Chargeability to Profits Tax on Gain from Property Transactions

A:

Section 14 of the Inland Revenue Ordinance provides that profits tax shall be charged on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets).  Section 2 of the Inland Revenue Ordinance states that “trade” includes every adventure and concern in the nature of trade.

To decide whether the transaction amounts to a speculative activity in the nature of a trade, it is required to collect the relevant information from the taxpayer and third parties. They include the background to the transaction, the motive, the financial arrangements entered into, the mode of operation, the frequency of transactions, the length of the holding period etc. Depending on the facts of each case, IRD will determine whether the transaction amounts to a speculative activity which is chargeable to profits tax.

A:

IRD will apply risk management to identify suspected speculative cases. It then issues the questionnaire to taxpayer, collecting information for preliminary examination on whether the property transaction is a prima facie speculative activity in the nature of a trade.  The taxpayer may be required to provide further information.

A:

Section 51C of the Inland Revenue Ordinance provides that any person carrying on a trade, profession or business in Hong Kong must keep sufficient business records of income and expenditure to enable his/her assessable profits to be readily ascertained.

A:

Records must be retained for at least 7 years after the completion of the sale of property transaction.