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08 Profit computation Basis period losses & Partnership 2014

For a merchandising business the date of commencement

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Unformatted text preview: ufacturing business, it is the date the manufacturing process starts. the The significances of date of commencement are: revenue expenditure before the commencement is revenue deductible by concession deductible capital expenditure, e.g. qualifying plant and capital machinery, shall be deemed to have been machinery, incurred on the first date of business. 27 Commencement of business - Example A First business accounts cover 12-months. Business started on 1 July 2005. Annual accounts made up to 30 June every year. Basis periods and assessments: Year of assessment 2005/2006: No assessment. Year of assessment 2006/2007: Accounts covering 1 July 2005 to 30 June 2006. Year of assessment 2007/2008: Accounts covering 1 July 2006 to 30 June 2007. 28 Commencement of business - Example B First business accounts cover 6 months. Business started on 1July 2005. First accounts made up to 31 December 2005. Subsequent accounts all made up to 31December. Basis periods and assessments: Year of assessment 2005/2006: From 1 July 2005 to 31 December 2005 --- 6 months. Year of assessment 2006/2007: From 1 January 2006 to 31 December 2006 --- 12 months. December Year of assessment 2007/2008: From 1 January 2007 to 31 December 2007 --- 12 months. 29 Commencement of business - Example C First business accounts cover 18 months. If the first accounting period covers more than 12 months, the If Revenue will decide the basis period for the business commencement as it thinks fit. In practice, the profits are apportioned by reference to the normal accounting date. apportioned Business started on 1 July 2005. First account covers 1 July 2005 Business to 31 December 2006 showing assessable profits of $180,000. Subsequent accounts are made up to 31 December. Subsequent Basis periods and assessments: Year of assessment 2005/2006: Basis period 1 July 2005 to 31 December 2005: $180,000 x 6 / 18 = $60,000. Year of assessment 2006/2007: Basis period 1 January 2006 to Year 31 December 2006: $180,000 x 12/18 = $120,000. 31 30 LOSSES A loss is computed in a similar manner loss similar & for a similar BP as profit (s 19D(1)). No loss can be relieved more than once No once (s 19C(6)(a), (b) & (c)). (s Only losses having a Hong Kong Only source can be relieved (s 19C(6)(d)). source 31 Unincorporated Business Unincorporated (Individual ) (sole Proprietorship) Individual (sole If an individual has sustained a business loss, that loss If can only be c/f to set-off against his/her assessable c/f profits from the same business for subsequent YAs (s 19C(1)). 19C(1)). If the individual wants to set-off the loss against If set-off his/her other income, he/she should elect personal other he/she assessment (PA) (s 19C(3)). If his/her total income assessment under PA is insufficient to offset the loss, the excess excess is c/f to be set off under PA in future. If PA has been c/f under elected for a particular YA, the loss for that YA will not be c/f under profits tax. not 32 Partnership An individual partner's share of partnership losses An individual shall be set-off against his/her share of fut...
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