Mrs. Lo is a businesswoman who has been running her own trading business in household gadgets for 3 years. Mrs. Lo’s father passed away in 2000 and Mrs. Lo inherited a piece of land in Tuen Mun from her father’s estate. She then built a two-story house on the land and has used the house as a family resort home for over 15 years. Recently, she decided to sell the house due to all her children and their families have migrated to Australia, and also the house was seldomly used and the maintenance cost was high.

Advise Mrs. Lo whether her sale of the property amounts to trading and the profits derived from the sale are taxable under Hong Kong Profits tax.                                      

Explain how your advice would be different if Mrs. Lo appointed a property developer to redevelop the plot into a low-rise apartment block with 4 units. She has also approached her banker to discuss the financing arrangement.

Mrs. Lo has never filed any profits tax return for her household gadgets trading business and recently she received a query from the Inland Revenue Department regarding this non-compliance. Further, Mrs. Lo has not kept proper books and records so that she has no immediate information to prepare the profits tax return.

With reference to the Inland Revenue Ordinance, advise any possible penalty and prosecution action (if any) that could be taken by the Inland Revenue Department for these offenses.