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ACCT 3006
TAXATION
Lecture 8: Profits Tax: Receipts & Expenditures
and Computation of Profits Tax II
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Specific Deductible Expenditures
Rent
Rent is deductible if it is paid by a tenant of land or buildings
occupied for the purpose of producing chargeable profits, but in the
case of rent paid:
a. to the tenant’s spouse,
b. by a partnership to one or more partners or to a spouse of any
such partner,
not exceeding an amount equal to the assessable value (s.16(l)(b)).
Certain foreign income tax
Tax of substantially the same nature as tax imposed under the IRO,
proved to the satisfaction of the CIR to have been paid elsewhere,
whether by deduction or otherwise,
a. by any corporation
b. by a person other than a corporation
who carries on a trade, profession or business in Hong Kong, is
deductible (s.16(l)(c)).
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Bad Debts
Bad debts (including specific doubtful debts) incurred in any
trade, business or profession are deductible, if they are proved
to the satisfaction of the assessor to have become bad during
the basis period.
provided that deductions shall be limited to:
a. debts were included as trading receipt in ascertaining the
profits of the period within which they arose, or
b. money lent in the ordinary course of the lending business
within Hong Kong.
All sums recovered during the said basis period on amounts
previously allowed as bad or doubtful debts shall be treated as
part of the profits of the trade, business or profession in the
year of recovery
(s.16(1)(d)).
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EXPENDITURES
Repairs
Repair of any premises, plant, machinery, implement, utensil or article
employed in the production of chargeable profits is deductible
(s.16(1)(e)).
Replacement
Replacement of any implement, utensil or article employed in the
production of chargeable profits is deductible, provided that no
depreciation allowances have been or shall be made in respect of such
implement, utensil or article (s.16(1)(f)).
Registration of trade mark or design, or the registration or grant of
a patent
Sum expended for the registration of a trademark or design or patent or
layout design of an integrated circuit or plant variety right or performer’s
economic right used in the trade, profession or business which produces
chargeable profits is deductible (s.16(1)(g)).
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EXPENDITURES
Ordinary contributions to recognized retirement scheme
Ordinary contribution made by an employer to a recognized
occupational retirement scheme (ORS) or a MPF scheme is
deductible, provided that:
a.contribution is incurred in the production of chargeable
profits (s.16(l)) and
b.sum does not exceed 15% of the total emoluments of
employees concerned (s.17(1)(h)).
Contributions are ordinary contributions if they:
a. are made to the MPF scheme at regular intervals
b. are of similar or substantially similar amounts or of amounts
calculated by reference to a scale or a fixed percentage of a
person’s salary or other remuneration. (s.16A(3)) 6
EXPENDITURES
Special contribution under a recognised retirement scheme
Where an employer makes a payment which is either–
a. a contribution, other than an ordinary annual contribution, to a
recognized ORS; or
b. a premium, other than an ordinary annual premium, in respect of a
contract of insurance under a recognized ORS; or
c. a contribution, other than regular contributions, paid to a MPF fund
scheme
Such payment shall,
— to the extent that it is made in respect of individuals employed by
such person for producing chargeable profits
—not excessive in view of all the relevant circumstances
be deductible (s.16A(1)) in 5 equal installments over 5 years of
assessment, commencing from the basis period in which the payment
was actually made (s.16A(2)).
