Tax - What is a business?
Business is defined in Section 2
of Inland Revenue Ordinance as including farming, poultry and pig rearing,
letting of any premises by a corporation, and sub-letting by any other
person. Of course, Section 2 is only an “inclusive” definition --- it does not
define exactly "what is business” for tax purpose.
above, no more
definition is given in the Ordinance. So, in such case we may look to the
Literal Rule of
interpretation under common law as well as to court cases to find out the meaning
Below is such a court case.
Woo Shang versus C.I.R. 1 HKTC 123: In this case, “business” was said to be anything
which occupies time, attention and labor of men. Furthermore, the judges
quoted the following from a UK tax case Smith versus
Anderson: “… Business itself is a word of large and indefinite import ….
It is a word of extensive use and indefinite signification … ”
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In the case American Leaf Co v
Director-General, 'business' is given a wider meaning than 'trade'. The
judge said: “In the case of a private individual it may well be that the
mere receipt of rents from property that he owns raises no presumption
that he is carrying on a business. In contrast, in their Lordships'view,
in the case of a company incorporated for the purpose of making profits
for its shareholders any gainful use to which it puts any of its assets
prima facie amounts to the carrying on of a business. Where the gainful
use to which a company's property is put is letting it out for rent,
their Lordships do not find it easy to envisage circumstances that are
likely to arise in practice which would displace the prima facie
inference that in doing so it was carrying on a business.”
From the IRD's
perspective, a business is
usually also a trade or an adventure in the nature of trade. In fact a
business or a trade is taxed on like basis. Therefore, as far as taxation is
concerned, if we can establish there is a trade or an adventure in the
nature of trade, there will be no practical importance to consider whether
it is a business.