ACCA Advanced Taxation (ATX) Practice Exam

What is the calculation to find the annual deduction from the premium taxed as income on the landlord?

1. Premium divided by number of years of lease

2. Premium x (n-51)/50 divided by number of months of lease

3. (Premium x (51-n)/50) divided by the number of years of lease

4. (Premium x (51-n)/50) multiplied by the number of years of lease

The correct answer is: (Premium x (51-n)/50) divided by the number of years of lease

The correct calculation for finding the annual deduction from a premium taxed as income for a landlord involves determining how much of the premium can be deducted each year over the life of the lease. The formula that represents this concept is based on the proportion of the lease term that remains and ensures the deduction is spread appropriately over the lease duration. The formula in the correct answer captures this principle effectively: (Premium x (51-n)/50) divided by the number of years of lease In this formula, "n" represents the number of years of the lease. The component (51-n) allows for a calculation that adjusts the premium in relation to the total lease period defined as 50 years. Essentially, it ensures that only the relevant portion of the premium is considered for deduction over the number of years the lease is valid. Dividing this adjusted premium by the number of years of the lease provides the landlord with the annual deduction amount, reflecting the spread of the premium across the lease's duration. This is important for tax purposes as it aligns the expense with the income generated by the property over time, adhering to tax regulations and principles of matching income and expenses. The other choices either misrepresent how the premium should be adjusted in relation to the years of the lease