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Unformatted text preview: As the loan is secured by a deposit placed by the company with a bank in HK, and the deposit interest income is taxable under s.15(1)(f), the restriction for interest expense deduction under s.16(2A) does not apply. There is also no indication that there is interest flow back as the lender is unrelated with Readers Ltd. (s.16(2B)). Hence the loan interest is deductible under s.16(1)(a) and s.16(2)(e). (Note: the Exemption Order doesn’t apply to exempt the interest income of the secured deposit from profits tax) (5) The severance payment is incurred as a normal revenue expense. It is deductible following the Cosmotron Case. The payment for the covenant is however capital in nature (generating enduring benefit to the company) and non-deductible: see Associated Portland Cement case. (7) The compensation paid to the supplier would amount to a revenue expense incurred in the normal course of trading and therefore deductible....
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- Spring '11