Capital income – What is it, definition and concept | 2022

Capital income is those economic returns obtained from capital goods. Which are ceded or exploited, generally.

In the day-to-day economic life of individuals and companies, capital income is considered a very widespread method of obtaining profits.

From a more academic point of view, this type of income is considered to be that achieved or obtained through the possession and exploitation of a given asset.

One of the most widespread examples within this concept are the dividends obtained in the financial field. They respond to a previous investment in the form of shares of a particular company.

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In other words, it is possible to receive a certain profit or income from the elements or assets of the capital that are available.

Types of capital income

Based on the origin criterion, it is possible to delimit several modalities within the set of income from capital.

In this way, they are considered:

  • Originating from own funds. This group includes financial dividends and other types of profits typical of belonging to a company as a partner or participant. Another example would be a refund received in a mutual fund.
  • Originating from the transfer of capital. On occasion, own capital may be temporarily transferred or acquired. The example of yields from a bond or treasury bill is the most common.
  • With origin in capitalization. There are a large number of alternatives or capitalization plans that allow the assumption of life insurance, health, etc. Also the contracting of retirement plans or other contingencies such as disability or handicaps.
  • Other origins. Beyond the previous cases, there are other mechanisms for obtaining capital income related to fields such as industrial and intellectual property, provided that these do not form the main activity of the subject.
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Example

However, the most popular alternative is obtaining income from possessions or real estate.

As long as it does not respond to an interest related to the main economic activity, the lease of real estate allows its owner to benefit by obtaining capital income.

In the same way, it occurs with the previous cases of transfer of intellectual or industrial protection rights or as it happens with the exploitation of certain patents and trademarks.

There are situations in which a person (more generally an individual) has the assets and sufficient economic capacity to subsist solely on this type of income.

In this sense, the popular speech of “living on income” is applicable.

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