ACCA Taxation (F6) Practice Exam

What defines taxable gains for tax purposes?

1. Gains after the deduction of personal allowances

2. Gains after deduction of annual exempt amount and brought forward losses

3. Gains derived from foreign investments only

4. Gains based solely on realized profits

The correct answer is: Gains after deduction of annual exempt amount and brought forward losses

Taxable gains for tax purposes specifically involve the calculation of gains after subtracting eligible deductions, which include the annual exempt amount and any brought forward losses. This means that before determining what is taxable, an individual can offset certain reliefs against their gains. The annual exempt amount allows taxpayers to realize a certain level of profit tax-free each year, which is crucial in reducing the overall tax burden. Similarly, brought forward losses provide the opportunity to offset previous losses against current gains, effectively lowering the taxable income. This approach ensures that individuals are only taxed on their net gains, which aligns with principles of fairness in taxation. In contrast, other options may either misrepresent the deductions that are taken into account or limit the scope of taxable gains unduly. The focus on foreign investments alone does not represent the overall taxable gain situation, as gains can arise from various sources. Additionally, defining taxable gains based solely on realized profits neglects important allowances and reliefs that are significant in the calculation of what ultimately becomes taxable. Thus, the selection highlighting the annual exempt amount and brought forward losses provides the most comprehensive and accurate definition of taxable gains for tax purposes.