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SelfTestQ_ProfitsTaxComputation_Q2_ans

SelfTestQ_ProfitsTaxComputation_Q2_ans - BUSI 0018 Hong...

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1 BUSI 0018 – Hong Kong Taxation Self Test Question – Profits Tax Computation Answer 2 Topgun Ltd Profits Tax Computation Year of Assessment 2005/06 Basis Period: Year Ended 31 December 2005 $ $ Net profit per account 1,595,000 Less: Non-taxable items Dividends 950,000 Interest income (80,000 + 50,000) 130,000 Decrease in general provision for bad debts 15,000 1,095,000 500,000 Add: Non-deductible items Depreciation 1,328,000 Donations 150,000 Legal and professional expenses 90,000 Proceeds of sale of patent 200,000 Profits tax paid 150,000 1,918,000 2,418,000 Less: Depreciation allowance 1,175,000 1,243,000 Less: Donations (not exceeding 25%) 150,000 Assessable profits 1,093,000 Profits tax payable at 17.5% 191,275
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2 Explanatory notes to some major items: (a) Interest income Interest income accrued to a corporation carrying on business in Hong Kong will be assessed under S.15(1)(f). The 'provision of credit’ test will apply here, i.e. to determine where is the originating cause of the interest income. If it is located in Hong Kong, it will be taxable; otherwise, it will be non-taxable. The interest income from Hong Kong Bank in USA is non-taxable since the provision of credit is outside Hong Kong even though the deposits are in Hong Kong dollars. Conversely, the interest income from Hang Seng Bank would have been liable to tax since the deposits are placed in Hong Kong even though they are in US currency.
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