Income Taxes

3 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Tax Disclosure

Income Taxes

While our fiscal year end for financial reporting purposes is June 30 of each year, our tax year end is August 31 of each year. The information presented in this footnote is based on our tax year end for each period presented, unless otherwise specified.

For income tax purposes, dividends paid and distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of dividends paid to common stockholders during the tax years ended August 31, 2022, 2021, and 2020 were as follows:

	Tax Year Ended August 31,
	2022			2021		2020
Ordinary income	$	230,743		$	251,171	$	169,041
Capital gain	50,960			—		—
Return of capital	—			25,784		96,720
Total dividends paid to common stockholders	$	281,703	(1)	$	276,955	$	265,761

(1) Final determination of tax character will not be final until we file our return for the tax year ended August 31, 2022.

The Company began issuing shares of Preferred Stock and declaring dividends on shares Preferred Stock outstanding during the tax year ended August 31, 2021. The tax character of dividends paid to preferred stockholders during the tax year ended August 31, 2022 and August 31, 2021 were as follows:

	Tax Year Ended August 31, 2022			Tax Year Ended August 31, 2021
Ordinary income	$	23,776		$	2,391
Capital gain	5,251			—
Return of capital	—			—
Total dividends paid to preferred stockholders	$	29,027	(2)	$	2,391

(2) Final determination of tax character will not be final until we file our return for the tax year ended August 31, 2022.

As of August 25, 2021 when our prior Form 10-K was filed for the year ended June 30, 2021, we estimated our distributions for the fiscal year then ended to be $265,593 of distributions of ordinary income and $12,263 of our distributions to be return of capital. Subsequent to our filing date, we obtained more information from our underlying investments as to the character of the distributions for the tax year ended August 31, 2021, which resulted in changes to distributions previously disclosed in our Form 10-K filing. As a result of the change, our total distributable loss on our Consolidated Statement of Assets and Liabilities for the year ended June 30, 2021 changed from $232,659 to $210,570, with $22,089 being reclassified to distributions from capital. The remaining reclassification of tax distributions classified as return of capital for the tax year ended August 31, 2021 have been adjusted in the fiscal year ended June 30, 2022. This adjustment resulted in an increase to distributable earnings of $3,695 for the three months ended September 30, 2021.

We generate certain types of income that may be exempt from U.S. withholding tax when distributed to non-U.S. stockholders. Under IRC Section 871(k), a RIC is permitted to designate distributions of qualified interest income and short-term capital gains as exempt from U.S. withholding tax when paid to non-U.S. stockholders with proper documentation. For the 2022 calendar year, 53.20% of our taxable ordinary dividends as of September 30, 2022 qualified as interest related dividends which are exempt from U.S. withholding tax applicable to non-U.S. stockholders. This percentage is based on the best estimates available at the time of this filing. The final percentage will be determined with the filing of Form 1099-DIV.

We generate income that may be beneficial to shareholders that face interest expense limitations. Under IRC Section 163(j), a RIC is permitted to designate distributions attributable to net business interest income as section 163(j) interest dividends. For the 2022 calendar year 81.55% of our taxable ordinary dividends as of September 30, 2022 qualified as section 163(j) interest dividends. This percentage is based on the best estimates available at the time of this filing. The final percentage will be determined with the filing of Form 1099-DIV.

We generate dividend income that may be beneficial to certain U.S. corporate shareholders. Under IRC Sections 243 and 854, a RIC is permitted to designate ordinary dividends as eligible for the 50% dividends received deduction. For the 2022 calendar year 4.61% of our taxable ordinary dividends as of September 30, 2022 qualified for the deduction under sections 243 and 854.

This percentage is based on the best estimates available at the time of this filing. The final percentage will be determined with the filing Form 1099-DIV.

For the tax year ending August 31, 2022, the tax character of dividends paid to stockholders through August 31, 2022 is expected to be ordinary income and capital gains however due to the difference between our fiscal and tax year ends, the final determination of the tax character of dividends between ordinary income and capital gains will not be made until we file our tax return for the tax year ending August 31, 2022.

Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized. The following reconciles the net increase in net assets resulting from operations to taxable income for the tax years ended August 31, 2022, 2021, and 2020:

	Tax Year Ended August 31,
	2022			2021		2020
Net increase (decrease) in net assets resulting from operations	$	735,343		$	428,106	$	(78,949)
Net realized (gains) losses on investments	22,375			16,173		10,139
Net unrealized (gains) losses on investments	(405,414)			(143,654)		328,997
Other temporary book-to-tax differences	(76,361)			(47,330)		(91,368)
Permanent differences	30			(20)		57
Taxable income before deductions for distributions	$	275,973	(3)	$	253,275	$	168,876

(3) Final determination of permanent differences will not be final until we file our return for the tax year ended August 31, 2022.

Capital losses in excess of capital gains earned in a tax year may generally be carried forward and used to offset capital gains, subject to certain limitations. As of August 31, 2022, we had no capital loss carryforwards available for use in later tax years. While our ability to utilize losses in the future depends upon a variety of factors that cannot be known in advance, some of the Company’s capital loss carryforwards may become permanently unavailable due to limitations by the Code.

For the tax year ended August 31, 2022, we had $21,453 cumulative taxable income and capital gain in excess of cumulative distributions.

As of September 30, 2022, the cost basis of investments for tax purposes was $7,541,133 resulting in an estimated net unrealized gain of $41,532. As of September 30, 2022, the gross unrealized gains and losses were $1,423,888 and $1,382,356, respectively. As of June 30, 2022, the cost basis of investments for tax purposes was $7,214,493 resulting in an estimated net unrealized gain of $388,017. As of June 30, 2022, the gross unrealized gains and losses were $1,506,944 and $1,118,927, respectively. Due to the difference between our fiscal year end and tax year end, the cost basis of our investments for tax purposes as of September 30, 2022 and June 30, 2022 was calculated based on the book cost of investments as of September 30, 2022 and June 30, 2022, respectively, with cumulative book-to-tax adjustments for investments through August 31, 2022 and 2021, respectively.

In general, we may make certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which may include merger-related items, differences in the book and tax basis of certain assets and liabilities, and nondeductible federal excise taxes, among other items. During the tax year ended August 31, 2022, we increased overdistributed net investment income by $30 and decreased capital in excess of par value by $30. During the tax year ended August 31, 2021, we decreased overdistributed net investment income by $20 and increased capital in excess of par value by $20. Due to the difference between our fiscal and tax year end, the reclassifications for the taxable year ended August 31, 2022, once finalized, will be recorded in the fiscal year ending June 30, 2023. The reclassifications for the taxable year ended August 31, 2021 were recorded in the fiscal year ended June 30, 2022.