ACCA Taxation (F6) Practice Exam

At what stage is relief utilized when calculating capital gains tax?

1. Before calculating the gain

2. After calculating gain on disposal of an asset

3. During the filing of the tax return

4. It is not utilized at all

The correct answer is: After calculating gain on disposal of an asset

When calculating capital gains tax, relief is utilized after calculating the gain on the disposal of an asset. This is because the capital gain is first determined by taking the selling price of the asset and subtracting its allowable costs, such as acquisition costs and any enhancements made to it. Once the initial gain has been established, reliefs such as annual exemptions or specific reliefs related to the nature of the asset can then be applied to reduce the taxable gain. Applying relief only after the gain has been calculated ensures that the taxpayer accurately knows the extent of the gain before any adjustments are made. This process is crucial to determine the correct tax payable and to ensure that any available reliefs are used appropriately to minimize tax liability. Therefore, understanding this sequential approach is vital for accurate taxation assessment.