ACCA Advanced Taxation (ATX) Practice Exam

What are the matching rules for share disposal pertaining to individuals?

1. Last in, first out (LIFO) method

2. Same day and previous 9 days

3. Same day, following 30 days (FIFO), share pool

4. Only FIFO is applicable

The correct answer is: Same day, following 30 days (FIFO), share pool

The correct answer relates to the matching rules for share disposals by individuals, which are crucial for determining capital gains tax liabilities. Under current tax legislation, individuals can use specific methods to match shares sold with those acquired, and the rules are designed to prevent manipulation and ensure fairness in taxation. When utilizing the matching rules, the principle of same day and the following 30 days applies, which governs how shares purchased and sold can be matched. This includes matching shares sold on the same day as their acquisition and any shares that were purchased in the 30 days before the disposal. This FIFO (First In, First Out) method allows individuals to consider shares sold from the oldest batch first, creating a more transparent and straightforward approach to calculating gains or losses. Additionally, shares held within a "share pool" can also be utilized for this purpose. Other options lack the detailed inclusion of the specific time frames and methodologies present in the correct choice. They do not fully acknowledge the continuing relevance of the same day and the following 30-day rule, which is integral to accurately determining capital gains and tax liabilities. This specificity in the matching rules reflects a comprehensive approach to share disposals, ensuring individuals align their reporting with the gravity of their transactions.