Profits tax - NOTE1 1 Sharedealings LeeYeeShing Facts

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NOTE 1 Whether the profits from sale and purchase transaction is taxable? Whether the transaction is in the nature of trade? 1. Share dealings General principles apply Lee Yee Shing Facts: Lee undertook many share transactions and operated a number of securities  and margin accounts with various brokers over several years. He suffered a  loss and claimed a loss relief. Held, he is not a trader but an investor because: Trading or carrying on business in securities or futures  requires a habitual  and systematic course of dealing , with a high degree of organization and  commercial strategy adopted. private individual  would  rarely be considered as carrying on a business   of trading in shares.  Because buying of shares is speculative and akin to gambling, would not  amount to carrying on business  unless the dealings are sufficiently  organized, systematic and habitual. CIR v Dr Chang Liang Jen Facts: An individual, a doctor of economics, had a huge portfolio of listed shares and sold some shares quickly after purchase. He gained profits from purchasing  and selling shares for a number of years. Held,  He is not a trader but an investor, because: a. Taxpayer not connected with share trading (connection with personal  characteristics) b.  Had commenced investing in shares more than 10 years (history of  investment) c. Locally quoted shares widely held as investments by persons in all walks  of life in post-war HK (common practice) d. No form of commercial organization  e. Transactions not on margin account (enough financial means to invest) f. Completed registration of all shares acquired (intend to hold the shares) g. Substantial dividends enjoyed   (income-producing) h. No over-reaction during the peak of market boom in 1973 (consistent with  how an investor would act) i. Some shares held for long periods (while some shares are disposed shortly 
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after acquisition. This shows that Chang is more an investor)
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