前稅局評稅主任楊輝洪 Qualifications

Raymond Yeung Tax Consultant former Assessor of Inland Revenue Department * Service charge $500/hr

飛鴻稅務顧問 收費每小時五百元

yeungfhr@yahoo.com.hk * Tel /WhatsApp /WeChat 94735846  

稅務課程 * 書刊下載 * 飛鴻文選 * 稅例解讀 * 報稅服務 * 稅務咨詢 * 記帳系統 * 網站首頁

 


Profits Tax - Capital gain versus revenue gain

Section 14 of Inland Revenue Ordinance exempts profits arising from the sale of capital assets. Even without this exemption, it is a generally accepted accounting practice that capital income should not be included in trading profits. 

There are a number of court cases on the captioned question: drawing distinction between income from “fixed capital” and income from “circulating capital” --- referring the former to “capital receipts” and the latter to “revenue receipts”. 

It has been established from case law that “fixed capital” is what the owner turns to profit by keeping it in his own possession; whereas “circulating capital” is what he makes a profit of by parting with it and letting it change masters. It follows that land and buildings, plant and machinery, long-term leases and goodwill are fixed capital retained and used in the business --- they form part of the permanent structure of the business --- any receipt from their sale, or compensation for their loss or damage, are capital receipts and non-taxable. 

On the other hand, an asset forms part of the circulating capital if its is acquired in the ordinary course of business --- it is to be sold, or to be manufactured for goods to be sold --- for example: trading stock and raw materials --- any receipt related to such items are revenue receipts and taxable. 

A summary of capital versus revenue receipts is given by Black's Law Dictionary (5th edition) as follows:

  • Profit: Most commonly, the gross proceeds of a business transaction less the costs of the transactions; i.e. net proceeds. Excess of revenues over expenses for a transaction; sometimes used synonymously with net income for the period. Gain realized from business or investment over and above expenditures.

  • Revenue: Return or yield; profit, as that which returns or comes back from an investment; the annual or periodical rents, profits, interest or issues of any species of property...

  • Capital: Accumulated goods, possessions, and assets, used for the production of profits... In accounting, the amount invested in a business.

Click to read the following.

1. Compensation receipts

2. Voluntary receipts

3. A tax case on how to turn a revenue receipt into capital receipt

Indeed, the question of capital versus revenue is important for taxation, not just concerning the taxability of an income but also affecting the deductibility of an expenditure. For its effect on the deductibility of an expenditure, please click here.

 

 

楊輝洪 Raymond Yeung 為你提供: * 飛鴻作品下載 * 寫好英文信件 * 基礎法律知識 * 實用稅務課程 * 英文速成課程 * 見工英語速成 * 中英文翻譯 * 中英文寫作服務 * 致稅局信件範本 * 飛鴻中文YouTube * 飛鴻英語YouTube * 稅務顧問服務

 

Tel/WhatsApp/WeChat :  94735846