What Is Conduit Theory?

Conduit theory is a theory stating that an investment company that passes all capital gains, interest, and 澳洲幸运5官方开奖结果体彩网:dividends on to ✱its shareh🐈olders shouldn't be taxed at the corporate level like most regular companies.

Most mutual funds qualify as a regulated investment company, which gives them conduit status and requires them to𒁏 be exempt from taxes at the corporate level.

Understanding Conduit Theory

Conduit theory can also be known as 澳洲幸运5官方开奖结果体彩网:pipeline theory. The theory is based on 🐓the idea that companies passing all capital gains, interest, and dividends to their shareholders are considered conduits, or pipelines.

Rather than actually producing goods and services in the way that regular corporations🌃 do, these companies serve as investment conduits, passing through distributions to the shareholders and holding their investments in a managed fund.

When distributions to shareholders are made, the firm passes untaxed income directly to the investors. Taxes are only paid by the invest🍬ors who incur income tax on the distributions. Conduit theory suggests that investors in these types of firms should only be taxed once on the same income, unlike in regular companies.

Regular companies see 澳洲幸运5官方开奖结果体彩网:double taxation on both the income of the company and then income on any distributions paid to shareholders, which is 🌳an issue of considerable debate.&nbꦓsp;

Conduit Companies

Most mutual funds are conduits that qualify for tax exemption as 澳洲幸运5官方开奖结果体彩网:regulated investment companies.

Other types of companies that may also be considered conduits include limited partnerships, limited liability companies, and 澳洲幸运5官方开奖结果体彩网:S-corporations. These compani𒁃es are exempt from income taxes. Fidelity is one of the largest,ꦺ most well known S-corporations, filing for the status in 2007. As an S-corporation it is exempt from taxes.

澳洲幸运5官方开奖结果体彩网:Real estate investment trusts (REITs) also have special provisions that allow them to be taxed as partial conduits. In most cases, real estate investment﷽ trusts will be allowed to deduct the dividends they pay to shareholders, reducing their taxes paid through the deduction.

Conduit Mutual Funds

澳洲幸运5官方开奖结果体彩网:Mutual funds register as regulated investment companies in order to allow for the benefits of tax exemptions. This is an important aspect of consideration for all managed funds that pass through income and dividends to their shareholders. Fund ac𓃲countants serve as the primary managers of fund tax expenses.

Regulated investment companies that are exempt from taxes have the benefit of💎 lower annual operating expen🍌ses for their investors. Funds will include details on their tax exempt status in their mutual fund reporting documents.