IHC (Investment Holding Company) is a company: 1) Its main activity is holding of investment 2) Whose income is mainly which is 80% derived from the holding of investment.
Eg: the gross income derived from holding of investment dividends, interest, rental (include exempt income) is ≥ 80%
The amount of gross income from a ‘business of holding of investment’ is not computed as gross income from the holding of investment
Eg: excluded from 80% test
80% Test
Gross income ( dividends, interest , rental (only s4(d) ) (exempt or not)
Total gross income derived (whether exempt or not)
= ≥ 80%
Note: exclude gains from realisation of investments (capital income)
2. What are the steps in a tax computation, beginning from gross income, to arrive at the tax payable for an IHC (not listed)?
Step 1: Reduce Permitted Expenses (A) Total Income – gross div from 1-tier A = PE × Total income
B Step 2: Use A × or 5% × B , whichever is lower 4C A: Total permitted expenses (figure one from step1) B: Gross Income chargeable to tax consisting of dividends, interest & rental [GI (D, I, R) chargeable tax] C: Aggregate of gross income dividend (exempt or taxable), interest (exempt or taxable), rental (exempt or taxable) + gains from realization of investments – single-tier dividend
3. What are the steps in a tax computation, beginning from gross income, to arrive at the tax payable for an IHC (listed)?
Step 1: Each source of income is deemed to be business income in s4(a) income Eg: Business income of holding of investment is treated as s4(a) icome Management fees income is s4(a) income Royalty income is s4(a) income
Step 2: Losses and CA from a source of income is deductible against the same source.
Unutilised losses and CA is disregarded.
Step 3: Direct s33(1) expenses