Assessable Profit

Assessable profit is the portion of a corporation’s taxable income that is determined after subtracting certain deductions and exemptions. It is the amount of income that is subject to tax, calculated by applying the applicable tax rate to the assessable profit.

Formula for Assessable Profit:

Assessable Profit = Net Income – Deductions – Exemptions

Components of Assessable Profit:

• Net Income: The total income generated by the corporation, including revenue from operations, investment, and dividends.
• Deductions: Amounts that are subtracted from gross income to arrive at taxable income, such as depreciation, interest expense, and certain business expenses.
• Exemptions: Amounts that are excluded from taxable income altogether, such as personal exemptions, charitable contributions, and certain expenses.

Factors Affecting Assessable Profit:

• Business Structure: Corporations are taxed differently than other entities, such as sole proprietorships and partnerships.
• Industry Revenue: Different industries have different profit margins and therefore different assessable profits.
• Operating Expenses: The amount of expenses incurred in the course of business operations can affect assessable profit.
• Taxable Income Limits: Some corporations may be eligible for certain tax deductions or exemptions that reduce their assessable profit.

Example:

• A corporation has net income of $100,000.
• Deduct $20,000 for depreciation and $10,000 for interest expense.
• Exempt $5,000 for charitable contributions.
• Assessable profit = $100,000 – $20,000 – $10,000 – $5,000 = $65,000

Note: The specific deductions and exemptions available to a corporation may vary depending on the jurisdiction. It is important to consult with a tax accountant or lawyer for personalized advice.