CTA Part 1 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Marginal tax rate

The rate applied to the next unit of taxable income within a progressive band; total tax is the sum of tax in each band, not the top rate on all income.

Taxable income

Gross income less allowable deductions, exemptions, and reliefs. It is the base to which progressive or flat tax rates are applied in the year.

Benefits-in-kind valuation

Non-cash employment benefits are usually taxed at cash equivalent, statutory formula, or market value; specific exemptions and caps may apply depending on the benefit type.

Personal allowance phase-out

Many systems reduce basic allowances as income rises, often by a set fraction per currency unit above a threshold, raising the effective marginal rate.

Residence versus domicile

Residence generally determines whether worldwide income is taxed; domicile may affect remittance basis, inheritance tax, or other personal tax consequences in some jurisdictions.

Income versus capital receipt

Recurring receipts from a business or employment are usually income; receipts from disposing of capital assets are usually capital, subject to badges of trade and anti-avoidance rules.

Corporate tax base

Accounting profit adjusted for non-deductible expenses, tax allowances, incentives, and timing differences. It is not simply net profit reported to shareholders.

Arm's length principle

Related-party cross-border transactions must be priced as if independent parties dealt under comparable conditions; adjustments may be made to taxable profits.

Participation exemption

A corporate tax rule exempting dividends or capital gains from qualifying shareholdings, often subject to minimum ownership, holding period, and subject-to-tax conditions.

Tax loss carry-forward

Unused tax losses may offset future taxable profits, usually subject to time limits, ownership-change restrictions, and anti-avoidance rules.

Group relief

A consolidated or group regime allowing losses or credits of one qualifying group company to reduce taxable profits of another, subject to ownership thresholds.

Thin capitalisation

Rules limiting deductions for interest paid to related parties when debt exceeds arm's length levels, often by recharacterising excess interest as equity.

Capital gain formula

Gain equals disposal proceeds minus allowable acquisition cost, incidental disposal costs, and qualifying enhancement expenditure; reliefs and annual exemptions may then apply.

Part disposal formula

Allocate base cost using A divided by A plus B, where A is consideration for the part disposed and B is market value of the retained part.

Principal residence relief

Relief exempts or reduces gain on a taxpayer's main home for periods of qualifying occupation, subject to limits, elections, and periods of absence rules.

Rollover relief

Defers a capital gain when proceeds are reinvested in qualifying replacement assets within prescribed time limits; the deferred gain reduces the new asset's base cost.

No gain no loss transfer

Certain transfers, commonly between spouses or group companies, are treated as occurring at base cost so no gain or loss arises at transfer.

Output tax

Tax charged on taxable sales of goods or services. Net tax payable is output tax minus allowable input tax, subject to partial exemption rules.

Input tax credit

Credit for tax paid on business purchases used to make taxable supplies; generally unavailable for exempt supplies or non-business use.

Place of supply

Rules determining which jurisdiction may tax a supply. They differ for goods and services and often distinguish business-to-business from business-to-consumer.

Reverse charge

A mechanism making the recipient liable to account for tax on imported or specified supplies, often with a corresponding input credit if entitled.

Zero-rated supply

A taxable supply taxed at zero percent, so output tax is nil but input tax credits remain recoverable, unlike an exempt supply.

Self-assessment

A system where the taxpayer reports income and calculates tax, subject to filing and payment deadlines, with penalties and interest for non-compliance.

Reasonable care

A penalty defence standard requiring taxpayers to keep records and take appropriate steps to ensure returns are accurate; careless errors may still be penalized.

Tax evasion

Illegal conduct involving deliberate concealment or misrepresentation of income or liabilities; subject to criminal sanctions and civil penalties.

General anti-abuse rule

A statutory rule allowing tax authorities to counteract arrangements whose main purpose is tax advantage, even if specific rules do not apply.

Record retention

Taxpayers must keep supporting records for a prescribed period, often several years after filing or assessment, to substantiate returns and defend penalties.

Permanent establishment

A fixed place of business or dependent agent in a source state that gives that state taxing rights over business profits attributable to it.

Foreign tax credit

Relief for tax paid to another jurisdiction, usually limited to domestic tax on the same income, with excess credits sometimes carried forward or back.

Double tax treaty

Bilateral agreement allocating taxing rights, defining residence and permanent establishment, and providing relief through credits, exemptions, or reduced withholding rates.

Controlled foreign company

Rules that may attribute low-taxed income of a foreign subsidiary to resident shareholders or parent, subject to ownership, activity, and tax-rate tests.

Exit tax

A deemed disposal or charge on unrealised gains when a taxpayer or company ceases tax residence, often subject to deferral or treaty relief.