Raymond Yeung Tax Consultant former Assessor of Inland Revenue Department 前稅局評稅主任楊輝洪

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Profits 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. 

Apart from 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 of business. Below is such a court case. 

Lam 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 … ”  Click here for more.

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.  


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