Max Ltd is involved in furniture business and runs furniture stores successfully in Victoria. Due to the detrimental impact of Covid 19 sales began to drop sharply and company is facing a severe liquidity problems. Management consultant, who advices the company on business matters, proposed them to sell off all shops owned by them and leased out shop to ease off the liquidity issue and run the business profitability. The chairman of Max Ltd is keen on the plan but is puzzled by the consultant’s insistence that all lease agreements for the shops be ‘operating’ rather than ‘finance’ leases.
Meantime, Johnson Ltd agreed to lease 5 shops to Max ltd under the following conditions.
The lease agreements details are as follows:
|
Length of lease |
10 Years |
|
Commencement date |
1 July 2020 |
|
Annual lease payment, payable 1 July each year commencing 1 July 2020($100000*5) |
$500000 |
|
Estimated economic life of the building |
10 Years |
|
Annual interest rate implicit in the lease |
10% |
Chairman of the board directed company accountant to submit a detailed report on the above project.
Required:
In: Accounting
A Ltd, is a company incorporated and carrying on business in Hong Kong, is organizing a pop music concert to be staged in Hong Kong in January 2018. A Ltd has appointed another Hong Kong resident company, B Ltd, to procure the performance of an overseas artist at the concert, for which A Ltd will pay B Ltd $11 million. Ms. Happy, a famous international star singer from the US, has been approached by B Ltd to undertake this performance. The remuneration for her performance in Hong Kong has been agreed as $10 million, payable to Mr. Money, the US resident manager of Ms. Happy. In the performance agreement, there will be a clause providing that when paying the remuneration, B Ltd will be entitled to deduct a sum equivalent to 10% of the gross payment, or any other amount which is sufficient to cover the Hong Kong tax applicable. Ms. Happy is not convinced of the need for this clause and has raised the following challenges: (1) She deals with B Ltd on a principal-to-principal basis and thus, B Ltd is not an ‘agent’ acting on her behalf. Therefore, B Ltd has no authority to deduct any tax from the payment. (2) Should there be any tax liability incurred, an assessment should be made by the Hong Kong Inland Revenue Department and issued to her directly as a demand for tax, given that Hong Kong does not operate a self assessment system. (3) Hong Kong profits tax should be based on the net assessable profits which are calculated by reference to gross income and deductible expenses. The 10% or any other deemed notional percentage has no legal basis.
Required:
(a) Explain why Ms. Happy will be chargeable to Hong Kong tax.
(b) Explain how the Hong Kong tax payable by Ms. Happy will be determined and collected. Note: with the exception of Mr. Money, none of the parties referred to are agents for any other person.
(c) State, giving reasons, whether there will be any difference in the tax position if Ms. Happy incorporates a company in Hong Kong to receive the payment on her behalf.
In: Accounting
if
the us is in the expansion phase of the business cycle, recovering
from a recession, which of the following variables is
increasing?
a. real gdp
b.aggregate real income
c. cyclical unemployment
d. the natural rate of unemployment
e. both a and b
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