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Questions and Answers
Which of the following is an example of allowable expenditure in taxation?
Which of the following is an example of allowable expenditure in taxation?
What is the definition of 'Year of Assessment' in taxation?
What is the definition of 'Year of Assessment' in taxation?
Which method allows profit recognition when earned but not necessarily received?
Which method allows profit recognition when earned but not necessarily received?
Which of the following costs may NOT be allowable due to being deemed capital expenditure?
Which of the following costs may NOT be allowable due to being deemed capital expenditure?
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What is the main purpose of keeping proper books of accounts as per the Income Tax Act?
What is the main purpose of keeping proper books of accounts as per the Income Tax Act?
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In the context of taxation for companies, which statement about trading income versus capital receipts is correct?
In the context of taxation for companies, which statement about trading income versus capital receipts is correct?
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What are preference dividends considered in corporate taxation?
What are preference dividends considered in corporate taxation?
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Which of the following statements about the treatment of interest in computing Corporation Tax is correct?
Which of the following statements about the treatment of interest in computing Corporation Tax is correct?
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Which type of contributions are allowable deductions if they do not exceed 20% of employee remuneration?
Which type of contributions are allowable deductions if they do not exceed 20% of employee remuneration?
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What is true regarding debts payable by the taxpayer?
What is true regarding debts payable by the taxpayer?
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Under what condition are advertising expenses considered allowable?
Under what condition are advertising expenses considered allowable?
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Which of the following expenses related to education may be allowed as a deduction?
Which of the following expenses related to education may be allowed as a deduction?
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What is the treatment of premiums on indemnity insurance policies for a business?
What is the treatment of premiums on indemnity insurance policies for a business?
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Which of the following expenses is typically not allowable for deduction?
Which of the following expenses is typically not allowable for deduction?
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Which types of donations can be considered as allowable deductions?
Which types of donations can be considered as allowable deductions?
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What is the implication of foreign exchange losses for tax deductions?
What is the implication of foreign exchange losses for tax deductions?
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Which type of expense is specifically excluded under Section 15 of the Income Tax Act?
Which type of expense is specifically excluded under Section 15 of the Income Tax Act?
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What is the maximum percentage of income tax chargeable that the Employment Tax Credit (ETC) can be claimed?
What is the maximum percentage of income tax chargeable that the Employment Tax Credit (ETC) can be claimed?
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Which of the following conditions is NOT a requirement to claim the Employment Tax Credit?
Which of the following conditions is NOT a requirement to claim the Employment Tax Credit?
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How is interest on preference shares treated for companies not on a recognized stock exchange?
How is interest on preference shares treated for companies not on a recognized stock exchange?
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Which of these is a condition for the clawback of the Employment Tax Credit claimed?
Which of these is a condition for the clawback of the Employment Tax Credit claimed?
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What type of incomings are designated as 'franked income' when distributed to another corporate company?
What type of incomings are designated as 'franked income' when distributed to another corporate company?
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Which of the following payments is generally treated as an allowable deduction by companies?
Which of the following payments is generally treated as an allowable deduction by companies?
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Which expense type is specifically mentioned as not being allowable under Section 15?
Which expense type is specifically mentioned as not being allowable under Section 15?
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What is the withholding tax rate for a shareholder holding less than 25% of a company?
What is the withholding tax rate for a shareholder holding less than 25% of a company?
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Which of the following scenarios would not incur any withholding tax?
Which of the following scenarios would not incur any withholding tax?
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What percentage of a company's net income can be used to deduct prior year losses?
What percentage of a company's net income can be used to deduct prior year losses?
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Which of the following statements concerning tax losses is accurate?
Which of the following statements concerning tax losses is accurate?
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How is the effective tax rate calculated?
How is the effective tax rate calculated?
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When are estimated taxes due for companies and individuals?
When are estimated taxes due for companies and individuals?
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What could lead to an effective tax rate lower than the standard tax rate?
What could lead to an effective tax rate lower than the standard tax rate?
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What is the maximum withholding tax rate for dividends paid to a shareholder residing overseas?
What is the maximum withholding tax rate for dividends paid to a shareholder residing overseas?
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Study Notes
Advanced Taxation: Taxation of Companies
- This presentation covers the taxation of companies, outlining key concepts and rules.
Presentation Outline
- Identifying Activities: Determining whether an activity constitutes a trade or otherwise.
- "Wholly and Exclusive" Rule: Applying this rule to classify allowable and disallowable expenses/income.
- New Tax Measures: Discussing recent or upcoming tax law changes.
- Interest Treatment: Explaining how interest is calculated in Corporation Tax.
- Taxation Implications: Addressing the taxation of various items, including preference dividends, investment income, and tax losses.
- Tax and Estimated Tax Payments: Detailing company tax payment procedures and estimated tax.
Income from Trade, Business, Profession & Vocation
- Accounting Profit: Accounting profit must be adjusted to determine the taxable profit.
- Books of Accounts: Section 89 of the Income Tax Act mandates proper bookkeeping in English. Records of all transactions, daily details of cash inflows/outflows, and annual stocktaking statements are required. All goods sold and purchased must be recorded.
- Method of Accounting: Discusses accrual vs. cash basis accounting, with the Willingdale vs Int'l Commercial Bank (UK, 1977) case as a reference point.
- Year of Assessment: The yearly accounting period begins on January 1st. "Permitted accounting date" is also mentioned.
- Measuring Income: Income is calculated as gross receipts less the cost of earning them. The difference between trading income and capital receipt is addressed.
Allowable Expenditure
- Interest: Interest on borrowed money for capital employed in a business is deductible. This includes investments on a long-term basis.
- Rent, Repairs, and Plant/Machinery: Rent expense is deductible if the premises are used for profit-generating activities. Appropriate apportionments of rent should be detailed per how the premises are used. Repairs are generally allowable except if they amount to a significant capital investment, which is not deductible. If repairs are immediately done post-purchase, it should be treated as a capital expenditure.
- Employee-Related Disbursements: Wages, salaries, and employee contributions (NIS, HEART, etc.) are deductible. Employer-provided advances, severance payments, and retirement fund contributions meet specific criteria to be deductible.
- Bad Debts: Debts due to the taxpayer qualify for deduction. Debts payable by the taxpayer become income once forgiven.
- Advertising: Advertising expenses are deductible if specifically related to the business. Costs related to creating physical structures (billboards, etc) are non-deductible.
- Business Entertainment: Entertainment expenses are deductible only if entirely related to procuring business income.
- Education: Education expenses are deductible if they relate to a trader's professional development.
- Insurance: Insurance premiums are deductible, and full insurance recovery is treated as trading income.
- Legal and Professional Fees: Revenue-related legal fees are deductible; however, acquiring capital assets is not. Specific examples of non-deductible fees are listed.
- Subscriptions: Subscriptions acquired for business purposes are deductible.
Allowable Expenditure: Donations and Foreign Exchange Losses
- Donations: Donations to approved charitable and educational institutions are allowed, limited to 5% of statutory income.
- Foreign Exchange Losses: Allowable if the related transactions are of a revenue nature.
Expenditure Not Allowable
- Domestic/Private Expenses: Personal expenses are not deductible.
- Capital Withdrawals: Capital withdrawals aren't deductible.
- Improvements: Expenses for improvements that aren't related to the business are not deductible.
- Non-Trade Losses: Losses unrelated to the trade aren't deductible.
- Unpaid Rent or Repairs: Rent or repair costs that are not incurred for producing the income aren't deductible.
Taxation of Companies
- Employment Tax Credit (ETC): An incentive for timely payment of employee taxes, capped at 30% of the income tax charged. Restrictions exclude non-trading income.
- Interest Paid and Received: Interest is treated on an actual payment basis, not on an accrual basis.
- Ordinary Shares and Ordinary Dividends: Dividend income from ordinary shares attracts 15% tax.
- Interest on Preference Shares & Preference Dividend: Fixed rate dividends are allowable for companies traded on stock exchanges. Companies outside recognized exchanges treat preference dividends as interest payments, contingent on factors like share capital levels and commissioner of tax approval.
Taxation of Companies: Franked Income
- Franked Income Definition: Income distributed within the corporate structure on an appropriate basis attracts this specific type of tax.
- Illustration: In the case of a distribution among shareholders, the treatment varies based on the shareholder's stake.
Taxation of Companies: Tax Losses
- Tax Losses: These are carried forward indefinitely and can be offset against future years' income provided approval is granted from the department.
- Prior-Year Loss Deduction: 50% of the net income is deductible for losses from previous years.
- Carry-back of Losses: Isn't permitted.
- Loss Calculation: When a company has a loss, it calculates the tax position by decreasing the loss by non-deductible items and increasing by deductible ones.
Taxation of Companies: Effective Tax Rate
- Effective Tax Rate: The ratio of tax liability to accounting income before tax.
- Reductions in Tax Charge: Capital allowances and interest charges may reduce tax. Conversely, gains can increase the tax charge.
- Tax Minimization: Management strategies can result in effective tax rates below the standard rate.
Taxation of Companies: Payment of Tax and Estimated Tax
- Payment Methods: Companies and individuals pay estimated taxes in quarterly installments (March, June, September, and December) aligning with the profit periods.
- Estimated Tax Base: Estimated tax is based on the chargeable income of the preceding year, or projections if income is projected to be lower.
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Description
This quiz focuses on the key concepts and rules related to the taxation of companies. It includes topics such as trade activity identification, the 'wholly and exclusive' rule, recent tax measures, and interest treatment in Corporation Tax. Understanding these elements is crucial for accurate company tax compliance.
