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Dear Jill,
QUESTION 1: The answer to MCQ1 of this chapter is different in your lecture notes and the lecture video. Please, Jill, indicate which one of the answers is correct with reason.
QUESTION 2: Groups – Chargeable gains
“A group consists of a parent company and its 75% subsidiaries, and also the 75% subsidiaries
of their subsidiaries.” Reference (OpenTution TX; page 170)This rule is a bit unclear to me.
Does it mean that if the subsidiaries own LESS than 75% of their subsidiaries, they cannot form a group for gains purposes with the first parent company?
Example: If A Ltd owns 80% of B Ltd and B Ltd owns 70% of C Ltd
A Ltd’s indirect relationship with C Ltd is >50% (80% x 70%), BUT B Ltd has a holding of <75% of C Ltd.
Will the relationship between B Ltd and C Ltd affect the indirect relationship between A Ltd and C Ltd?MCQ1 – the loss can only be surrendered to Chair
Bin ltd – less than 75% holding so not part of the group
Paper Inc – part of the group but overseas so cannot use the lossIt’s about direct and indirect holding – the direct (firstly) must be 75% or more then…..
you consider the subsidiery of that company.A owns 90% of B – more than 75% – ok
B owns 90% of C – so the INDIRECT holding (A to C) is more than 75% (its 81%)
but
if B owns 80% of C the indirect holding is now only 72% so there is no link between A and C for group losses purposes.Hope this makes sense
JillMCQ1: Understood. Thank you.?
BUT…
The 2nd question I asked is NOT for “group losses purposes,” rather, it’s for GAINS – where the rules are different. For example, the indirect relationship need only be >50% and the parent’s residency is not restricted.I do understand the “>50% indirect relationship rule” for GAINS, but I want to clarify this rule which is stated in your manual for GAINS: “A group consists of a parent company and its 75% subsidiaries, and also the 75% subsidiaries of their subsidiaries”
What does the mention of “…and also the 75% subsidiaries OF THEIR subsidiaries…” mean?Sorry – misread the question
Gains groups yes the direct holding is 75% and indirect 50%
The sentence you refer to is a little misleading I can see that so – Kaplan explain it as follows:
” a capital gains group comprises the parent company and it’s 75% subsidiaries and ALSO, the 75% subsidiaries of the first subsidiaries:Parent
75%
Subsid 1
75%
Subsid 2
All 3 in a group together for GAINs as indirect holding (75 x75%) is 56.25% – ie more than 50%
Hope that makes sense
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