ࡱ > {` R bjbjFF >@ , , P Z @K @K @K 8 xK DL ư J $N $N :N :N :N O O O - ˬ ۯ $ h x D bf O O bf bf :N :N " " " bf x :N :N " bf " " n 9 g $ :N N PʙW @K | P < 0 ư d @ $ $ , O S " U D 'X ; O O O ʈ X O O O ư bf bf bf bf $= K $ K Case No. D73/05 Profits tax whether or not the sale of small house is a trade activity whether or not the stated intention was realistic and realizable badges of trade the time to have the intention to trade to ascertain the market value of the small house as the cost to calculate the profits. [Decision in Chinese] Panel: Anthony Ho Yiu Wah (chairman), John C Poon and Lily Yew. Dates of hearing: 12 August, 9 September and 22 October 2005. Date of decision: 27 February 2006. In 1936, the taxpayer had several pieces of land under succession. Later the taxpayer used one of the pieces of the land to commence small house property development. After the taxpayer received the occupation permit on 3 July 1999, the taxpayer sold the whole small house floor by floor from August 1999 to October 1999. The Assessor considered that the sale of the small house was trade activity. The profit earned as a result should be subjected to profits tax. The taxpayers reasons of appeal are that: (a) the taxpayer applied to build a small house with the intention to live in that small house for the rest of his life. However in the few months after he had moved into the small house, the taxpayer was always sick. In order to feel content, the taxpayer invited fung shui master to site visit the small house. The fung shui master discovered that the fung shui location of the small house confronted with the fortune of the taxpayer. In order to protect himself, the taxpayer had no choice but to sell the small house with the wish to have several years longer lives; (b) the taxpayer had in possession of the land of the small house for more than 64 years. Therefore the land of the small house was capital in nature; (c) the purchasers of each floor of the small house were the family members of the taxpayer and the sale of the small house did not involve any nature of adventure of trade. Therefore the sale of the small house was a decision to handle the capital of the property and was not a trade activity; (d) the intention of the taxpayer in applying to build a small house was to improve the living circumstances of others and the taxpayer did not intend to earn profit; (e) the taxpayer did not agree with the valuation of the land of the small house provided by the Rating and Valuation Department. Held: 1. The Board cannot simply accept or reject the stated intention of the taxpayer, the Board has to consider whether the stated intention of the taxpayer was realistic and realizable (All Best Wishes Ltd v Commissioner of Inland Revenue 3 HKTC 750 followed). 2. In the present case, the key issue was the intention of the taxpayer at the time when the taxpayer intended to invest or to build the small house and it is not about the reason why did he sell the small house. The Board agreed that the six badges of trade given by the Royal Commission on the Taxation of Profits and Income would assist to ascertain whether or not the taxpayer has the intention to trade, but it does not require the existence of all the six badges of trade to establish the intention to trade. Having considered the evidence of the case, the Board does not accept that at the time when the property development of the small house has commenced, the taxpayer did not have the intention to trade (Simmons v IRC [1980] 1 WLR 1196 and All Best Wishes Ltd v Commissioner of Inland Revenue 3 HKTC 750 followed). 3. The Board did not accept that the taxpayers suggestion to use the market value of the small house at the time of sale as the cost to calculate profit. Since the taxpayer has failed to prove that the taxpayer did not have the intention to trade on the subject of small house, the intention to trade should have existed at the time of the property development. The market value of the small house at the time when the taxpayer had an intention to trade should be adopted as the cost to calculate the profit (D93/02, IRBRD, vol 17, 1118 considered). Appeal dismissed. Cases referred to: Simmons v IRC [1980] 1 WLR 1196 All Best Wishes Ltd v Commissio n e r o f I n l a n d R e v e n u e 3 H K T C 7 5 0 D 9 3 / 0 2 , I R B R D , v o l 1 7 , 1 1 1 8 T a x p a y e r r e p r e s e n t e d b y h i s s o n a n d h i s s o n s w i f e . T a n g H i n g K w a n a n d L e u n g W i n g C h i f o r t h e C o m m i s s i o n e r o f I n l a n d R e v e n u e . HhN}_ D 7 3 / 0 5 )R_z Q.UNK\vLp g&Tibua'`ꌄv;mR r1zvaW/f&T[SSN[sv qFUj qFUaWSBfQsNx[NK\v^