Evaluate ms chan situation by referring to the six badges

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Reference no: EM13501726

Question

Ms Chan is the operations manager of Evergreen Trading Company Ltd, an import-export company carrying on business in Hong Kong. She tells you that in December 2011 the company purchased a residential flat in Hung Hom ‘for rental purposes' at a price of $6,000,000. The flat was used as security for a mortgage loan of $3,500,000 obtained from a local bank. To this day, no tenant has been found. She also tells you that a person seeing the company's advertisement in the newspaper for renting the flat offered to buy it for $9,000,000. She is prepared to accept this price - but only if you can assure her that the gain on sale will not be subject to tax in Hong Kong.

Required:

Evaluate Ms Chan's situation by referring to the six badges of trade and advise on whether the gain will be subject to Hong Kong profits tax. As the information given above may not be sufficient to deal with the issue adequately, you are required to set out in your answer what further information you might need in order to better assess the situation.

 

Reference no: EM13501726

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