0230 B415F Profits tax - club FI

0230 B415F Profits tax - club FI - B415F Profits tax: +u...

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u B415F Profits tax: Club, Trade association and Financial Institution 11
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Assessable profits of clubs and trade associations n Clubs and trading associations normally fall into the category of mutual trading associations. n Their surpluses are shared by the members who contribute to them. They do not make any profit to the extent that the contributions come from the members. n Section 24(1) of the IRO deals with clubs or similar institutions, and n section 24(2) deals with trades, professions and business associations. 22
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Clubs and trade associations n Clubs ¨ An association of persons who gather together for recreational, cultural, sports, social, educational purposes etc ¨ It must not be formed for business purposes and it should not exist for the financial advantage of its members ( Kowloon Stock Exchange v CIR (1984)). ¨ A credit union was held to be a club ( BRD 1/79 ) 33
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§ To decide whether a club is chargeable in respect of its profits under profits tax, § The test is ‘ whether or not less than half of its gross receipts on revenue account (including entrance fees and subscriptions) are from members § If more than or equal to 50% of gross receipts are from members, the club is deemed not to carry on business § If less than 50% of gross receipts are from members, the club is deemed to carry on business. 44
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¨ Total receipts from transactions both with members and others e.g. entrance fee and subscri ptions are deemed to be business receipts and the profits are taxable (s24(1)) although they may be put in the capital reserve account of the clubs. ¨ Under section 24(3), ‘members’ must be those entitled to vote. It is common for clubs in Hong Kong to have different classes of member. It is the voting members who are counted for the purpose of section 24(1). ¨ One way to overcome this distinction is to give all members voting rights, but some members can cast more votes than others. 55
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Trade, professional or business associations (s24(2)) n Any body of persons who is formed for the purpose of furthering the trade interests of its members n If more than 50% of the receipts by way of subscriptions are from persons who would claim a deduction of such payments under s16, the trade association is deemed to carry on a business 66
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n The whole of its income from transactions with members and others (including entrance fees and subscriptions) is business income and the profits are taxable (s24(2)) n If the trade association is not fallen into s24(2), its profits will still be subject to profits tax under s14 if it is in fact carrying out trade or business. Trade, professional or business associations (s24(2)) 77
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‘Members’ mean those persons entitled to vote at a general meeting of the trade, professional or business association (section 24(3)). Members
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0230 B415F Profits tax - club FI - B415F Profits tax: +u...

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