Conduit Theory

AAA

DEFINITION of 'Conduit Theory'

A theory stating that an investment firm that passes all capital gains, interest and dividends on to its customers/shareholders shouldn't be levied at the corporate level like most regular companies. An example of such a company is a real estate investment trust or a mutual fund company.

INVESTOPEDIA EXPLAINS 'Conduit Theory'

The firm passes income (without taxing itself) directly to the investors who are then taxed as individuals. Conduit theory suggests that investors in these types of firms should only be taxed once on the same income, unlike in regular companies, where investors are taxed twice (at the corporate and then individual level).

RELATED TERMS
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Dividend

    1. A distribution of a portion of a company's earnings, decided ...
  4. Pipeline Theory

    A notion that an investment firm that passes all capital gains, ...
  5. Real Estate Investment Trust - ...

    A security that sells like a stock on the major exchanges and ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
RELATED FAQS
  1. What is the double taxation of dividends?

    After all is said and done, companies that have made a profit can do one of two things with the excess cash. They can (1) ... Read Full Answer >>
Related Articles
  1. Retirement

    Discover Master Limited Partnerships

    These unique investments provide significant tax advantages.
  2. Investing Basics

    Dividend Facts You May Not Know

    Discover the issues that complicate these payouts for investors.
  3. Stock Analysis

    How Two Harbors' Derivatives Work?

    Mortgage REITs, like Two Harbors , have cut their dividend payments as interest rate trends have eaten into profitability under the business models.
  4. Stock Analysis

    How Realty Income Became A Top Dividend Stock?

    Real-estate investment trusts have gained in popularity over the years as income investors look for reliable stream of cash from their portfolios.
  5. Stock Analysis

    Is Ariad On Track To Lose More Shares?

    The past two years have been a roller-coaster ride that shareholders in cancer-focused biotech Ariad Pharmaceuticals won't soon forget.
  6. Mutual Funds & ETFs

    Why Mutual Funds Lose Their Five-Star Ratings?

    Ratings help people feel confident about their decision before purchasing. Morningstar’s rating system helps people to find and invest in mutual funds.
  7. Stock Analysis

    How Will Chesapeake Energy Create Value?

    A few years ago, Chesapeake Energy's bloated balance sheet forced it to sell off assets at fire-sale prices and fund its aggressive capital spending plan.
  8. Stock Analysis

    What's DISH’s Strategic Direction In The Industry?

    Telecommunications industry has evolved from being a backwater of ultra-conservative utility-like stocks to a high-growth area for cutting-edge investors.
  9. Budgeting

    Choosing To Rent Or Buy in New York City

    Yes, it's good to compare values in the rental and home buying markets in the Big Apple, but be aware that personal factors are often the deciding ones.
  10. Stock Analysis

    How Chimera Investment Bear The Brunt Of REITst?

    Following the financial crisis, REITs that specialized in investing in mortgage-backed securities produced huge gains for their shareholders.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center