Chapter 23: Taxation

Question 1

Factors that need to be considered when analysing the taxation of investments: (6)

Answer 1

1. the total rate of tax on an investment
2. how the tax is split between income and capital gains
3. when the tax is paid (i.e. the timing of tax payment)
4. whether the tax is deducted at source or has to be paid subsequently
5. the extent to which tax deducted at source can be reclaimed by the investor
6. the extent to which loses or gains can be offset between different investments or over different time periods for tax purposes.

Question 2

Factors that affect tax on investments: (5)

Answer 2

1. the overall tax system, e.g. tax rates and exemptions
2. particular rules for individual types of asset
3. the investor’s own status (individual or particular type of institution)
4. investor’s financial position
5. tax-efficiency of the vehicle used to hold the assets

Question 3

The three main systems of corporation tax

Answer 3

1. the classical system - under which company profits are taxed both in the hands of the company and the investor.
2. the split rate system - which is similar to the classical system except that different rates are levied on distributed profits and retained profits
3. the imputation system - under which tax paid by the company is deemed to cover part of the investor’s tax liability