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08 Profit computation Basis period losses & Partnership 2014

Lower however a consistent basis must be adopted

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Unformatted text preview: nt basis must be adopted. However consistent 10 The Principle of Sharkey v. Werhner According to the principle of Sharkey v. According Wernher, Wernher, Where a trader Has taken part of his stock for his own use, Has taken enjoyment or consumption enjoyment Instead of being sold, Instead The market value of that stock at the time of The market such disposition is treated as receipt in his receipt trading account for tax purposes (Sharkey v. Wernher (1955) 35 TC 275). 11 Principle of Sharkey v Wernher If a sole proprietor or partner If sole Takes goods from trading stock for purposes other than by sale in the ordinary course of his retailing business, The IRD will apply the principle of Sharkey The apply v. Wernher. v. 12 Extension of the Sharkey v Extension Wernher Principle Wernher The Sharkey v. Wernher principle was The extended in Petrotim Securities Ltd. v. Ayres Petrotim (1963) 41 TC 389. A share-dealing company sold its investments share-dealing sold which were its trading stock to its parent company below the market value. below Held: the market value should be substituted Held: market substituted for the agreed sale price. 13 IRD’s Practice The IRD applies the Petrotim Securities The Petrotim decision to extend the Sharkey v. Wernher Sharkey principle to cases where The stock is disposed other than in the normal The course of trade. course Hence it is possible to apply this rule to cases Where a trader makes a sale at a very low Where price to a member of his family or price A trading transaction between associated trading companies not at arm's length. companies 14 Extension of Sharkey v Wernher Where the market value has been substituted Where market for the agreed sale price. sale The purchaser's purchase price should be The purchase substituted by the market value also for tax purposes (Ridge Securities Ltd. v. CIR (1963) (Ridge 44 TC 373). 44 15 Services The Sharkey v. Wernher The Sharkey principle would not apply to not services rendered by professionals (Mason v. Innes). Innes). 16 Change of Intention Where a trader transfers his current asset Where current to fixed asset, i.e., he has a change in his fixed i.e., intention to hold the long-term instead of intention short term, A notional profit/loss (i.e. the market notional value on the date of change of intention less the cost of the asset) will arise. In In general, principle do not apply. 17 Computation Pro Forma of Profit Tax 18 Computation Pro Forma of Profit Tax Con’t Con’t Computation 35% 16.5% 15% 19 PROVISIONAL PROFITS TAX The assessor is empowered to issue a The provisional tax return (s 51 (1) ) to any person provisional for the purpose of collecting information & issuing a demand for provisional profits tax (s 63L). In case of a continuing business, the amount of In provisional profits for a YA is usually based on the assessable profit (before set-off of loss b/f) of the preceding year. preceding 20 Example Q Ltd commenced business 10 years ago & Ltd had...
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