer 4

Classical System – the shareholder is treated as independent from the entity

Imputation System – the shareholder receives a tax credit equal to the underlying corporate income tax paid by the entity

Question 5

What are the main systems to deal with double taxation? (pt 2.)

Answer 5

Partial Imputation System – a tax credit is offered to the shareholder but only for part of the underlying income tax paid by the entity on its taxable earnings used to pay the dividend

Split Rate System – distinguish between distributed profits and retained profits and charge a lower rate of corporate income tax on distributed profits