Mr Cheng owns and operates a travel agency, Reliable Travel Limited, in Tsim Sha Tsui. In July 2015 he received a notice of profits tax assessment from the Inland Revenue Department with the following information:
Date of issue: July 10, 2015
Year of assessment 2014/2015 (Final)
Basis period: Year ended 31 December 2014
Profit as per tax return $5,000,000
Profit from sales of properties $1,000,000
Assessable profit $6,000,000
Profits tax at 16.5% $990,000
Less: Provisional profits tax paid for 2014/15 $400,000
$590,000 2015/16 Provisional profits tax at 16.5%
(based on $5,000,000) $825,000 Total tax payable $1,415,000
Due dates for payment: 6 January 2016 $1,208,750 6 April 2016 $206,250 $1,415,000
Mr Cheng does not think the inclusion of the profit from sales of properties was right as he was told by his friends that these were capital gains and there is no capital gain tax in Hong Kong. Also, as a result of the recent high fuel charges, the profits of his travel agency business for the year ended 31 December 2015 is expected to be down by 40% and he is wondering if anything can be done to the provisional profits tax payment.
Mr Cheng comes to you, an independent tax consultant, for advice.
Required:
a) Explain to Mr Cheng the requirements for making a valid objection against his profits tax assessment as specified under the Inland Revenue Ordinance. Also state if there are any circumstances which the Commissioner may extend the time limit for making a valid objection. B) In respect of his objection to the inclusion of the profit on sale of properties, suggest what information or documents should Mr Cheng provide to Inland Revenue Department to substantiate his claim. Your answer should include a brief explanation of the rational
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ent person may sustain losses in other businesses carried on inHong Kong for the relevant year of assessment. Section 20AE provides that the deemed assessable profits “are to be regarded as the assessable profits arising in or derived from Hong Kong of the resident person for that year ofassessment from a trade, profession or business carried on by the resident person in Hong Kong.”
Rule in regarding to the sale of propery in Hongkong
The Ordinance imposes profits tax 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 from such trade, profession or business,but excluding profits arising from the sale of capital assets.
So Mr. Chang should argue to the department the light of athe above rule .Mr. Chang shoul clearly show the objection to the department that “imposes profits tax on every person carrying on a trade, profession or business in Hong Kong ,but excluding profits arising from the sale of capital assets.”
If you wish to dispute the assessment, Then Mr. Chang lodge a notice of objection in writing stating precisely the grounds of the objection within the prescribed time limit. You may complete the relevant parts of the Form IR831 for objection, sign it and return it to the Inland Revenue Department
The notice of objection must be received by the Inland Revenue Department within one month after the date of issue of the notice of assessment.
B) In respect of his objection to the inclusion of the profit on sale of properties, suggest what information or documents should Mr Cheng provide to Inland Revenue Department to substantiate his claim. Your answer should include a brief explanation of the rationale for providing the documents or information to the IRD.
Answer :
A Notice of Objection can be filed by completing a Notice of Objection form or by writing a letter to the Comptroller, IRD (Attn. Objections and Appeals Unit). The letter should be signed by the taxpayer, the owner of the business or an authorized employee of the company. If a representative is appointed, the taxpayer must provide written authorization. A Notice of Objection may be sent by regular mail or facsimile transmission, or may be hand delivered to the IRD, Bay Road, Basseterre – Objections and Appeals section.
- Filing an Objection to an Assessment of Tax, other than Property TaxIf in your honest opinion the Inland Revenue Department has made an error in your assessment or based it on a decision that you disagree with, you must file a Notice of Objection to start the appeals process. An Assessment is presumed by law to be correct therefore you that taxpayer must act quickly and within the proper channels to overturn it in order to ensure you only pay the correct amount of tax. C/F – Tax Administration and Procedures Act, 2003 Section 40(1)/(2) Please be guided that the burden of proving the degree of incorrectness of an assessment is on the taxpayer
- Filing an Objection to a Property Tax Value or AssessmentThe Taxpayer has a right to Object to any Value Placed on the property if he or she is of the opinion that the amount Valued is excessive or undervalued. This Objection Must be in writing to the COptroller of Inlance recenue and must be done eithin 30 days of receipt of the Certificate of Value derived and mailed by Inland Revenue Department
