ACCA Advanced Taxation (ATX) Practice Exam

At what point is the DTR subtracted in the CGT pro forma?

1. Before capital gains tax liability calculation

2. After capital gains tax liability calculation

3. Before charging any tax reliefs

4. After all taxable income is calculated

The correct answer is: After capital gains tax liability calculation

The double taxation relief (DTR) is subtracted after the capital gains tax (CGT) liability has been calculated. The process involves first determining the capital gains taxable amount, which is then subject to the applicable tax rates. Once this liability is established, the DTR can be applied to reduce the overall CGT liability due to taxes paid on the same gain in another jurisdiction. This approach acknowledges that the DTR is intended to mitigate the impact of double taxation on the same income or gain. By calculating the CGT liability first, you establish a clear base from which the DTR can be effectively subtracted, reflecting the true tax burden owed. In this context, the other choices do not accurately reflect the sequence in which DTR should be applied in the CGT pro forma. Subtracting DTR before calculating tax liability or before charging any tax reliefs would misplace its application, resulting in an incorrect tax calculation. Additionally, deducting it after calculating all taxable income rather than after determining the capital gains tax liability would overlook the necessary linkage between the gains and reliefs at the appropriate stage in the process.