Subject:Hong Kong taxation

Question 5 (12 marks) (1) Your friend Mrs Lo has been running a very successful tuition school business. She recently received a letter of enquiry from an assessor of the investigation section of the Inland Revenue Department regarding the assessable income of her business for the years of assessment 2017/18 and 2018/19. She feared she would be prosecuted for the understatement of income of the tuition school business of which she is the sole proprietor. Mrs Lo has approached you for advice. Required: Explain to Mrs Lo the possible actions that the Inland Revenue Department may take against her for the understatement of income, and the penalties that may be imposed. (8 marks) (11) During the year of assessment 2019/20, Tech Finance Ltd has purchased machinery at cost of $5.5m and leased to Apple Ltd for use in Apple Ltd's factory in Vietnam. Required: With reference to relevant Inland Revenue Ordinance, explain the tax position of Tech Finance Ltd relating to the depreciation allowance of the machinery. (4 marks) (Total marks: 12) Stamp duty rates Conveyance and Agreement for sale Ad Valorem Stamp Duty (AVD) with effect from 23/2/2013 (marginal reliefs ignored) Scale 1 Not exceeding $2,000,000 1.5% Not exceeding $3,000,000 3% Not exceeding $4,000,000 4.5% Not exceeding $6,000,000 6% Not exceeding $20,000,000 7.5% Exceeding $20,000,000 8.5% Residential properties, effective 5 Nov 2016 15% flat rate Special Stamp Duty 20/11/2010 Holding period Not exceeding 6 months 15% > 6 months and 12 months and 24 months 5% > 12 months and 6 months and 12 months and 24 months 5% > 12 months and