ACCA Taxation (F6) Practice Exam

What needs to be done with the annual exempt amount when calculating taxable gains?

1. It is added to the total gains

2. It is deducted from total gains

3. It is multiplied by the number of owners

4. It is divided by the market value

The correct answer is: It is deducted from total gains

In the context of calculating taxable gains, the annual exempt amount is a key threshold that allows individuals to reduce their taxable gains when disposing of assets. This amount is effectively an allowance that exempts a certain portion of gains from being subject to taxation. When determining the taxable gains for individuals, the process involves first calculating the total capital gains realized from asset sales. The annual exempt amount is then deducted from this total. This means that any gains that fall within the exempt amount are not taxable, thereby lowering the overall tax liability for the individual. Given that the question specifically asks about what needs to be done with the annual exempt amount, the correct answer reflects this deductive approach, as it is not added to, multiplied, or divided by any figures in the context of tax calculations. Rather, it is subtracted directly from the total gains to arrive at the amount that is subject to taxation. This understanding is crucial for accurate tax computations and compliance with tax legislation.