" Ramsay principle " is the shorthand name given to the decision of the House of Lords in two important cases in the field of UK tax , reported in 1982:
52-403: In summary, companies that had made substantial capital gains had entered into complex and self-cancelling series of transactions that had generated artificial capital losses , for the purpose of avoiding capital gains tax . The House of Lords decided that where a transaction has pre-arranged artificial steps that serve no commercial purpose other than to save tax, the proper approach is to tax
104-402: A "chargeable gain" for the purposes of corporation tax by a sale-leaseback transaction. This gain it desired to counteract, so as to avoid the tax, by establishing an allowable loss. The method chosen was to purchase from a company specialising in such matters a ready-made scheme. The general nature of this was to create out of a neutral situation two assets one of which would decrease in value for
156-422: A capital gain are sold too early, while stocks which are clear losers are held on for too long, thus creating greater capital losses than necessary. This asset pricing model details how the expectations of future capital gains in the stock market are a key driver of actual stock price movements. In general, “asset price boom and bust cycles… are fueled by the belief-updating dynamics of investors ”, and thereby
208-419: A capital gain, individuals may be able to either claim a reserve or claim a capital gains deduction. Individuals are eligible to claim a reserve when the capital gain does not occur as one lump-sum payment but rather a series of payments over time. In order to calculate the reserve, Canadian individuals must calculate their capital gain via the regular sale price minus cost price method, and subsequently subtract
260-558: A circle, and back into their hands again, within a few days, with interest. The House of Lords rejected the idea that there was any exemption from tax under the "debt on a security" rule. However, that was not the basis of their decision, which was a more far-reaching principle. Some types of interests in trusts are "assets" of a kind that can be bought, sold, and be subjected to CGT . Other types of interests in trusts are not "assets" in that sense. The taxpayer in this case, Mr Rawling, tried to take advantage of that fact by entering into
312-458: A consumption good has a strong influence on actual housing prices and demand. As stated by Dusansky & Koç, “an increase in housing prices increases the demand for owner-occupied housing services. Thus, housing’s role as investment asset with its potential for capital gains dominates its role as consumption good”. A capital gain may be earned through the sale of intangible financial assets such as bonds . The capital gain would be achieved when
364-427: A deductible form. They did this by entering into a series of (perfectly genuine) inter-group transactions, the overall effect of which was that the loss already incurred became a deductible capital loss on the liquidation of one of the subsidiaries in the group. These transactions were made using Burmah Oil's own money, and were therefore quite different from the pre-arranged, marketed "schemes" using borrowed money in
416-457: A dictionary of similes in 1916, with a second edition in 1924. As when a prowling Wolf, Whom hunger drives to seek new haunt for prey, Watching where Shepherds pen their Flocks at eve In hurdl'd Cotes amid the field secure, Leaps o'er the fence with ease into the Fold: . . . . . . . So clomb this first grand Thief into God's Fold Other examples: As bright as the sun, ran like
468-506: A direct comparison word such as "like" or "as". The word simile derives from the Latin word similis ("similar, like"), while metaphor derives from the Greek word metapherein ("to transfer"). As in the case of metaphors, the thing that is being compared is called the tenor, and the thing it is being compared to is called the vehicle. Author and lexicographer Frank J. Wilstach compiled
520-399: A gas chamber with opposite charges, one of which is used to create the loss, the other of which gives rise to an equivalent gain that prevents the taxpayer from supporting any real loss and whose gain is intended not to be taxable. Like the particles, these assets have a very short life. Having served their purpose they cancel each other out and disappear. At the end of the series of operations,
572-492: A narrow focus on disregarding circular transactions and inserted pre-ordained steps with no commercial purpose. A number of tax counsel have cited the following comments by Ribeiro PJ in Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 46, para 35 with approval as an authoritative statement of the prevailing view of the judiciary on the application of legislation in tax avoidance cases: The driving principle in
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#1732801346697624-536: A reflection of the gain. The true view, regarding the scheme as a whole, is to find that there was neither gain nor loss, and so I conclude. The core of the Ramsay Principle is to be found in the Burmah Oil case in this remark by Lord Diplock : It would be disingenuous to suggest, and dangerous on the part of those who advise on elaborate tax-avoidance schemes to assume, that Ramsay's case did not mark
676-623: A sensitive subject is broached, and the comedian will test the audience with a response to a subtle implicit simile before going deeper. The sitcom Blackadder featured the use of extended similes, normally said by the title character. For example: Given that similes emphasize affinities between different objects, they occur in many cultures and languages. Sayf al-Din al-Amidi discussed Arabic similes in 1805: "On Substantiation Through Transitive Relations" . Thuy Nga Nguyen and Ghil'ad Zuckermann (2012) classify Vietnamese similes into two types: Meaning Similes and Rhyming Similes. The following
728-433: A significant change in the approach adopted by this House in its judicial role to a pre-ordained series of transaction (whether or not they include the achievement of a legitimate commercial end) into which there are inserted steps that have no commercial purpose apart from the avoidance of a liability to tax that, in the absence of those particular steps, would have been payable. More recent cases have tended to move away from
780-494: A statement cannot be both a simile and a metaphor — if it uses a comparison word such as "like" then it is a simile; if not, it is a metaphor. The second school considers metaphor to be the broader category, in which similes are a subcategory — according to which every simile is also a metaphor (but not vice-versa). These two schools reflect differing definitions and usages of the word "metaphor" and whether or not it encompasses similes, but both agree that similes always involve
832-459: A whirlwind, as still as glass, fought like a lion, torn like a map, moved as slow as a snail, like music to my ears, as dark as charcoal, as sweet as honey, like a maze Similes are used extensively in British comedy, notably in the slapstick era of the 1960s and 1970s. In comedy, the simile is often used in negative style: "he was as daft as a brush." They are also used in a comedic context where
884-438: Is a type of figure of speech that directly compares two things. Similes are often contrasted with metaphors, where similes necessarily compare two things using words such as "like", "as", while metaphors often create an implicit comparison (i.e. saying something "is" something else). However, there are two schools of thought regarding the relationship between similes and metaphors. The first defines them as opposites, such that
936-467: Is an example: Nghèo / ŋɛu như ɲɯ con kɔn mèo mɛu / Nghèo như con mèo / ŋɛu ɲɯ kɔn mɛu / "Poor as a cat" Whereas the above Vietnamese example is of a rhyming simile, the English simile "(as) poor as a church mouse" is only a semantic simile. In Telugu , simile is known as upamaalankaaramu ( ఉపమాలంకారము ). Based on the components of the sentence in which
988-581: Is not considered your primary dwelling, your main dwelling if it exceeds a certain size or has been used for business, any shares that are not in an individual savings account or personal equity plan, and any business assets. HMRC also lists certain assets which are exempt from accruing capital gains, including any gains made from individual savings accounts or personal equity plans, “UK government gilts and Premium Bonds”, and any winnings from lottery, betting or pools. HMRC states that only gains made above an individual's allowance are eligible to be taxed, and no tax
1040-405: Is payable for individuals who accrue gains which are under their Capital Gains Tax allowance. In order to calculate an individual's capital gain, HMRC requires calculation of the gains for each asset in the relevant 12-month period, which are then summed together and finally reduced by the amount of allowable losses deduction. HMRC also states that when reporting a loss, “the amount is deducted from
1092-506: Is possible to reduce the risk from a large position in a stock by “costlessly short selling a perfect substitute”. A capital gain may be earned through the sale of physical assets such as houses, apartments or land. In most countries however, the sale of a primary dwelling or Primary residence is exempt from capital gains tax. For example, the Australian Taxation Office offers a full exemption of capital gains tax on
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#17328013466971144-410: Is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions intended to operate as such, it is the series or combination which may be regarded. He ruled that in the particular facts of Ramsay [It would be] a faulty analysis, to pick out, and stop at, the one step in the combination which produced the loss, that being entirely dependent upon, and merely,
1196-545: Is the indexation method, which allows individuals and firms to apply an index factor to increase the base cost of the asset, thereby decreasing the final capital gain value. The third is the ‘other’ method, and involves use of the general capital gain formula whereby the base costs of the asset are subtracted from its final sale price. The Canada Revenue Agency (CRA) includes several unique guidelines for calculating individual or business capital gain. The CRA states that individuals may exclude from their capital gains calculation
1248-423: Is the original] creditor or his personal representative or legatee on a disposal of the debt, except in the case of the debt on a security [as defined in section 132]), while the loan that had fallen in value was disposed of in such a way that it was intended to be a deductible capital loss . Funding for the entire transaction was provided by a finance house, on terms such that the money would inevitably pass round in
1300-541: The Ramsay and Eilbeck cases. The judges were quite clear that they would have found in favour of Burmah Oil, and against the IRC, had it not been for the decision in the Ramsay case, some months before. In the Ramsay case, Lord Wilberforce distinguished three ingredients of the schemes involved Wilberforce summed up the emerging principle It is the task of the court to ascertain the legal nature of any transaction to which it
1352-507: The Ramsay line of cases continues to involve a general rule of statutory construction and an unblinkered approach to the analysis of the facts. The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically. Capital gain Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over
1404-505: The United States Internal Revenue Service (IRS) does consider profits from the redemption or sale of a bond as a capital gain. Bond capital gains are calculated in the same method as other capital gains, whereby “the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss”. Simile A simile ( / ˈ s ɪ m əl i / )
1456-580: The United States, to the development of property rights in France in 1789, and even other developments much earlier. The official beginning of a practical application of capital gain occurred with the development of the Babylonian's financial system circa 2000 B.C. This system introduced treasuries where citizens could deposit silver and gold for safekeeping, and also transact with other members of
1508-465: The amount of approved reserve for the year. A capital gains deduction is the second form of capital gain calculation which the CRA offers. It is “a deduction that you can claim against taxable capital gains you realized from the disposition of certain capital properties”. Only residents from Canada throughout the previous year are eligible to claim the deduction, and only certain capital gains are eligible for
1560-547: The base asset for less than one year, while long term capital gains occur when the asset is held for over one year. Ownership dates are to be counted from the day after the date which the asset was acquired, through to the day which the asset is sold. There are typically significant differences in the taxation of capital gains earned by individuals and corporations, and the OECD recognizes three simple categories of individual capital income which are taxed by its member nations around
1612-422: The benefit of the other. The decreasing asset would be sold, so as to create the desired loss; the increasing asset would be sold, yielding a gain that it was hoped would be exempt from tax. The two assets in question were loans of equal amounts, which had an unusual condition: Ramsay Ltd. was entitled, once, to reduce the rate of interest on one loan, provided that the rate of interest on the other loan increased by
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1664-545: The birth of the modern economic system and its evolution has been described as complex and multidimensional by a variety of economic thinkers. The concept of capital gain may be considered comparable with other key economic concepts such as profit and rate of return ; however, its distinguishing feature is that individuals, not just businesses, can accrue capital gains through everyday acquisition and disposal of assets. The history of capital gain in human development includes conceptualizations from pre-1865 slave capital in
1716-485: The bond, the ATO states that this profit is “not treated as a capital gain” and that the profit should simply be included in the individual's tax return. Similarly, if an individual sells a bond to another individual for more than, or less than, the price they paid for the bond, the ATO states that “this profit is not treated as a capital gain” and that the profit should simply be included in the individual's tax return. However,
1768-411: The calculated capital gain value. The Australian Taxation Office (ATO) lists three methods of calculating capital gain for Australian citizens and businesses, each one designed to lower the final resulting value of the eligible party's gain. The first is the discount method, whereby eligible individuals or super funds may reduce their stated capital gain value by 50% or 33.33% respectively. The second
1820-691: The corporate level, thus reducing their tax burden. The OECD average interest income tax rate is 27%, and almost all OECD countries excluding Chile, Estonia, Israel, and Mexico tax an individual's total nominal interest income. Capital gain can only be earned on the profitable sale of assets. A former Chief Accountant of the Securities Exchange Commission defined an asset as: “ Cash , contractual claims to cash or services, and items that can be sold separately for cash”. Practical applications of this definition primarily include stocks and real estate. A capital gain may be earned through
1872-607: The deduction to be applied. The German tax office levies different capital gains tax based on the asset you sold and the holding period. Taxpayers in Germany, pay a flat 25% (2024) capital gains tax on their profits from selling the stocks plus solidarity surcharge of 5.5% (2024). If the individual is a church member, they also pay church tax. In the end the total capital gains tax is 27.82% in Baden-Württemberg and Bavaria, and 27.99% in all other federal states. Taxes on
1924-579: The economy. As such, this allowed the Babylonians to calculate costs, sale prices and profits, and hence capital gains. Capital gain is generally calculated through taking the sale price of an asset and subtracting its base cost and any incurred expenses. The resulting value will be the capital gain, or capital loss if negative. In reality, many governments provide supplementary methods of calculating capital gains for both individuals and businesses. These methods can provide taxation relief through lowering
1976-442: The effect of the transaction as a whole. The decision is not limited to capital gains tax , but applies to all forms of direct taxation , and is an important restraint on the ability of taxpayers to engage in creative tax planning . The important facts are set out in the following quotation from Lord Wilberforce :. [This] is an appeal by W. T. Ramsay Ltd., a farming company. In its accounting period ending May 31, 1973, it made
2028-560: The following transactions: The court rejected the idea that there had in fact been any loss. Lord Russell said, quite bluntly: I wholly fail to comprehend the contention that the taxpayer sustained a loss. His reasoning was that Mr Rawling had an interest in the Jersey trust, anyway, so there simply had not been any loss on the sale of the interest in the Gibraltar trust. Also, all of the money needed to fund these trusts, and to purchase
2080-495: The following types of donations: “shares in the capital stock of a mutual fund corporation… prescribed debt obligations that are not linked notes, ecologically sensitive land… (or) a share, debt obligation, or right listed on a designated stock exchange”. Note that for the exclusion to be approved the donation must be to a qualified donee, and also that capital losses arising from such donations are not eligible to be excluded from an individual's reporting. The CRA states that following
2132-412: The gains you made in the same tax year”. The United States Internal Revenue Service (IRS) also provides guidelines on calculating capital gains. The IRS defines a capital gain or loss as “the difference between the adjusted basis in the asset and the amount you realized from the sale”. Capital gains are also further defined as either short term or long term. Short term capital gains occur when you hold
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2184-473: The holding period. An asset may include tangible property , a car, a business, or intangible property such as shares . A capital gain is only possible when the selling price of the asset is greater than the original purchase price. In the event that the purchase price exceeds the sale price, a capital loss occurs. Capital gains are often subject to taxation , of which rates and exemptions may differ between countries. The history of capital gain originates at
2236-400: The interests in them, had been provided by a company called Thun Ltd., on terms that it would all be paid back to Thun Ltd. after the transactions had been completed. (Indeed, the court doubted that there had ever been any real money, at all: the whole matter appears to have been dealt with by means of paper accounting entries.) However (as with the Ramsay case above) the core of the decision
2288-430: The optimism regarding future capital gains in a particular stock will often be the cause of the eventual increase in the stock's price. The lock-in effect proposes that rather than realize capital gains on stocks, investors should instead revert to short-selling substitute securities. Provided that “tax-exempt perfect substitute securities exist”, investors should never realize their capital gains on stocks because it
2340-417: The sale of a primary home, provided the individual or couple meets certain eligibility criteria. The interlink between psychology and capital gain is also frequently seen in stocks, a concept which is similarly explored by Dusansky & Koç. Since houses are not only consumption but often investment expenditures for families, expectations of capital gains through investing in the house as an asset rather than
2392-457: The sale of financial assets such as stocks . When one sells a stock, they would subtract the cost price from the sale price to calculate their capital gain or loss. The disposition effect is a theory which links human psychology to capital gain in stocks and examines how humans make choices under the threat of a potential capital loss. It reveals a pattern of irrationality within human behaviour, in which stocks which have potential to accrue
2444-598: The sale of real estate are completely different from that of stocks. If you hold the property for more than ten years, you can sell it tax-free in Germany. Similarly, you can sell the property tax-free if you lived in it yourself for at least two years. However, you pay taxes based on your personal tax rate if you don't meet any of the tax-free criteria. The United Kingdom HM Revenue and Customs (HMRC) office lists certain assets which are eligible to be considered as capital gains. These include “most personal possessions worth £6,000 or more, apart from your car”, property that
2496-416: The same amount. Ramsay Ltd. exercised this right, such that one loan became worth far more than its original value, and the other far less. The loan that had gained in value was disposed of in such a way that it was intended to be exempt from tax as "debt" (sec. 251 [2] TCGA 1992: Where a person incurs a debt to another, whether in sterling or in some other currency, no chargeable gain shall accrue to that [that
2548-402: The selling price of the bond is higher than the cost price, and the capital loss would occur if the selling price of the bond is lower than the cost price. Some government departments, such as the Australian Taxation Office (ATO) do not classify gains arising from the profitable sale of a bond as a capital gain. If an individual redeems a bond for more than, or less than, the price they paid for
2600-431: The taxpayer's financial position is precisely as it was at the beginning, except that he has paid a fee, and certain expenses, to the promoter of the scheme. In this case, the Burmah Oil group had suffered a genuine loss on the sale of an investment. However, the loss was not of the right kind to be deductible for tax purposes. Accordingly, the company's accountants and lawyers formulated a plan to "crystalise" that loss into
2652-497: The world. These include dividend income , interest income , and capital gains realized through property and shares . The OECD average dividend tax rate is 41.8%, whereby dividends are often taxed at both the corporate and individual level and categorized as corporate income first and personal income second. However, certain countries such as Australia, Chile, Mexico, and New Zealand employ imputation tax systems which allow corporations to redeem imputation credits for tax paid at
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#17328013466972704-535: Was not related to the judges' disagreement with the detail of the taxpayer's case. Instead it was based on a more fundamental principle ( The Ramsay Principle ) explained under " Judgements " below. Note that the facts have been simplified for ease of explanation, and that the actual transaction was rather more complex. Lord Wilberforce described the transactions in the Ramsay and Rawling cases with this colourful (if not necessarily scientifically accurate) simile : In each case two assets appear, like "particles" in
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