Capital and Income Distinctions - Essay Example

The significant difference in the taxation of the two is that income is a direct tax derived from dividends, business interests, and pensions while capital gains tax is only levied on the profits made from the assets. The capital gains tax is applied when one gains profit in comparison to the income tax that is applied on every income obtained. Income tax is applied in a progressive approach where the rich pay more and the poor get a moderate tax on the income they obtain. In this type of approach, the more one gets in income the more one pay in taxes.

Since it is a key government revenue producer, income tax is one of the reliable taxes the governments use to gain money to run the governments. It becomes difficult to gain the definition of the two since they are closely tied. Consider an individual earning a salary of? 30000 pounds and decides to save after taxation making the savings capital for a rainy day. Since the capital will gain profits, the profits become taxable via the gain they accrued. On the other hand, the individual may choose to save through investment of the income after tax.

Consequently, the gain in the investment is income and this becomes taxable. Therefore, one can be double-taxed if they are not keen on the type of investment they make. This proves that the line defining the two is very thin to make a perfect distinction between the two paradigms. In another case of the law shipping and the Odeon theatres, the case proves to be a hard distinction of the revenue and capital tax description. The Law Shipping case was apprehensive through a corporation, which acquired a ship in an unfortunate state of repair for? 97,000. Does the firm then use the ship in its existing circumstances of renovating for an expedition and then make the repairs valued? 51,558. The corporation then claims the costs of the maintenance as an income expense.

The claim is dismissed in court and the decision is upheld. The Court signified that maintenance would frequently be returned outgoing, even if the care for the vessel was delayed for an extended time. Preservation may be effected at a time when the firm feels it viable and feasible for the business but, in either case, they strictly comprise a persistently frequent occurrence of that nonstop service of the vessel that makes maintenance essential. They are for this reason an acceptable deduction in working out income, and, as is disclosed in the litigation.

In the Odeon Cinema, the theatre was obtained with similar maintenance deficits but that did not stop the acquisition of the facility the difference between the two cases the theatre could be used without repairs for a while unlike the expedition of the law shipping conducts. However, the maintenance costs did not alter the cost accrued from buying the vessel. Therefore, the evidence points out the repairs as an income account. Corporation taxes are both taxed together but in fact, underlying that, they are each calculated separately under rules of income and capital makes them different from the common taxation bracket. This is due to the aspect presented by the corporation where it cannot be taxed as a mere legal fiction. The corporation is taxed under different rules due to its nature of accruing benefits.