ACCA Advanced Taxation (ATX) Practice Exam

How are dividends from a Real Estate Investment Trust (REIT) treated in Income Tax computation?

1. Taxed as dividends only.

2. Taxed as savings income.

3. Taxed as property income at 40%.

4. Treated as received net of a 20% tax.

The correct answer is: Treated as received net of a 20% tax.

Dividends from a Real Estate Investment Trust (REIT) are treated as received net of a 20% tax because such distributions are subject to withholding tax at source. This means that when an individual receives dividends from a REIT, they are effectively receiving them after the application of a 20% tax. This withholding tax is designed to simplify the taxation process for both the REIT and the recipient, ensuring that tax is collected upfront. The 20% rate is commonly applicable to dividend distributions to individuals and entities that do not qualify for any exemption or relief. Other treatments mentioned in the alternatives would not accurately reflect how REIT dividends are taxed in practice. For instance, treating them solely as dividends without accounting for the withholding tax would misrepresent the net amount received by the investor. The characterization as either savings income or property income does not align with the specific tax treatment mandated for REIT distributions. Thus, option D accurately captures the taxation mechanism for REIT dividends, reflecting the real tax implications for investors in such entities.