ACCA Advanced Financial Management (AFM) Practice Exam

Disable ads (and more) with a membership for a one time $4.99 payment

Get ready for your ACCA AFM Exam with in-depth study tools! Engage with flashcards, multiple choice questions, detailed explanations, and hints. Elevate your exam preparation skills!

Practice this question and more.

One advantage of capital gains is that tax is...

Paid immediately upon sale
Deferable until shares are sold
Reduced for long-term holders
Eliminated upon dividend distribution

The correct answer is: Deferable until shares are sold

The correct answer is that capital gains tax is deferable until shares are sold. This means that an investor does not have to pay tax on the gains from an increase in asset value until they actually sell the asset. This advantage allows for the postponement of tax liabilities, which can lead to greater potential for investment growth over time, as the investor can reinvest the full amount of their returns without having to account for taxes upfront. This deferment is especially beneficial in a long-term investment strategy, as it allows the investment to compound without the immediate tax burden reducing the total returns. Moreover, it can also provide a strategic advantage for investors who can time their sales to potentially take advantage of lower tax rates or other personal financial situations. Understanding this concept is crucial for effective tax planning in investment management.