Tax Essay S1
What is profit tax?
According to Inland Revenue Ordinance s 14 “Charge of profits tax”, profit tax is chargeable on every person:
Carrying on a trade, profession or business in Hong Kong; and
In respect of his assessable profits arising in or derived from Hong Kong from such trade, profession or business.1
What is person?
A person may include:
A corporation;
Partnership;
Trustee, whether incorporated or unincorporated; and
Body or persons.2
In this case, the Taxpayer (“T”) is a private company incorporated in Hong Kong, and is a corporation. So T fulfills the definition of person.
What is trade?
Trade is defined in Inland Revenue Ordinance s 2(1) as including ‘every trade and manufacture, and every adventure and concern in the nature of trade’.3
Whether a trade is being carried on is a question of fact to be determined by looking at all the circumstances of the case. There are six badges of trade to be considered in determining whether a taxpayer is carrying on a trade:4
1. Subject matter of transaction
A trading asset usually yields no income nor personal enjoyment. This concept was reinforced in the cases CIR v Fraser (1942), Rutledge v CIR (1929) and Martin v Lowry (1926).
In Fraser and Rutledge cases, the purchase transactions in these cases were isolated transactions, but the goods purchased were obviously more than private use. It is not suitable to claim that such transactions were not trades.
2. Length of ownership of the goods
Shorter ownership period usually indicates the trading nature of an asset, but this actor alone may not be conclusive and still the nature of taxpayer’s business and the intention of taxpayer of acquiring the asset should be taken into account.
The cases CIR v Beautiland Co Ltd (1992) and CIR v Sincere Insurance & Investment Co Ltd (1973) showed that periods’ length is not the only factor to determine the nature of transactions, but facts shall be looked at as a whole.
3. Frequency of similar transactions
Repeated
According to Inland Revenue Ordinance s 14 “Charge of profits tax”, profit tax is chargeable on every person:
Carrying on a trade, profession or business in Hong Kong; and
In respect of his assessable profits arising in or derived from Hong Kong from such trade, profession or business.1
What is person?
A person may include:
A corporation;
Partnership;
Trustee, whether incorporated or unincorporated; and
Body or persons.2
In this case, the Taxpayer (“T”) is a private company incorporated in Hong Kong, and is a corporation. So T fulfills the definition of person.
What is trade?
Trade is defined in Inland Revenue Ordinance s 2(1) as including ‘every trade and manufacture, and every adventure and concern in the nature of trade’.3
Whether a trade is being carried on is a question of fact to be determined by looking at all the circumstances of the case. There are six badges of trade to be considered in determining whether a taxpayer is carrying on a trade:4
1. Subject matter of transaction
A trading asset usually yields no income nor personal enjoyment. This concept was reinforced in the cases CIR v Fraser (1942), Rutledge v CIR (1929) and Martin v Lowry (1926).
In Fraser and Rutledge cases, the purchase transactions in these cases were isolated transactions, but the goods purchased were obviously more than private use. It is not suitable to claim that such transactions were not trades.
2. Length of ownership of the goods
Shorter ownership period usually indicates the trading nature of an asset, but this actor alone may not be conclusive and still the nature of taxpayer’s business and the intention of taxpayer of acquiring the asset should be taken into account.
The cases CIR v Beautiland Co Ltd (1992) and CIR v Sincere Insurance & Investment Co Ltd (1973) showed that periods’ length is not the only factor to determine the nature of transactions, but facts shall be looked at as a whole.
3. Frequency of similar transactions
Repeated