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Unformatted text preview: 1 THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS BUSI 0018 – Hong Kong Taxation Unit 12B – Club, Trade Association, Basis Period and Ethical Issues Coverage 1 Special classes of business 2 Club and trade association 3 Basis period for normal business - Section 18B 4 Basis period for commencement of business - Section 18C 5 Basis period for cessation of business - Section 18D 6 Basis period for change of accounting date - Section 18E 7 Ethical issues in tax practice 1 SPECIAL CLASSES OF BUSINESS • Certain types of business require specific legislation • Specific provisions in the IRO for: - insurance business, sections 23 and 23A - shipping and aircraft business, sections 23B, 23C and 23D - club and trade association, section 24 - financial institution, sections 15(1)(i) and (l), s.16(1)(c) and (d), IRR3 2 CLUB AND TRADE ASSOCIATION 2.1 Club – s.24(1) • A club is an association formed not for a business purpose, and not exists mainly for the financial advantage of its members • For a club, s.24(1) lays down a test: If not less than 1/2 of the club's gross receipts on the revenue account (including entrance fees and subscriptions) are from its voting members, the club is deemed not to carry on a business. Otherwise, it is deemed to carry on a business. • If a club is deemed to carry on a business, all receipts and profits are chargeable after necessary adjustments • If a club is not deemed to carry on a business, it may still be liable to property tax in respect of rental income from non-voting members and non members 2 2.2 Trade Association – s.24(2) • A trade association means a body of persons which is formed for the purpose of furthering the trade interests of its members • For a trade association, s.24(2) lays down a test: Where more than half of the receipts from subscriptions are from persons who either claim or would be entitled to claim their subscriptions to be deductible for the purposes of section 16, the association is deemed to carry on a business. The whole of the income of such association from transactions both with members and others (including entrance fees and subscriptions) shall be deemed to be receipts from business, and shall be chargeable in respect of the profits therefrom. 2.2 Cases • CIR v Far East Exchange Ltd- s.14 does not override s.24 - entrance fee is specifically taxable under s.24 (applies to both club and trade association) • CIR v Kowloon Stock Exchange- a stock exchange is held not to be a club but a trade association where the brokers are traders. Its primary objective is for the financial benefit of members - it was also held that the subscriptions under “receipts from subscriptions” does not include entrance fee or founders’ contributions, which are once and for all payments Illustration (This example is adapted from HKSA/ACCA Joint Exam Paper 7H, Dec 99, Q5) The Garment Manufacturers Recreational Club owns a block of flats in Discovery Bay which is used partly for club activities and partly for leasing out to the public. which is used partly for club activities and partly for leasing out to the public....
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- Spring '11