Baseball Promotion Club Limited was formed in April 2011 to promote the sport and interests of its members. The club owns two flats (with the same rateable value) in Sai Kung. One of the flats is used for the clubhouse facilities, which include a bar and a canteen which are open to members as well as outsiders. The other flat is let to outsiders. The following are the income and expenditure accounts for the years ended 31 March 2016 and 31 March 2017:

31 March 2016 31 March 2017

Receipts $ $ $ $

Member subscriptions Gross receipts from bar and canteen Members	103,000		170,000		126,000	160,000
Non-members	237,000				273,000
			340,000			399,000
Rental receipts			100,000			100,000
Expenditures			610,000			659,000
Provision of food in bar and canteen	347,000				426,000
Salaries and wages to staff	102,000				124,000
Building maintenance	30,000				30,000
Rates	8,000				8,000
Other sundry expenses	10,000				6,000
			497,000			594,000
Surplus			113,000			65,000

During the year ended 31 March 2016, entrance fees of $150,000 were received and credited to the reserve account of the club.

No new member was admitted during the year ended 31 March 2017. All members have voting rights at annual general meetings.

In both years, the rates for the flat which was leased to outsiders were paid by the club.

Required

(a) Determine the Hong Kong tax liabilities of Baseball Promotion Club Ltd for the years of assessment 2015/16 and 2016/17. Ignore provisional tax, tax reduction or tax waiver in your calculations. (15 marks)

(b) Besides clubs, section 24 of IRO covers the profits tax treatment for business, professional and trade associations. Using section 24 of IRO as a starting point, explain the test/tests which is/are to be used to determine whether a trade association is subject to Hong Kong profits tax. (5 marks)

Answer rating: 100% (QA)

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