BUSI 0018 Hong Kong Taxation

Tutorial Questions
Unit 7 Profits Tax (1)

Question 17
Mr. and Mrs. Leung entered into a sale agreement in December 2009 in respect of a
residential property located in Wanchai, Hong Kong. The property was acquired by them
under joint names in October 2009. As a result of the sale, Mr. and Mrs. Leung earned a
gain of HK$1 million.
In a meeting with Mr. and Mrs. Leung, you also found that during the period from January
2009 to December 2009, they have entered into similar transactions of buying and selling
two other properties in Hong Kong. Total gain earned was around HK$2.5 million.

Required:
As a tax consultant, advise Mr. and Mrs. Leung whether or not the gain earned from the
property transactions would be subject to any tax in Hong Kong. You should also mention
what additional information is required for your analysis.

TQ_U7_Profits_1

Question 18
Part I
Discuss if the following activities amount to trading:
(a)
Mr. Lau is an employee of an Art Gallery. He bought two paintings at an attractive
price. One of them was sold at a profit two weeks after the purchase. Another one
was sold ten years afterwards.
(b)

Mr. Poon bought a flat in Pokfulam Gardens and intended to move into the flat
with his fiance, Miss Wong, when they get married by the end of the year.
However, she did not like the flat and so he sold the flat at a profit.

(c)

Mr. Wong, a police constable, operates an illegal casino inside a police station
during his off duty hours, and makes a profit therefrom.

(d)

Within a period of fifteen months, Johnny Wong established three restaurants and
then sold them. He made a profit of $300,000.

Part II
State and explain whether the following items of income derived during the year of
assessment 2009/10 are chargeable to Hong Kong profits tax:
(a)

Sums received by a foreign film production company for allowing a Hong Kong
television company to show in Hong Kong certain designated films it produced
offshore Hong Kong. The film production company has no representative office or
agent in Hong Kong.

(b)

Sums representing royalty received by a foreign patent owning company under a

licensing agreement with its associate company in Hong Kong. The patent was
previously owned by the Hong Kong associate which subsequently sold the patent
right to the foreign patent owning company. The patent was then licensed to the
Hong Kong associate for its use in Hong Kong at a royalty.

(c)

Profits earned by a manufacturing company from its sale of products in Hong

Kong. The products were partly manufactured in Hong Kong and partly in the
PRC. The manufacturing activities conducted in the PRC were greatly involved by
the manufacturing company in terms of expertise, machinery, raw materials and
quality control.

TQ_U7_Profits_1