Conduit Theory


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.

BREAKING DOWN '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).

  1. Real Estate Investment Trust - ...

    A REIT is a type of security that invests in real estate through ...
  2. Dividend

    A distribution of a portion of a company's earnings, decided ...
  3. Conduit Issuer

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

    A tax that governments impose on financial income generated by ...
  5. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
  6. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
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