ACCA Advanced Taxation (ATX) Practice Exam

Under what condition is the sale proceeds from a rights issue not considered small?

1. If the amount exceeds £1,000

2. If it is less than 5% of the original share value

3. If it exceeds £3,000 or 5% of the share value

4. If it includes additional taxes

The correct answer is: If it exceeds £3,000 or 5% of the share value

The sale proceeds from a rights issue are considered significant when they exceed a certain threshold, which is specified as either a monetary amount or a percentage compared to the original share value. In this case, the correct response indicates that the proceeds must either exceed £3,000 or represent more than 5% of the original share value to be classified as not small. This reflects tax rules that identify thresholds for determining whether the proceeds from rights issues can be treated differently for tax purposes. Such thresholds exist to prevent trivial amounts from being subjected to detailed tax scrutiny, thereby streamlining tax compliance for small transactions. Therefore, if the sale proceeds surpass either of these criteria, they are deemed significant enough to warrant further consideration under tax law. The other options do not fully capture the criteria for when sale proceeds are considered not small, either by failing to specify both a monetary and a percentage component or misrepresenting the thresholds. Option A's £1,000 figure is too low, and option B does not associate the proceeds with an adequate monetary figure. Option D introduces the idea of additional taxes, which is not relevant in determining the classification of the sale proceeds themselves.