Impeccable Education Limited (IEL), a Hong Kong incorporated company, provides professional teaching services to various organizations and

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Impeccable Education Limited (“IEL”), a Hong Kong incorporated company, provides professional teaching services to various organizations and clients. IEL’s statement of profit or loss for the year ended 31 December 2016 is as follows: Note $ $ Income Service income 1 1,250,000 Interest income 2 27,000 Profit on disposal of fixed assets 5,000 1,282,000 Expenses Salaries and wages 300,000 Legal and professional fees 3 50,000 Provident fund 4 90,000 Depreciation 59,000 Insurance 3,500 Bank charges and interest 5 20,000 Exchange gain 6 (1,000) Travelling costs – overseas 1 19,000 Advertising 11,000 Printing and stationery 130,000 Provision for accounts receivables 7 2,000 Donations to Community Chest 8,500 Sundry expenses 8 59,000 (751,000) Profit before tax 531,000 4 The following notes provide further details of IEL’s operations during the year:

1. During the year, IEL gave two seminars in Singapore, for which it received total remuneration of $150,000. The remuneration covered learning materials, seminar facilitators and other teaching related equipment. The travel costs from Hong Kong to Singapore for the facilitators totalled $19,000.

2. Interest income comprises the following: (i) $20,000 from a US$ fixed deposit placed with HSBC, New York branch (ii) $2,000 from a HK$ savings account placed with HSBC, Hong Kong branch (iii) $5,000 from local customers who are late in settlements

3. Legal and professional fees comprise the following: $ Fees for collection of trade debts – Hong Kong customers 7,000 – Singapore customers 5,000 Legal fees relating to a copyright infringement claim by a publisher 10,000 Audit and taxation fees 28,000 4. IEL maintains a mandatory provident fund for its employees and regular contributions of $60,000 was made in the year, representing 20% of all eligible employees’ total salary. On top of the regular contribution, IEL made an accrual for special contribution of $30,000 in December 2016, the actual payment was made in January 2017.

5. Bank charges and interest comprise the following: $ Bank charges on normal daily operations 9,000 Interest on bank overdraft with HSBC that was secured by the US$ fixed deposit referred to in note 2(i) above 11,000

6. The exchange gain of $1,000 arose from the settlement from Singapore customers referred to in note 1 above.

7. The provision for accounts receivable has the following details: $ Receivables written off – Hong Kong customers 1,000 Amount recovered from a Hong Kong customer written off in 2012 (11,000) Staff loan written off 7,200 Increase in general provision for bad debt 4,800

8. Sundry expenses comprise the following: $ Tax late filing penalty 8,000 Compensation to a staff member whose employment was terminated 12,000 Salaries tax for one of the directors 13,000 Singapore personal income tax for staff 18,000 Office consumables (all allowable) 8,000

9. During the year, IEL paid an amount of $800,000 for a patent to produce certain training materials for use in Hong Kong. The amount was accounted for as intangible asset in the accounts. The said amount was paid to an independent party based in Hong Kong.

10. IEL’s previous year profits tax computation showed IEL had a tax loss of $88,000, but this has not yet been agreed by the Inland Revenue Department. The depreciation allowances for all plant and machinery and commercial building were calculated to be $65,000.

(a) Determine Impeccable Education Limited’s Hong Kong profits tax liability in respect of the year ended 31 December 2016, clearly identifying both the year of assessment and the basis period. (Ignore provisional profits tax and any tax reduction or waiver in your calculations.)

(b) Briefly explain the tax treatments you have accorded to the items mentioned in note (4), (6) and (8) above.