Discuss if the following activities amount to trading: (a) Mr. Lau is an employee of an...
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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 fiancée, 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 Discuss whether or not the compensation payment received by a company in respect of the following is taxable: (a) Insurance compensation received in respect of the cost of trading stock damaged in fire. (b) A major customer cancelled its purchase agreement with Company A. As a result, Company A received compensation of $5 million in pursuance to the agreement. The business with this customer accounts for 60% of the company's annual turnover. Part III Zebra Ltd is a company which carries on trading business in Hong Kong. On 1 April 2009, it borrowed from HSBC Bank Singapore branch a loan of $40 million at an annual interest rate of 7.5% for its business purposes. Determine whether the interest income received from the fixed deposit with HSBC Bank is taxable and compute the amount of deductible interest expense that can be claimed by Zebra Ltd in respect of the bank loan for the year ended 31 March 2010 on the assumptions that the loan was secured by some listed shares worth $20 million together with: (a) (b) a fixed deposit of $20 million placed with the HSBC Bank Singapore branch which generated interest income of $680,000 for the year, and a fixed deposit of $20 million placed with the Hang Seng Bank in Hong Kong which generated interest income of $680,000 for the year. 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 fiancée, 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 Discuss whether or not the compensation payment received by a company in respect of the following is taxable: (a) Insurance compensation received in respect of the cost of trading stock damaged in fire. (b) A major customer cancelled its purchase agreement with Company A. As a result, Company A received compensation of $5 million in pursuance to the agreement. The business with this customer accounts for 60% of the company's annual turnover. Part III Zebra Ltd is a company which carries on trading business in Hong Kong. On 1 April 2009, it borrowed from HSBC Bank Singapore branch a loan of $40 million at an annual interest rate of 7.5% for its business purposes. Determine whether the interest income received from the fixed deposit with HSBC Bank is taxable and compute the amount of deductible interest expense that can be claimed by Zebra Ltd in respect of the bank loan for the year ended 31 March 2010 on the assumptions that the loan was secured by some listed shares worth $20 million together with: (a) (b) a fixed deposit of $20 million placed with the HSBC Bank Singapore branch which generated interest income of $680,000 for the year, and a fixed deposit of $20 million placed with the Hang Seng Bank in Hong Kong which generated interest income of $680,000 for the year.
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Answer rating: 100% (QA)
Part I Trading Activities a Mr Laus Activities The sale of the first painting after two weeks suggests a short holding period which is indicative of t... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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