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(CHAPTER 112)CONTENTS

(CHAPTER 112)CONTENTS (5) In this section- "aerodrome or airport" includes any helipad; "air waybill" has the same meaning as in the Import and Export Ordinance (Cap, 60), but does not include an air waybill which describes any aerodrome or airport in Hong Kong as the aerodrome or airport of departure or the aerodrome or airport of destination; "aircraft" includes a helicopter; "business as an owner of aircraft" means a business of chartering or operating aircraft, but does not include dealing in aircraft or agency business in connection with air transport; "charter hire" means any sums earned by or accrued to an owner of an aircraft under a charter-party by demise in respect of the operation of the aircraft, but does not include any sums so earned or accrued where that charter-party does not, or does not purport to, extend to the whole of that aircraft; "goods" includes livestock and mails; "goods in transit", in relation to the shipment of goods aboard an aircraft, means goods- (a) specified in an air waybill (issued by or on behalf of an owner of aircraft) or a post office delivery bill; (b) brought to Hong Kong by air solely for the purpose of the onward carriage of those goods; and (c) in respect of which any freight charges for that onward carriage are not paid or payable in Hong Kong; "operation", in relation to an aircraft, includes the use or possession of the aircraft; "owner", in relation to an aircraft, includes a charterer of the aircraft under a charter-party; "passengers" does not include passengers in transit; "passengers in transit", in relation to a flight of an aircraft, means passengers- (a) whose passenger tickets in respect of the flight do not specify Hong Kong as the place of departure or as the place of destination; or (b) who- (i) travel to Hong Kong in any aircraft owned by an owner of aircraft and leave Hong Kong in that or any other aircraft in the same ownership; and (ii) not more than 24 hours after travelling to and arriving at Hong Kong, leave Hong Kong for a destination other than the one from which they had travelled; "permanent establishment" means a branch, management or other place of business, but does not include an agency unless the agent has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of his principal; "post office delivery bill", in relation to the carriage of mails, means any document (whether referred to as an "AV7 bill" or otherwise) which does not describe Hong Kong, or the General Post Office of Hong Kong, as the office of origin or the office of destination in respect of those mails; "relevant carriage", in relation to an aircraft, means the carriage by air of passengers or goods, or both passengers and goods, as the case may be, but does not include the carriage of goods in transit; "relevant charter hire" means charter hire other than charter hire attributable to a permanent establishment maintained outside Hong Kong by a person deemed to be carrying on a business as an owner of aircraft in Hong Kong under this section, but does not include- (a) charter hire in respect of the operation of an aircraft flying between aerodromes or airports within Hong Kong; or (b) charter hire in respect of the operation of an aircraft flying between any aerodrome or airport within Hong Kong and any aerodrome or airport within Macao; "relevant sums" means- (a) any sums derived from, attributable to, or in respect of- (i) any relevant carriage shipped in Hong Kong; (ii) any relevant charter hire; (iii) any charter hire in respect of the operation of an aircraft flying between aerodromes or airports within Hong Kong; (iii) one half of any sums derived from, attributable to, or in respect of, any charter hire in respect of the operation of an aircraft flying between any aerodrome or airport within Hong Kong and any aerodrome or airport within Macao; "shipped", in the case of passengers, means embarked; "shipped in Hong Kong", in relation to the shipment of relevant carriage, means shipped aboard an aircraft at any aerodrome or airport within Hong Kong; "total aircraft income", in relation to any basis period, means the worldwide income of a person from the person's business as an owner of aircraft, and indicated as such by that person's accounts for that period; "total aircraft profits", in relation to any basis period, means the worldwide profits of a person from the person's business as an owner of aircraft, and indicated as such by that person's accounts for that period; (Replaced 47 of 1992 s. 3) 23D. Ascertainment of the assessable profits of a non-resident aircraft- owner (1) Subject to subsection (5), where a person to whom section 23C does not apply carries on a business as an owner of aircraft, and any aircraft owned by that person lands at any aerodrome or airport within Hong Kong, that person shall be deemed to be carrying on that business in Hong Kong.

(2) Subject to subsections (3) and (4), where a person is deemed to be carrying on a business as an owner of aircraft under this section the assessable profits of that person from that business for any year of assessment shall be the sum bearing the same ratio to the aggregate of the relevant sums earned by or accrued to that person during the basis period for that year of assessment as that person's total aircraft profits for the basis period bear to the aggregate of the total aircraft income earned by or accrued to that person during that basis period for that year of assessment.

(3) Subject to subsection (4), where in the opinion of the assessor the provisions in subsection (2) for computing assessable profits cannot for any reason be satisfactorily applied in the case of a person to whom this section applies, the assessable profits of that person for any year of assessment may instead be computed on a fair percentage of the aggregate of the relevant sums earned by or accrued to that person during the basis period for that year of assessment.

(4) Notwithstanding section 70, where the assessable profits of any person have been computed for any year of assessment in accordance with subsection (3), the person shall, upon the submission to the assessor of accounts computed in accordance with the provisions of this Part relating to the ascertainment of assessable profits, be entitled to elect at any time within 2 years from the end of the year of assessment that his assessable profits for that year be re-computed in accordance with subsection (2).

(5) Where the Commissioner is satisfied that the landing at any aerodrome or airport within Hong Kong of any aircraft owned by a person to whom this section applies is of a casual nature, and that further landings at any aerodrome or airport within Hong Kong by that or any other aircraft in the same ownership are improbable, he may in his discretion direct that that person shall be deemed not to be carrying on a business as an owner of aircraft in Hong Kong under this section by reason of the casual landing of that aircraft and accordingly, in the event of his making such a direction, that person shall be so deemed not to be carrying on that business.

(6) For the purposes of this section, any sums earned by or accrued to the owner of an aircraft under a charter-party(whether by demise or not) that does not, or does not purport to, extend to the whole of that aircraft shall, to the extent that those sums are derived from, attributable to, or in respect of, any outward flight or flights of that aircraft commencing from any aerodrome or airport within Hong Kong, be deemed to be derived from, attributable to, or in respect of, any relevant carriage shipped in Hong Kong.

(7) For the purposes of this section, the following sums earned by or accrued to an owner of an aircraft under a charter-party otherwise than by demise shall be deemed to be derived from, attributable to, or in respect of, any relevant carriage shipped in Hong Kong- (a) in the case of a charter-party which is a flight charter, any sums earned by or accrued to that owner under that charter-party and derived from, attributable to, or in respect of, any outward flight or flights of that aircraft commencing from any aerodrome or airport within Hong Kong; (b) in the case of a charter-party which is a time charter, the sum bearing the same ratio to the aggregate of the sums earned by or accrued to that owner under that charter-party as the total number of flying hours of that aircraft flown in respect of all outward flights of that aircraft commencing from any aerodrome or airport within Hong Kong to the final destinations of those flights bear to the aggregate of the total number of flying hours of that aircraft flown in respect of all flights of that aircraft under that charter-party.

(8) In this section- "aerodrome or airport" includes any helipad; "air waybill" has the same meaning as in the Import and Export Ordinance (Cap. 60), but does not include an air waybill which describes any aerodrome or airport in Hong Kong as the aerodrome or airport of departure or the aerodrome or airport of destination; "aircraft" includes a helicopter; "business as an owner of aircraft" means a business of chartering or operating aircraft, but does not include dealing in aircraft or agency business in connection with air transport; "charter hire" means any sums earned by or accrued to an owner of an aircraft under a charter-party by demise in respect of the operation of the aircraft, but does not include any sums so earned or accrued where that charter-party does not, or does not purport to, extend to the whole of that aircraft; "goods" includes livestock and mails; "goods in transit", in relation to the shipment of goods aboard an aircraft, means goods- (a) specified in an air waybill (issued by or on behalf of an owner of aircraft) or a post office delivery bill; (b) brought to Hong Kong by air solely for the purpose of the onward carriage of those goods; and (c) in respect of which any freight charges for that onward carriage are not paid or payable in Hong Kong; "operation", in relation to an aircraft, includes the use or possession of the aircraft; "owner", in relation to an aircraft, includes a charterer of the aircraft under a charter-party; "passengers" does not include passengers in transit; "passengers in transit", in relation to a flight of an aircraft, means passengers- (a) whose passenger tickets in respect of the flight do not specify Hong Kong as the place of departure or as the place of destination; or (b) who- (i) travel to Hong Kong in any aircraft owned by an owner of aircraft and leave Hong Kong in that or any other aircraft in the same ownership; and (ii) not more than 24 hours after travelling to and arriving at Hong Kong, leave Hong Kong for a destination other than the one from which they had travelled; "permanent establishment" means a branch, management or other place of business, but does not include an agency unless the agent has, and habitually exercises, a general authority to negotiate and conclude contracts on behalf of his principal; "post office delivery bill", in relation to the carriage of mails, means any document (whether referred to as an "AV7 bill" or otherwise) which does not describe Hong Kong, or the General Post Office of Hong Kong, as the office of origin or the office of destination in respect of those mails; "relevant carriage", in relation to an aircraft, means the carriage by air of passengers or goods, or both passengers and goods, as the case may be, but does not include the carriage of goods in transit; "relevant charter hire" means charter hire attributable to a permanent establishment maintained in Hong Kong by a person deemed to be carrying on a business as an owner of aircraft in Hong Kong under this section, but does not include- (a) charter hire in respect of the operation of an aircraft flying between aerodromes or airports within Hong Kong; or (b) charter hire in respect of the operation of an aircraft flying between any aerodrome or airport within Hong Kong and any aerodrome or airport within Macao; "relevant sums" means- (a) any sums derived from, attributable to, or in respect of- (i) any relevant carriage shipped in Hong Kong; (ii) any relevant charter hire; (iii) any charter hire in respect of the operation of an aircraft flying between aerodromes or airports within Hong Kong; (b) one half of any sums derived from, attributable to, or in respect of, any charter hire in respect of the operation of an aircraft flying between any aerodrome or airport within Hong Kong and any aerodrome or airport within Macao; "shipped", in the case of passengers, means embarked; "shipped in Hong Kong", in relation to the shipment of relevant carriage, means shipped aboard an aircraft at any aerodrome or airport within Hong Kong; "total aircraft income", in relation to any basis period, means the worldwide income of a person from the person's business as an owner of aircraft, and indicated as such by that person's accounts for that period; "total aircraft profits", in relation to any basis period, means the worldwide profits of a person from the person's business as an owner of aircraft, and indicated as such by that person's accounts for that period.

(Added 47 of 1992 s. 3) 23E. Alternative computation of "total shipping profits" and "total aircraft profits" Where total shipping profits within the meaning of section 23B (12) or total aircraft profits within the meaning of section 23C (5) or 23D (8), as the case may be, have been computed on a basis which differs materially from that provided for in this Part for the ascertainment of assessable profits in respect of which a person is chargeable to tax, those profits may be adjusted so as to correspond as nearly as may be to the sum that would have been arrived at had they been computed in accordance with the provisions of this Part relating to the ascertainment of assessable profits in respect of which a person is chargeable to tax.

(Added 47 of 1992 s. 3) 24. Clubs, trade associations, etc.

(1) Where a person carries on a club or similar institution which receives from its members not less than half of its gross receipts on revenue account (including entrance fees and subscriptions), such person shall be deemed not to carry on a business; but where less than half of its gross receipts are received from members, the whole of the income from transactions both with members and others (including entrance fees and subscriptions) shall be deemed to be receipts from a business, and such person shall be chargeable in respect of the profits therefrom. (Amended 36 of 1955 s. 23; 49 of 1956 s. 22) (2) Where a person carries on a trade, professional or business association in such circumstances that more than half its receipts by way of subscriptions are from persons who claim or would be entitled to claim that such sums were allowable deductions for the purposes of section 16, such person shall be deemed to carry on a business, and the whole of the income of such association from transactions both with members and others (including entrance fees and subscriptions) shall be deemed to be receipts from business, and such person shall be chargeable in respect of the profits therefrom. (Amended 36 of 1955 s. 34; 2 of 1971 s. 17; 40 of 1972 s. 3) (3) In this section, "members" means those persons entitled to vote at a general meeting of the club, or similar institution, or trade, professional or business association. (Replaced 36 of 1955 s. 34. Amended 40 of 1972 s. 3) 25. Deduction of property tax from profits tax Where property tax is payable for any year of assessment under Part II in respect of any land or buildings owned by a person carrying on a trade, profession or business, any profits tax payable by such person in respect of that year of assessment shall be reduced by a sum not exceeding the amount of such property tax paid by him: Provided that- (a) no reduction shall be allowed unless either the profits derived from such property are part of the profits of the trade, profession or business carried on by such person or the property is occupied or used by him for the purposes of producing profits in respect of which he is chargeable to tax under this Part; (Replaced 11 of 1961 s. 5. Amended 35 of 1965 s. 14) (b) if the amount of property tax paid for a year of assessment exceeds the profits tax payable, the amount so paid in excess shall be refunded in accordance with the provisions of section 79; (Replaced 11 of 1961 s. 5) (c) where property tax for the year of assessment commencing on 1 April 1960, or earlier years, exceeded the profits tax payable for such years the amount of the excess shall be set off against the profits tax payable for the year of assessment commencing on 1 April 1961, after deduction of the property tax paid for that year and any balance left over shall be carried forward and set off in like manner against the profits tax payable for the next succeeding years. (Replaced 11 of 1961 s. 5) (Replaced 3 of 1949 s. 9) 26. Exclusion of certain dividends and profits from the assessable profits of other persons For the purposes of this Part- (a) a dividend from a corporation which is chargeable to tax under this Part shall not be included in the profits in respect of which any other person is chargeable to tax under this Part; and (b) save as otherwise provided no part of the profits or losses of a trade, profession or business carried on by a person who is chargeable to tax under this Part shall be included in ascertaining the profits in respect of which any other person is chargeable to tax under this Part.

(Added 2 of 1971 s. 18) (Replaced 16 of 1951 s. 5. Amended 28 of 1964 s. 10; 2 of 1971 s. 18; 7 of 1975 s. 25; 62 of 1975 s. 2) 26A. Exclusion of certain profits from tax (1) For the purposes of this Part- (a) interest paid or payable on a Tax Reserve Certificate issued by the Commissioner; (b) interest paid or payable on a bond issued under the Loans Ordinance (Cap. 61) or the Loans (Government Bonds) Ordinance (Cap. 64); (Amended 48 of 1991 s. 2) (c) any profit on the sale or other disposal or on the redemption on maturity or presentment of such a bond; (Amended 48 of 1991 s. 2) (d) interest paid or payable on an Exchange Fund debt instrument; (Added 9 of 1990 s. 2. Amended 17 of 1992 s. 2) (e) any profit on the sale or other disposal or on the redemption on maturity or presentment of such an Exchange Fund debt instrument; (Added 9 of 1990 s. 2) (f) interest paid or payable on a Hong Kong dollar denominated multilateral agency debt instrument; and (Added 17 of 1992 s. 2) (g) any profit on the sale or other disposal or on the redemption or maturity or presentment of such a Hong Kong dollar denominated multilateral agency debt instrument; (Added 17 of 1992 s. 2) shall not be included in the profits of any corporation or other person chargeable to tax under this Part. (Amended 9 of 1990 s. 2) (1A) For the purposes of this Part, sums received by or accrued to an authorized mutual fund corporation or trustees of an authorized unit trust by way of- (a) gains or profits arising from the sale or other disposal or on the redemption on maturity or presentment of securities; (b) gains or profits under a foreign exchange contract or futures contract; and (c) interest, shall not be included in the profits of the corporation or trustees (as the case may be). (Replaced 19 of 1991 s. 3) (2) In this section- "authorized" means authorized under section 15 of the Securities Ordinance (Cap. 333); (Added 19 of 1991 s. 3) "computer" means any device for storing, processing or retrieving information; "Exchange Fund" means the fund of that name established under section 3 (1) of the Exchange Fund Ordinance (Cap. 66); "Exchange Fund debt instrument" means any instrument (whether described as an "Exchange Fund Bill" or otherwise) issued under the Exchange Fund Ordinance (Cap. 66) evidencing the deposit of a sum of money in Hong Kong currency with the Monetary Authority for the account of the Exchange Fund, being an instrument which recognizes an obligation to pay a stated amount, with or without interest, and which is transferable in a manner specified by that Authority; (Amended 82 of 1992 s. 9) "foreign exchange" means the exchange of different currencies; (Added 19 of 1991 s. 3) "futures contract" has the same meaning as in section 2 (1) of the Commodities Trading Ordinance (Cap. 250); (Added 19 of 1991 s. 3) "instrument" includes- (a) every written document; (b) any information recorded in the form of an entry in a book of account; and (b) any information which is recorded (whether by means of a computer or otherwise) in a non-legible form but is capable of being reproduced in a legible form; "multilateral agency debt instrument" means an instrument specified in Part I of Schedule 6 issued by a body specified in Part II of that Schedule; (Added 17 of 1992 s. 2) "mutual fund corporation" has the same meaning as in section 2 (1) of the Securities Ordinance (Cap. 333); (Added 19 of 1991 s. 3) "securities" includes- (a) any negotiable receipt or other negotiable certificate or instrument evidencing the deposit of a sum of money, or any rights or interests arising under any such receipt, certificate or instrument; and (b) any bill of exchange within the meaning of section 3 of the Bills of Exchange Ordinance (Cap. 19), but otherwise has the same meaning as in section 2 (1) of the Securities Ordinance (Cap. 333); (Replaced 19 of 1991 s. 3) "unit trust" has the same meaning as in section 2 (1) of the Securities Ordinance (Cap. 333). (Added 9 of 1990 s. 2) (3) The Legislative Council may by resolution amend Schedule 6. (Added 17 of 1992 s. 2) (Replaced 62 of 1975 s. 3) PART V ALLOWANCES 27. Allowances, general provisions (1) This Part prescribes the allowances which shall be granted to persons chargeable to tax under Parts III and VII and the circumstances in which such allowances are grantable.

(2) Every person who claims an allowance under this Part shall make his claim in the specified form and an allowance shall be granted only if the claim contains such particulars and is supported by such proof as the Commissioner may require.

(3) In this Part- "adopted" means adopted in any manner recognized by the laws of Hong Kong; "allowance" means an allowance granted under this Part; "child" means any child of a person chargeable to tax or of his or her spouse or former spouse whether or not born in wedlock and includes the adopted or step child of either or both of them; "person" means a person chargeable to tax under Part III or, as the case may be, Part VII; "prescribed amount" and "prescribed percentage" mean the amount and percentage specified in the second column of the Fourth Schedule in relation to the provisions of this Part specified in the first column of that Schedule.

28. Basic allowance (1) The following allowance ("basic allowance") shall be granted in any year of assessment- (a) an allowance of the prescribed amount; (b) an additional allowance of the prescribed amount, but this allowance shall be reduced by the prescribed percentage of the sum, if any, by which- (i) in the case of a person who is chargeable to salaries tax under Part III, the net assessable income of that person, as reduced under section 12BA by approved charitable donations, exceeds the prescribed amount; and (ii) in the case of a person who has elected to be assessed under Part VII, the total income of that person, as reduced under section 42 (2) and (5), exceeds the prescribed amount referred to in subparagraph (i).

(2) No person may be granted- (a) both a basic allowance and a married person's allowance; or (b) a basic allowance where his or her spouse has claimed a married person's allowance.

29. Married person's allowance (1) An allowance ("married person's allowance") shall be granted under this section in any year of assessment if a person is, at any time during that year, married and- (a) the spouse of that person did not have assessable income in the year of assessment; or (b) that person and his or her spouse have made, in relation to the year of assessment, an election under section 10 (2); or (c) that person has elected to be assessed under Part VII.

(2) Where an election has been made under section 10 (2) a married person's allowance shall be granted to the person chargeable to salaries tax under section 10 (3).

(3) A married person's allowance grantable under this section is- (a) an allowance of the prescribed amount; (b) an additional allowance of the prescribed amount, but this allowance shall be reduced by the prescribed percentage of the amount, if any, by which- (i) in the case of a person who is chargeable to salaries tax under section 10 (3), the aggregate of the net assessable incomes of that person and of his or her spouse as reduced by approved charitable donations provided for under section 12BA, exceeds the prescribed amount; (ii) in the case of a person assessable to salaries tax who is entitled to married person's allowance because he or she has such a wife or husband as is described in subsection (1) (a), the net assessable income as reduced by approved charitable donations provided for under section 12BA, exceeds the prescribed amount; and (iii) in the case of a person who has elected personal assessment under Part VII, the total income (as reduced under section 42 (2) and (5)) of that person and his or her spouse exceeds the prescribed amount.

(4) Where husband and wife are living apart a married person's allowance shall only be granted where the spouse claiming the allowance is maintaining or supporting the other.

(5) Where a married person's allowance is granted in respect of a husband and wife living apart, the husband and wife shall be treated as not living apart for the purposes of Part VII.

(6) Any claim to an allowance to which subsection (4) applies may be revoked by the claimant within the year of assessment in respect of which it was made or within 6 years after the expiration of that year.

30. Dependent parent allowance (1) An allowance ("dependent parent allowance") shall be granted under this section in any year of assessment if the person or his or her spouse, not being a spouse living apart from that person, maintains a parent or a parent of his or her spouse in the year of assessment and that parent at any time in that year was- (a) ordinarily resident in Hong Kong; and (b) aged 60 or more or, being under the age of 60, was eligible to claim an allowance under the Government's Disability Allowance Scheme.

(2) A dependent parent allowance may be granted in respect of each such parent who is so maintained.

(3) A dependent parent allowance grantable under this section is- (a) an allowance of the prescribed amount; (b) an additional allowance of the prescribed amount if a parent in respect of whom the person is eligible to claim an allowance under paragraph (a) for the year of assessment was residing, otherwise than for full valuable consideration, with the person continuously throughout the year of assessment.

(4) For the purposes of this section- (a) a parent shall only be treated as being maintained by a person or his or her spouse if- (i) the parent resides, otherwise than for full valuable consideration, with that person and his or her spouse for a continuous period of not less than 6 months in the year of assessment; or (ii) the person or his or her spouse contributes not less than the prescribed amount in money towards the maintenance of that parent in the year of assessment; (6) "parent of the person or his or her spouse" means- (i) a parent of whose marriage, the person or his or her spouse is the child; (ii) a parent by whom the person or his or her spouse was adopted; (iii) a step parent of the person or of his or her spouse; (iv) the natural father or mother of the person or his or her spouse; or (v) in the case of a deceased spouse a person who would have been the parent of the person's spouse by reason of subparagraphs (i) to (iv) if the spouse had not died.

31. Child allowance (1) An allowance ("child allowance") shall be granted under this section in the prescribed amount in any year of assessment if the person had living and was maintaining at any time during the year of assessment an unmarried child who was- (a) under the age of 18; (b) of or over the age of 18 years but under the age of 25 years and was receiving full time education at a university, college, school or other similar educational establishment; or (c) of or over the age of 18 years and was, by reason of physical or mental disability, incapacitated for work.

(2) Subject to subsection (3), where more than one person is entitled to claim a child allowance under this section in respect of the same child for the same year of assessment, the allowance due shall be apportioned on such basis as the Commissioner may decide having regard to the contributions made by each individual to the maintenance and education of the child during the year of assessment.

(3) In the case of a husband and wife, not being a husband and wife living apart, chargeable to salaries tax under Part III- (a) all child allowances grantable under this section shall be claimed by one spouse; and (b) the claim shall be made by such spouse as the spouses may nominate.

(4) A nomination under subsection (3) (b) made in relation to any year of assessment shall not be revoked save with the consent of the Commissioner whose decision in the matter shall be final and not subject to objection or appeal.

(5) The total of the child allowances granted to a person in respect of his or her children shall not exceed the prescribed amount.

32. Single parent allowance (1) An allowance ("single parent allowance") of the prescribed amount shall be granted if at any time during the year of assessment the person had the sole or predominant care of a child in respect of whom the person was entitled during the year of assessment to be granted a child allowance.

(2) A person shall not be entitled to claim single parent allowance- (a) if at any time during the year of assessment the person was married and not living apart from his or her spouse; (b) by reason only that the person made contributions to the maintenance and education of the child during the year of assessment; or (c) in respect of any 2nd or subsequent child.

(3) Where 2 or more persons are entitled to claim single parent allowance in respect of the same child for the same year of assessment, the allowance due shall be apportioned on such basis as the Commissioner may decide- (a) having regard to the respective periods for which each person had the sole or predominant care of the child during the year of assessment; or (b) if, in the opinion of the Commissioner, those periods are uncertain, on such basis as the Commissioner may decide as being just.

33. Provisions supplementary to sections 30 and 31 (1) Subject to section 31 (2), a dependent parent allowance or a child allowance shall not be given to more than one person in any year of assessment in respect of the same parent or child.

(2) Subject to section 31 (2) and (3), where the Commissioner has reason to believe that 2 or more persons are eligible to claim such an allowance in respect of the same parent or child for the same year of assessment, the Commissioner shall not consider any claim until he is satisfied that the claimants have agreed which of them shall be entitled to claim in that year.

(3) Where a dependent parent allowance or a child allowance has been granted- (a) otherwise than under section 31 (2) to 2 or more persons in respect of the same parent or child; or (b) to both a husband and wife, contrary to section 31 (3); or (c) to a person and, within 6 months or such allowance being granted, another person appears to the Commissioner to be eligible to be granted that allowance in respect of the same parent or child for the same year of assessment, the Commissioner shall invite the persons to whom the allowance has been granted and any other individual who appears to the Commissioner to be eligible to be granted the allowance to agree which of them is to have the allowance (being an agreement consistent with the provisions of this Part) and the Commissioner may in consequence of such agreement, or if the individuals do not so agree within a reasonable time, within the period specified in section 60, raise additional assessments under that section.

(4) The Commissioner shall exercise his powers under this section in such manner as may appear to him to be just having regard to such in formation only as may be in his possession at the time when he exercises those powers.

(Part V added 43 of 1989 s. 10) PART VI DEPRECIATION, ETC.

34. Initial and annual allowances, industrial buildings and structures (1) Where a person incurs capital expenditure on the construction of a building or structure which is to be an industrial building or structure occupied for the purposes of a trade there shall be made to the person who incurred the expenditure for the year of assessment in the basis period for which the expenditure was incurred an allowance to be known as an "initial allowance" equal to one-fifth thereof: (Amended 30 of 1950 Schedule; 35 of 1965 s. 17) Provided that- (a) no initial allowance shall be made for the 8 successive years of assessment commencing on 1 April in each of the years 1957 to 1964; (b) where any initial allowance has been made in relation to capital expenditure on a building or structure under this subsection before such building or structure comes to be used and when it first comes to be used it is not an industrial building or structure, such allowance shall be disallowed and such additional assessments as may be necessary consequent thereon shall be made. (Replaced 35 of 1965 s. 17) (2) (a) Where any person is, at the end of the basis period for any year of assessment, entitled to an interest in a building or structure which is an industrial building or structure and where that interest is the relevant interest in relation to the capital expenditure incurred on the construction of that building or structure an allowance for depreciation by wear and tear, to be known as an "annual allowance", equal to one- twenty-fifth of that expenditure shall be made to him for that year of assessment. (Amended 36 of 1955 s. 41; 35 of 1965 s. 17) (b) Where the interest in a building or structure, which is the relevant interest in relation to any expenditure, is sold while the building or structure is an industrial building or structure the annual allowance, in the years of assessment the basis periods for which end after the time of that sale shall be computed by reference to the residue of expenditure immediately after the sale and shall be the fraction of the said residue the numerator of which is 2, where the building or structure was first used before the commencement of the basis period for the year of assessment commencing on 1 April 1965, and one, where the building or structure was first used on or after the commencement of such basis period, and the denominator of which is the number of years of assessment comprised in the period which- (i) begins with the first year of assessment for which the buyer is entitled to an annual allowance or would be so entitled if the building or structure had at all material times continued to be an industrial building or structure; and (ii) ends with the year of assessment which, where the building or structure was first used before the commencement of the basis period for the year of assessment commencing on 1 April 1965, is the 50th year after the year in which the building or structure was first used, and where the building or structure was first used on or after such basis period, is the 25th year after the year of assessment in which the building or structure was first used, and so on for any subsequent sales. (Replaced 35 of 1965 s. 17) (c) Notwithstanding anything in the preceding provisions of this section, in no case shall the amount of an annual allowance for any year of assessment in respect of any expenditure exceed such as, apart from the writing off falling to be made by reason of the making of that allowance, would be the residue of that expenditure at the end of his basis period for that year of assessment.

35. Balancing allowances and charges, industrial buildings and structures (1) Where any capital expenditure has been incurred on the construction of a building or structure and any of the following events occurs while the building or structure is an industrial building or structure, that is to say- (Amended 30 of 1950 Schedule) (a) the relevant interest in the building or structure is sold; or (b) that interest, being a leasehold interest, comes to an end otherwise than on the person entitled thereto acquiring the interest which is reversionary thereon; or (c) the building or structure is demolished or destroyed or, without being demolished or destroyed, ceases altogether to be used, an allowance or charge, to be known as a "balancing allowance" or a "balancing charge" shall, in the circumstances mentioned in this section, be made to or, as the case may be, on the person entitled to the relevant interest immediately before that event occurs for the year of assessment in his basis period for which that event occurs: Provided that no balancing allowance shall be made to any person where the building or structure is demolished for purposes unconnected with or not in the ordinary course of conduct of the trade or business for the purposes of which the building or structure was used in circumstances qualifying for annual allowances under section 34. (Replaced 35 of 1965 s.

18) (2) Where there are no sale, insurance, salvage or compensation moneys, or where the residue of the expenditure immediately before the event exceeds those moneys, a balancing allowance shall be made and the amount thereof shall be the amount of the said residue or, as the case may be, of the excess thereof over the said moneys.

(3) If the sale, insurance, salvage or compensation moneys exceed the residue, if any, of the expenditure immediately before the event, a balancing charge shall be made and the amount on which it is made shall be an amount equal to the excess or, where the residue is nil, to the said moneys.

(4) Notwithstanding anything in subsection (3), in no case shall the amount on which a balancing charge is made on a person exceed the aggregate of the following amounts, that is to say- (a) the amount of the initial allowance, if any, made to him in respect of the expenditure in question; (b) the amount of the annual allowances, if any, made to him in respect of the expenditure in question.

35A. Special provisions on termination of leasehold interest Where, on the termination of a leasehold interest- (a) a lessee of any building or structure remains in possession thereof with the consent of the lessor without a new lease being granted to him, the leasehold interest shall be deemed for the purposes of this Part to continue so long as he so remains in possession; (b) a new lease is granted to the lessee either by way of regrant or in pursuance of an option available to him under the terms of the first lease, this Part shall have effect as if the second lease were a continuation of the first lease.

(Added 2 of 1971 s. 27) 35B. Buildings and structures bought unused Where capital expenditure is incurred on the construction of a building or structure and, before that building or structure is used, the relevant interest therein is sold- (a) the expenditure actually incurred on the construction thereof shall be left out of account for the purposes of this Part and any initial allowance made under section 34 shall be disallowed and such additional assessments as may be necessary consequent thereon shall be made; but (b) (i) in a case where the person who sells that interest incurred that expenditure and made that sale in the course of a trade which consists, in whole or part, in the construction or development of buildings or structures for the purpose of sale, the person who buys that interest shall be deemed for those purposes to have incurred, on the date when the purchase price becomes payable, capital expenditure on the construction thereof equal to the net price paid by him for that interest; and (ii) in any other case, the person who buys that interest shall be deemed for those purposes to have incurred, on the date when the purchase price becomes payable, capital expenditure on the construction thereof equal to the expenditure actually incurred on the construction of the building or structure or to the net price paid by him for that interest, whichever is the less: (Replaced 29 of 1982 s. 7) Provided that- (a) where in a case to which paragraph (b) (i) applies the relevant interest in the building or structure is sold more than once before the building or structure is used, only the person who buys that interest on the occasion of the last of those sales shall be deemed to have incurred capital expenditure on the construction of the building or structure and that capital expenditure shall be equal to the net price paid on the first sale or the net price paid by him, whichever is the less; (b) where in a case to which paragraph (b) (ii) applies the relevant interest in the building or structure is sold more than once before the building or structure is used, that paragraph shall have effect only in relation to the last of those sales. (Replaced 29 of 1982 s. 7) (Added 2 of 1971 s. 27) 36. Rebuilding allowance for a commercial building or structure Where at the end of the basis period for any year of assessment a person is entitled to an interest in a commercial building or structure and where that interest is the relevant interest in relation to the capital expenditure incurred on the construction of that building or structure, an allowance to be known as a "rebuilding allowance" equal to 2% of the capital expenditure incurred on the construction of such building or structure shall be made to him for that year of assessment.

(Replaced 36 of 1955 s. 42. Amended 26 of 1969 s. 18; 30 of 1990 s. 3) 36A. Application of provisions to machinery or plant (1) Except where otherwise provided, in relation to the initial and annual allowances on machinery or plant- (a) sections 37, 37A, 38 and 39 shall apply to the years of assessment up to and including the year of assessment commencing on 1 April 1979; and (b) section 39B, 39C and 39D shall apply to the year of assessment commencing on 1 April 1980 and to subsequent years of assessment.

(2) Where in relation to any machinery or plant the Commissioner is satisfied that in respect of any year of assessment commencing on or after 1 April 1980 the application of any of the provisions of the sections referred to in subsection (1) (b) is impracticable or inequitable, he may direct that the provisions of the sections referred to in subsection (1) (a) shall apply to the extent and for the duration specified in the direction.

(3) Where under subsection (2) the Commissioner directs that the provisions of section 37 shall apply to any machinery or plant in respect of- (a) the year of assessment commencing on 1 April 1980, the initial allowance shall be equal to 35% of the expenditure referred to in subsection (1) of that section; (b) any year of assessment commencing on or after 1 April 1981, the initial allowance shall be equal to 55% of the expenditure referred to in subsection (1) of that section. (Replaced 29 of 1982 s. 8) (Added 63 of 1980 s. 2) 37. Initial and annual allowances, machinery or plant (1) Where a person carrying on a trade, profession or business incurs capital expenditure on the provision of machinery or plant for the purposes of producing profits chargeable to tax under Part IV then, except where such expenditure is expenditure of a kind described in section 16B(1) (b), there shall be made to him, for the year of assessment in the basis period for which the expenditure is incurred, an allowance, to be known as an "initial allowance". (Amended 30 of 1950 Schedule; 35 of 1965 s. 19; 26 of 1969 s. 19; 23 of 1974 s. 2) (1A) For the purposes of subsection (1), the initial allowance shall be- (a) in respect of a year of assessment up to and including the year of assessment commencing on 1 April 1973, equal to one-fifth of the expenditure referred to in subsection (1); and (b) in respect of the year of assessment commencing on 1 April 1974 and all subsequent years of assessment up to and including the year of assessment commencing on 1 April 1979, equal to one-quarter of such expenditure. (Added 23 of 1974 s. 2. Amended 32 of 1981 s. 4) (2) Where at the end of the basis period for any year of assessment a person owns and has in use machinery or plant for the purposes of producing profits chargeable to tax under Part IV there shall be made to him in respect of that year of assessment an allowance to be known as an "annual allowance" for depreciation by wear and tear of those assets. The allowance shall be calculated at the rates prescribed by the Board of Inland Revenue and shall be computed on the reducing value of the asset, which shall be the cost of the asset reduced by- (a) any initial allowance computed in accordance with the provisions of this section; and (b) by the annual allowances computed under the provisions of this section: Provided that- (a) where the asset was acquired before the basis period in respect of the year of assessment 1947/48 the value at the end of the basis period shall be computed by deducting from the amount paid for the asset by its present owner annual allowances as if this subsection had been in force during the whole period of ownership of the asset excluding any period during which the owner was deprived of the use of the asset by reason of enemy occupation; (b) the Commissioner may in his discretion allow a higher rate than that prescribed by the Board of Inland Revenue. (Amended 16 of 1951 s. 7; 35 of 1965 s. 19; 26 of 1969 s. 19) (2A) For the purposes of subsection (2), in any case where machinery or plant is owned and used by a person for any period immediately before he uses it for the purposes of producing profits chargeable to tax under Part IV, "cost of the asset" means the sum computed by deducting from the actual cost the notional amount of the annual allowances which would have been made under subsection (2) to the owner if since acquiring the asset he had used it for the purpose of producing profits chargeable to tax under Part IV. (Added 26 of 1969 s. 19) (3) Nothing in subsection (2) shall apply in respect of any machinery or plant owned and used by a person for the purposes of his trade or business where such machinery or plant represents scientific research expenditure of a capital nature which pursuant to section 16B (1) (b) has been allowed as a deduction in ascertaining the profits from such trade or business in respect of which such person is chargeable to tax under Part IV for any year of assessment. (Added 35 of 1965 s. 19) (4) If a person succeeds to any trade, profession or business which immediately before the succession- (a) was carried on by another person; and (b) made use of machinery or plant for the purpose of producing profits chargeable to tax under Part IV, and, immediately after the succession, such machinery or plant, without being sold to the successor, is in use in that trade, profession or business for the same purpose, the reduced value of such machinery or plant shall, for the purpose of computing annual allowances under subsection (2), be taken to be the reduced value thereof still unallowed to that other person as at the time of the succession. (Added 2 of 1971 s.

28) (5) Notwithstanding subsection (4), no initial allowance shall be made under this Part by virtue of subsection (4). (Added 2 of 1971 s. 28) 37A. Initial and annual allowances in respect of machinery and plant acquired under hire purchase agreement (1) Where a person carrying on a trade, profession or business incurs capital expenditure under a hire purchase agreement on the provision of machinery or plant for the purposes of producing profits chargeable to tax under Part IV then, except where such expenditure is expenditure of a kind described in section 16B (1) (b), there shall be made to him for each year of assessment in the basis period for which he has made an instalment payment under such agreement, an initial allowance. (Amended 35 of 1965 s.

20; 26 of 1969 s. 20; 23 of 1974 s. 3) (1A) For the purposes of subsection (1), the initial allowance shall be- (a) in respect of a year of assessment up to and including the year of assessment commencing on 1 April 1973, equal to one-fifth of the capital portion only of the instalment payment referred to in subsection (1); (b) in respect of the year of assessment commencing on 1 April 1974 and all subsequent years of assessment up to and including the year of assessment commencing on 1 April 1979, equal to one-quarter of the capital portion only of such payment; (c) in respect of the year of assessment commencing on 1 April 1980 equal to 35% of the capital portion only of such payment; (Replaced 29 of 1982 s. 9) (d) in respect of the year of assessment commencing on 1 April 1981 and all subsequent years of assessment up to and including the year of assessment commencing on 1 April 1988, equal to 55% of the capital portion only of such payment; and (Added 29 of 1982 s. 9. Amended 17 of 1989 s.

8) (e) in respect of any year of assessment commencing on or after 1 April 1989, equal to 60% of the capital portion only of such payment. (Added 17 of 1989 s. 8) (2) Where at the end of the basis period for any year of assessment a person has in use for the purposes of producing profits chargeable to tax under Part IV, machinery or plant acquired by him under a hire purchase agreement there shall be made to him in respect of that year of assessment an annual allowance for depreciation by wear and tear on such machinery or plant. (Amended 26 of 1969 s. 20) (3) An annual allowance under this section shall be calculated at rates prescribed by the Board of Inland Revenue and shall be computed on the reducing value of such machinery or plant which shall be the full cost thereof, excluding any interest which may be included in such cost under the terms of the agreement and reduced by any initial or previous annual allowances computed under this section: (Amended 35 of 1965 s. 20) Provided that the Commissioner may in his discretion allow a higher rate than that prescribed by the Board of Inland Revenue.

(4) Nothing in subsection (2) shall apply in respect of any machinery or plant used by a person for the purposes of his trade or business where such machinery or plant represents scientific research expenditure of a capital nature which pursuant to section 16B (1) (b) has been allowed as a deduction in ascertaining the profits from such trade or business in respect of which such person is chargeable to tax under Part IV for any year of assessment. (Added 35 of 1965 s. 20) (Added 36 of 1955 s. 43) 38. Balancing allowances and charges, machinery or plant (1) Where any of the following events occurs in the case of any machinery or plant in respect of which an initial allowance or an annual allowance has been made for any year of assessment to a person carrying on a trade, profession or business, that is to say, either- (Amended 30 of 1950 Schedule) (a) the machinery or plant is sold, whether while still in use or not; or (b) the machinery or plant is destroyed; or (c) the machinery or plant is put out of use as being worn out or obsolete or otherwise useless or no longer required, and the event in question occurs either whilst the person is carrying on his trade, profession or business or at the time when he ceases so to do, an allowance or charge, to be known as a "balancing allowance" or a "balancing charge", shall in the circumstances mentioned in this section, be made to or, as the case may be, on that person for the year of assessment in his basis period for which that event occurs. (Amended 36 of 1955 s. 44) (2) Where there are no sale, insurance, salvage or compensation moneys or where the amount of the capital expenditure of the person in question on the provision of the plant or machinery still unallowed as at the time of the event exceeds those moneys, a balancing allowance shall be made, and the amount thereof shall be the amount of the expenditure still unallowed as aforesaid or, as the case may be, the excess thereof over the said moneys; but in a case where an annual allowance has been computed on the cost of the asset as determined in accordance with section 37 (2A), the cost of the asset as computed in accordance with that subsection shall be deemed to be the capital expenditure for the purposes of this subsection and in a case where an annual allowance has been computed in accordance with section 37 (4), the reduced value used for the purpose of that subsection shall be deemed to be the capital expenditure for the purposes of this subsection. (Amended 26 of 1969 s. 21; 2 of 1971 s. 29) (3) If the sale, insurance, salvage or compensation moneys exceed the amount, if any, of the said expenditure still unallowed as at the time of the event, a balancing charge shall be made, and the amount on which it is made shall be an amount equal to the excess or, where the said amount still unallowed is nil, to the said moneys.

(4) Where by reason of a person ceasing to carry on his trade, profession or business, machinery or plant in respect of which an initial or an annual allowance has been made is put out of use, such person shall be deemed to have received immediately prior to such cessation, sale moneys for such machinery or plant of such an amount as the Commissioner may consider it would have realized had it been sold in the open market at the time of cessation: Provided that if such person sells such machinery or plant within 12 months of the date of cessation he may claim the adjustment of any balancing allowance or charge which may have been made to or on him as if such sale had taken place immediately prior to the date of cessation and notwithstanding the provisions of section 70 an assessor shall make any necessary correction to any assessment. (Added 36 of 1955 s. 44. Amended 35 of 1965 s. 21) (5) Notwithstanding anything contained in this section, in no case shall the amount on which a balancing charge is made on a person exceed the aggregate of the following amounts, that is to say- (Amended 36 of 1955 s.

44) (a) the amount of the initial allowance, if any, made to him in respect of the expenditure in question; (b) the amount of the annual allowances, if any, made to him in respect of the expenditure in question, including any allowance computed under proviso (b) to section 37 (2) at a rate higher than that prescribed by the Board of Inland Revenue. (Amended 3 of 1949 s. 13) 38A. Determination of cost of individual assets sold together for one price Where assets which qualify for initial or annual allowances under this Part are sold together or with other assets in pursuance of one bargain the Commissioner shall for the purposes of the calculation of the allowances and charges provided for in this Part, and having regard to all the circumstances of the transaction allocate a purchase price to each individual asset.

(Added 36 of 1955 s. 45) 38B. Commissioner's power to determine the true value of an asset on sale Where an asset which qualifies for initial or annual allowances is sold, and- (a) the buyer is a person over whom the seller has control; or (b) the seller is a person over whom the buyer has control; or (c) both the seller and the buyer are persons over both of whom some other person has control; or (d) the sale is between a husband and wife, not being a wife living apart from her husband, (Added 71 of 1983 s. 18) the Commissioner shall, if he is of the opinion that the sale price of such asset does not represent its true market value at the time of such sale, determine such true market value and the amount so determined shall be deemed to be the sale price of such asset for the purpose of calculating the allowances and charges provided for in this Part. (Added 36 of 1955 s. 45) 38C. Special provision as to allowances on a change in partnership Where a change occurs in a partnership of persons carrying on any trade, profession or business and an application made in accordance with the provisions of the proviso to section 22 (3) has been properly received by an assessor the provisions of this Part shall apply as if no such change had occurred except that any annual and rebuilding allowances in respect of assets of the old partnership acquired by the new partnership granted for the year of assessment in which such assets were acquired by the new partnership, shall be apportioned pro rata between the old and the new partnership. (Added 36 of 1955 s. 45. Amended 49 of 1956 s. 27) 39. Replacement of machinery or plant Where machinery or plant in the case of which any of the events mentioned in section 38 (1) has occurred is replaced by the owner thereof and a balancing charge falls to be made on him by reason of that event or, but for the provisions of this section, would have fallen to be made on him by reason thereof, then, if by notice in writing to the Commissioner he so elects, the following provisions shall have effect, that is to say- (Amended 30 of 1950 Schedule) (a) if the amount on which the charge would have been made is greater than the capital expenditure on providing the new machinery or plant- (i) the charge shall be made only on an amount equal to the difference; and (ii) no initial allowance, no balancing allowance and no annual allowance shall be made or allowed in respect of the new machinery or plant or the expenditure on the provision thereof; and (iii) in considering whether any, and, if so, what balancing charge falls to be made in respect of the expenditure on the new machinery or plant, there shall be deemed to have been made in respect of that expenditure an initial allowance equal to the full amount of that expenditure; (b) if the capital expenditure on providing the new machinery or plant is equal to or greater than the amount on which the charge would have been made- (i) the charge shall not be made; and (ii) the amount of any initial allowance in respect of the said expenditure shall be calculated as if the expenditure had been reduced by the amount on which the charge would have been made; and (iii) in considering what annual allowance is to be made in respect of the new machinery or plant, there shall be left out of account a proportion of the machinery or plant equal to the proportion which the amount on which the charge would have been made bears to the amount of the said expenditure; and (iv) in considering whether any and, if so, what balancing allowance or balancing charge falls to be made in respect of the new machinery or plant, the initial allowance in respect thereof shall be deemed to have been increased by an amount equal to the amount on which the charge would have been made.

39A. Reduction of allowances not to affect calculation of subsequent allowances Where, by virtue of section 12 (2), 18F (1) or 19E (1), the amount of any allowance provided for under this Part is reduced, such reduction shall not affect the calculation of subsequent allowances which shall be computed in the first place as if the full amount of the allowance had been granted and shall then where appropriate be apportioned in relation to the extent to which the relevant assets are or have been used in the production of assessable income or assessable profits. (Added 7 of 1975 s. 27) 39B. Initial and annual allowances on machinery or plant under the pooling system (1) Where a person carrying on a trade, profession or business incurs capital expenditure on the provision of machinery or plant for the purposes of producing profits chargeable to tax under Part IV then, except where such expenditure is expenditure of a kind described in section 16B (1) (b), there shall be made to him, for the year of assessment in the basis period for which the expenditure is incurred, an allowance, to be known as an "initial allowance". (Amended 32 of 1981 s. 6) (1A) For the purposes of subsection (1), the initial allowance shall be equal to the following percentages of the expenditure referred to in that subsection- (a) for the year of assessment commencing on 1 April 1980, 35%; (b) for the year of assessment commencing on 1 April 1981 and all subsequent years of assessment up to and including the year of assessment commencing on 1 April 1988, 55%; (Amended 17 of 1989 s. 9) (c) for any year of assessment commencing on or after 1 April 1989, 60%.

(Added 17 of 1989 s. 9) (Replaced 29 of 1982 s. 10) (2) Where during the basis period for any year of assessment or during the basis period for any earlier year of assessment a person owns or has owned and has in use or has had in use any machinery or plant for the purposes of producing profits chargeable to tax under Part IV, there shall be made to him in respect of each class of machinery or plant for that year of assessment an allowance, to be known as an "annual allowance", for depreciation by wear and tear of such machinery or plant. (Amended L. N.

262 of 1985) (3) The annual allowance shall be calculated at the rates of depreciation prescribed by the Board of Inland Revenue and shall be computed on the reducing value of each class of machinery or plant.

(4) Subject to subsections (5), (6) and (7), the reducing value of a class of machinery or plant shall be the aggregate capital expenditure incurred on the provision of the machinery or plant belonging to that class reduced by- (a) the aggregate of any initial allowances computed in accordance with section 37 in respect of any machinery or plant belonging to that class; (b) the aggregate of any annual allowances computed in accordance with section 37 in respect of any machinery or plant belonging to that class; (c) the aggregate of any initial allowances computed in accordance with this section in respect of any machinery or plant belonging to that class; (d) any annual allowance computed in accordance with this section; (e) any sale, insurance, salvage or compensation moneys received in respect of any machinery or plant belonging to that class; and (f) any reducing value of machinery or plant excluded from the total reducing value of a class of machinery or plant under section 39C (3).

(5) Where, prior to the commencement of the Inland Revenue (Amendment) (No. 4) Ordinance 1980 (63 of 1980), any machinery or plant has been the subject of a balancing allowance or balancing charge computed, in accordance with section 38, such machinery or plant shall, for the purposes of subsection (4), be excluded from the class of machinery or plant.

(6) Where any machinery or plant is owned and used by a person for any period immediately before he uses it for the purposes of producing profits chargeable to tax under Part IV, the capital expenditure incurred on the provision of the machinery or plant for the purposes of subsection (4) shall be computed by deducting from the actual cost the notional amount of the annual allowances which would have been made under section 37 to the owner if since acquiring the machinery or plant he had used it for the purpose of producing profits chargeable to tax under Part IV.

(7) If a person succeeds to any trade, profession or business which immediately before the succession- (a) was carried on by another person; and (b) the machinery or plant that was used at any time by that other person for the purpose of producing profits chargeable to tax under Part IV is not sold to the successor, the reducing value of such machinery or plant shall, for the purpose of computing annual allowances under subsection (3), be taken to be the reducing value thereof still unallowed to that other person as at the time of succession.

(8) Notwithstanding subsection (7), no initial allowance shall be made under this Part by virtue of subsection (7).

(9) No annual allowance shall be made where the reductions made under subsection (4) exceed the aggregate capital expenditure incurred on the provision of the class of machinery or plant.

(10) Nothing in subsection (2) shall apply in respect of any machinery or plant owned and used by a person for the purposes of his trade or business where such machinery or plant represents scientific research expenditure of a capital nature which pursuant to section 16B (1) (b) has been allowed as a deduction in ascertaining the profits from such trade or business in respect of which such person is chargeable to tax under Part IV for any year of assessment.

(11) The Commissioner may in his discretion allow a higher rate of depreciation in respect of any class of machinery or plant than that prescribed by the Board of Inland Revenue.

(Added 63 of 1980 s. 3) 39C. Pooling system when not to apply (1) The provisions of this Part which applied immediately prior to the commencement of the Inland Revenue (Amendment) (No. 4) Ordinance 1980 (63 of 1980) shall continue to apply- (a) subject to subsection (2), in respect of machinery or plant to which section 37A applies; (b) in respect of machinery or plant to which section 39A applies.

(2) Where, pursuant to the terms and conditions of a hire purchase agreement, machinery or plant to which section 37A applies passes into the ownership of the person carrying on a trade, profession or business who incurred the capital expenditure under the hire purchase agreement, the reducing value of such machinery or plant computed in accordance with that section shall be included in the class of machinery or plant for the purposes of section 39B for the years of assessment following the year of assessment during the basis period for which the machinery or plant passed into the ownership of that person.

(3) Where any machinery or plant which is included in a class of machinery or plant for the purposes of section 39B and which was used wholly and exclusively in the production of profits chargeable to tax under Part IV is subsequently not so used wholly and exclusively in the production of such profits, the provisions of this Part which applied immediately prior to the commencement of the Inland Revenue (Amendment) (No. 4) Ordinance 1980 (63 of 1980) shall apply to such machinery or plant in respect of the year of assessment during the basis period for which the machinery or plant is subsequently not used wholly and exclusively in the production of profits chargeable to tax under Part IV, and the reducing value of such machinery or plant shall be deemed to be such an amount as the Commissioner may consider it would have realized had it been sold in the open market at the time it ceased to be used wholly and exclusively in the production of such profits, and such reducing value shall be excluded from the total reducing value of that class of machinery or plant.

(4) For the purposes of subsection (2), in the application of section 37A, subsection (2) of that section shall be read as if "during the basis period" was substituted for "at the end of the basis period".

(Added 63 of 1980 s. 3) 39D. Balancing allowances and charges under the pooling system (1) Where at the end of a basis period for a year of assessment the aggregate reductions made under section 39B (4) in respect of a class of machinery or plant exceed the aggregate capital expenditure incurred by a person on the provision of machinery or plant belonging to that class- (a) a charge, to be known as a "balancing charge", shall be made on him, and the amount on which it is made shall be an amount equal to the excess; and (b) the reducing value at the end of the basis period for that year of assessment shall be nil.

(2) Subject to subsection (3) and except where subsection (4) applies, where a person ceases to carry on his trade, profession or business in a year of assessment, the aggregate of the sale, insurance, salvage or compensation moneys, if any, of the machinery or plant in respect of which an initial allowance or annual allowance has been made shall be compared with the amount of the reducing value of the class of machinery or plant at the end of the basis period for that year of assessment and- (a) where there are no sale, insurance, salvage or compensation moneys, or where the amount of the reducing value exceeds the aggregate of such moneys, an allowance, to be known as a "balancing allowance", shall be made to him, and the amount thereof shall be the amount of the reducing value or, as the case may be, the excess thereof over the aggregate of the said moneys; or (b) where there are, sale insurance, salvage or compensation moneys, and the aggregate of such moneys exceeds the amount, if any, of the reducing value, a charge, to be known as a "balancing charge", shall be made on him, and the amount on which it is made shall be an amount equal to the excess or, where the reducing value is nil, to the aggregate of the said moneys.

(3) Subsection (2) shall not apply on the occasion on which any machinery or plant, to which section 39B (7) applies, passes by way of succession.

(4) Where by reason of a person ceasing to carry on his trade, profession or business machinery or plant in respect of which an initial allowance or annual allowance has been made is put out of use and there are no sale, insurance, salvage or compensation moneys, such person shall, subject to subsection (5), be deemed to have received immediately prior to such cessation, sale moneys for such machinery or plant of such an amount as the Commissioner may consider it would have realized had it been sold in the open market at the time of cessation.

(5) If a person sells any machinery or plant referred to in subsection (4) within 12 months of the date of cessation he may claim the adjustment of any balancing allowance or balancing charge which may have been made to or on him as if such sale had taken place immediately prior to the date of cessation and notwithstanding section 70 an assessor shall make any necessary correction to any assessment.

(6) Notwithstanding anything contained in this section, where the aggregate of any sale, insurance, salvage or compensation moneys in respect of any machinery or plant exceeds the capital expenditure incurred on the provision of that machinery or plant, the aggregate of such moneys shall- (a) for the purposes of calculating a balancing charge under subsection (2) (b); and (b) in calculating the reducing value of the class of machinery or plant under section 39B (4), not exceed the capital expenditure incurred on the provision of that machinery or plant.

(7) For the purposes of subsection (6), the capital expenditure incurred on the provision of the machinery or plant shall be taken as- (Amended 7 of 1986 s. 6) (a) in a case where section 37 (2A) applies, the "cost of the asset" computed in accordance with that section; (b) in a case where section 39B (6) applies, the capital expenditure computed in accordance with that section; or (c) in any other case, the aggregate capital expenditure incurred by the person in question on the provision of the machinery or plant for the purposes of producing profits chargeable to tax under Part IV.

(Added 63 of 1980 s. 3) 39E. Allowances under this Part in respect of capital expenditure on leased machinery and plant (1) Notwithstanding anything to the contrary in this Part, a person (in this section referred to as "the taxpayer") who incurs capital expenditure on the provision of machinery or plant, being machinery or plant acquired by the taxpayer under a contract entered into after the commencement of the Inland Revenue (Amendment) Ordinance 1986 (7 of 1986), for the purpose of producing profits chargeable to tax under Part IV shall not have made to him the initial or annual allowances prescribed in section 37, 37A or 39B if, at a time when the machinery or plant is owned by the taxpayer, a person holds rights as lessee under a lease of the machinery or plant, and- (a) the machinery or plant was, prior to its acquisition by the taxpayer, owned and used by that person (whether alone or with others), or any associate of that person (which person or any such associate is hereinafter referred to as "the end-user"); or (b) the machinery or plant, not being a ship or aircraft or any part thereof, is while the lease is in force- (i) used wholly or principally outside Hong Kong by a person other than the taxpayer; or (Amended 15 of 1992 s. 4) (ii) the whole or a predominant part of the cost of the acquisition or construction of the machinery or plant was financed directly or indirectly by a non-recourse debt; or (c) the machinery or plant is a ship or aircraft or any part thereof and- (i) the person holding rights as lessee is not an operator of a Hong Kong ship or aircraft; or (ii) the whole or a predominant part of the cost of acquisition or construction of the ship or aircraft or the part thereof was financed directly or indirectly by a non-recourse debt. (Replaced 15 of 1992 s. 4) (2) Subsection (1) (a) shall not apply where- (a) the machinery or plant was acquired by the taxpayer on payment from the end-user at not more than the price which the end-user paid to the supplier (not being a supplier who is himself an end-user); and (b) no initial or annual allowances have at any time prior to the acquisition of the machinery or plant by the taxpayer been made under section 37, 37A or 39B to the end-user in respect of such machinery or plant.

(3) For the purposes of subsection (2) an allowance shall be deemed not to have been made if the end-user, by notice in writing to the Commissioner within 3 months of the date on which the capital expenditure on the provision of machinery or plant giving rise to the allowance is incurred, or within such further time as the Commissioner may, in any particular case, permit, disclaims such allowance.

(4) For the purposes of this section, where a trustee of a trust estate or a corporation controlled by such a trustee owns machinery or plant or holds rights as a lessee under a lease of machinery or plant, the trustee, the corporation and the beneficiary under the trust shall each be deemed to be the owner or holder, as the case may be, of rights as a lessee of the machinery or plant. (Replaced 15 of 1992 s. 4) (5) In this section- "acquisition" means acquisition by a person as owner and includes holding or hiring under a hire-purchase agreement or, if the hire-purchase agreement is a conditional sale agreement, holding as purchaser; "arrangement" includes- (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action or course of action or course of conduct; "associate", in relation to a person holding rights as lessee under any lease of machinery or plant (including a person who is deemed to be holding such rights), means-(Amended 15 of 1992 s. 4) (a) where the person holding such rights is a natural person- (i) a relative of the person holding such rights; (ii) a partner of the person holding such rights and any relative of that partner; (iii) a partnership in which the person holding such rights is a partner; (iv) any corporation controlled by the person holding such rights, by a partner of the person holding such rights or by a partnership in which the person holding such rights is a partner; (v) any director or principal officer of any such corporation as is referred to in subparagraph (iv); (b) where the person holding such rights is a corporation- (i) any associated corporation; (ii) any person who controls the corporation and any partner of such person, and, where either such person is a natural person, any relative of such person; (iii) any director or principal officer of that corporation or of any associated corporation and any relative of any such director or officer; (iv) any partner of the corporation and, where such partner is a natural person, any relative of such partner; (c) where the person holding such rights is a partnership- (i) any member of the partnership and, where such member is a natural person, any relative of such member; (ii) any partner of the partnership and, where such partner is a natural person, any relative of such partner and, where such partner is a partnership, any relative of any member of that partnership who is a natural person; (iii) any corporation controlled by the partnership or by any partner thereof or, where such a partner is a natural person, any relative of such partner; (iv) any corporation of which any partner is a director or principal officer; (v) any director or principal officer of a corporation referred to in subparagraph (iii); "associated corporation" means- (a) a corporation over which the person holding rights under any lease of machinery or plant (including a person who is deemed to be holding such rights) has control; (Amended 15 of 1992 s. 4) (b) a corporation which has control over such person holding rights, being a corporation; (c) a corporation which is under the control of the same person as such person holding rights, being a corporation; "beneficiary under the trust" means any person who benefits or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under a trust estate, either directly or through any interposed person, or who is able or might reasonably be expected to be able, whether directly or indirectly, to control the activities of the trust estate or the application of its corpus or income; (Replaced 15 of 1992 s. 4) "conditional sale agreement" means an agreement for the sale of goods under which the purchase price or part of it is payable by instalments, and the property in the goods remains in the seller (notwithstanding that the buyer is to be in possession of the goods) until such conditions as to the payment of instalments or otherwise as may be specified in the agreement are fulfilled; "control", in relation to a corporation, means the power of a person to secure- (a) by means of the holding of shares or the possession of voting power in or in relation to that or any other corporation; or (b) by virtue of any powers conferred by the articles of association or other document regulating that or any other corporation, that the affairs of the first-mentioned corporation are conducted in accordance with the wishes of that person; "end-user" means any person (whether alone or with others) holding rights as lessee under a lease of machinery or plant or any associate of such person; "held for use" includes installed ready for use and held in reserve; "lease" includes- (a) any arrangement under which a right to use machinery or plant is granted by the owner of the machinery or plant to another person; and (b) any arrangement under which a right to use machinery or plant, being a right derived directly or indirectly from a right referred to in paragraph (a), is granted by a person to another person, but does not include a hire-purchase agreement or a conditional sale agreement unless, in the opinion of the Commissioner, the right under the agreement to purchase or obtain the property in the goods would reasonably be expected not to be exercised; "non-recourse debt", in relation to the financing of the whole or a predominant part of the cost of the acquisition or construction of any machinery or plant, means a debt where the rights of the creditor in the event of default in the repayment of principal or payment of interest- (a) are limited wholly or predominantly to any or all of the following- (i) rights (including a right to moneys payable) in relation to the machinery or plant or the use of the machinery or plant; (ii) rights (including rights to moneys payable) in relation to goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the machinery or plant; (iii) rights (including a right to moneys payable) in relation to the loss or disposal of the whole or a part of the machinery or plant or of the taxpayer's interest in the machinery or plant; (iv) any conjunction of such rights as are referred to in subparagraphs (i), (ii) and (iii); (v) rights in respect of a mortgage or other security over the machinery or plant; or (vi) rights arising out of any arrangement relating to the financial obligations of the end-user of the machinery or plant towards the taxpayer, being financial obligations in relation to the machinery or plant; (b) are in the opinion of the Commissioner capable of being limited as described in paragraph (a), having regard to either or both of the following- (i) the assets of the taxpayer; (ii) any arrangement to which the taxpayer is a party; or (c) where paragraphs (a) and (b) do not apply, are limited by reason that not all of the assets of the taxpayer (not being assets that are security for a debt of the taxpayer other than a debt arising in relation to the financing of the whole or part of the cost of the acquisition of the machinery or plant) would be available for the purpose of the discharge of the whole of the debt so arising (including the payment of interest) in the event of any action or actions by the creditor or creditors against the taxpayer arising out of the debt; "operator of a Hong Kong aircraft" means a person who- (a) holds an air operators' certificate issued under the Air Navigation (Overseas Territories) Order 1977 (App. III, p. DP1) by the Governor of Hong Kong; and (b) carries on business as an operator of aircraft and the business is controlled and managed in Hong Kong; (Added 15 of 1992 s. 4) "operator of a Hong Kong ship" means a person who- (a) is responsible for defraying all or a substantial portion of the expenses of operating the ship and the ship operates mainly in the waters of Hong Kong or between the waters of Hong Kong and waters within the river trade limits; and (b) carries on business as an operator of ships and the business is controlled and managed in Hong Kong; (Added 15 of 1992 s. 4) "principal officer" means- (a) a person employed by a corporation who, either alone or jointly with one or more other persons, is responsible under the immediate authority of the directors for the conduct of the business of the corporation; or (b) a person so employed who, under the immediate authority of a director of the body corporate or a person to whom paragraph (a) applies, exercises managerial functions in respect of the body corporate; "relative" means the spouse, parent, child, brother or sister of the relevant person, and, in deducing such a relationship, an adopted child shall be deemed to be a child both of the natural parents and the adopting parent and a step child to be the child of both the natural parents and of any step parent; "used" includes held for use.

(6) The amendments made to this section by section 4 (b) and (d) (iv) of the Inland Revenue (Amendment) Ordinance 1992 (15 of 1992) apply to capital expenditure on the provision of machinery or plant under a transaction entered into on or after 15 November 1990 except expenditure under a transaction which was the subject of an application for advance clearance made to the Commissioner before 15 November 1990 and the Commissioner before or after that date expressed the opinion that the transaction would not fall within the terms of section 61A or, where no such application was made in respect of a transaction entered into before 15 November 1990 under which expenditure was incurred on or after 15 November 1990, the transaction under which the expenditure was made is, in the Commissioner's opinion, of the same type as any for which, in the circumstances prevailing as at 14 November 1990, he would have expressed the opinion that the transaction would not fall within the terms of section 61A. (Added 15 of 1992 s. 4) (Added 7 of 1986 s. 7) 40. Interpretation (1) In this Part- "basis period" has the meaning assigned to it by section 2 except that- (a) where 2 basis periods overlap the period common to both shall be deemed to fall in the first basis period only; and (b) where there is an interval between the end of the basis period for one year of assessment and the beginning of the basis period for the next year of assessment the interval shall be deemed to fall in the second basis period but where, in respect of salaries tax, the interval is the year ending on 31 March 1973, that interval shall not be deemed to fall in the second basis period; (Replaced 49 of 1956 s. 28. Amended 8 of 1973 s. 8) "capital expenditure"- (a) includes interest paid and commitment fees incurred in respect of a loan made for the sole purpose of financing the provision of an industrial building or structure or commercial building or structure or machinery or plant; but (b) does not include expenditure which is reimbursed by way of or attributable to any grant, subsidy or similar financial assistance and in relation to the person incurring the expenditure does not include any expenditure which is allowed to be deducted in ascertaining for the purpose of Part IV the profits of a trade or business carried on by that person; (Replaced 30 of 1981 s. 7) "capital expenditure on the provision of machinery or plant" includes capital expenditure on alterations to an existing building incidental to the installation of that machinery or plant for the purposes of the trade, profession or business; "class of machinery or plant" means the items of machinery or plant for which the same rate of depreciation is prescribed by the Board of Inland Revenue; (Added 63 of 1980 s. 4) "commercial building or structure" means any building or structure or part of any building or structure used by the person entitled to the relevant interest for the purposes of his trade, profession or business other than an industrial building or structure; (Replaced 35 of 1965 s. 22. Amended 26 of 1969 s. 22) "hire-purchase agreement" means an agreement for the bailment of goods under which the bailee may buy the goods, or under which the property in the goods will or may pass to the bailee; (Added 7 of 1986 s. 8) "industrial building or structure" means any building or structure or part of any building or structure used- (a) for the purposes of a trade carried on in a mill, factory or other similar premises; or (b) for the purposes of a transport, tunnel, dock, water, gas or electricity undertaking or a public telephonic or public telegraphic service; or (Amended 39 of 1969 s. 5) (c) for the purposes of a trade which consists of the manufacture of goods or materials or the subjection of goods or materials to any process; or (d) for the purposes of a trade which consists in the storage- (i) of goods or materials which are to be used in the manufacture of other goods or materials; or (ii) of goods or materials which are to be subjected in the course of a trade to any process; or (iii) of goods or materials on their arrival into Hong Kong; or (Amended 7 of 1986 s. 12) (e) for the purposes of the business of farming; (f) for the purposes of scientific research in relation to any trade or business, and, in particular, the said expression includes any building or structure or part of any building or structure used by a person carrying on a trade, undertaking or business specified in paragraphs (a) to (e) of this definition and provided by him for the welfare of workers employed in his trade, undertaking or business and in use for that purpose: Provided that- (i) where part of the whole of a building or structure is, and part thereof is not, an industrial building or structure, and the capital expenditure which has been incurred on the construction of the second mentioned part is not more than one-tenth of the total capital expenditure which has been incurred on the construction of the whole building or structure, the whole building or structure and every part thereof shall be treated as an industrial building or structure; and (ii) subject to the provisions of paragraph (i) of this proviso but notwithstanding anything else contained in the foregoing provisions of this definition, the expression "industrial building or structure" shall not include any building or structure or part of any building or structure used as a dwelling house (other than as a dwelling house for the housing of manual workers), retail shop, showroom, hotel or office; (Replaced 35 of 1965 s. 22) "relevant interest" means, in relation to any expenditure incurred on the construction of a building or structure the interest in that building or structure to which the person who incurred the expenditure was entitled when he incurred it; (Amended 49 of 1956 s. 28) "residue of expenditure" means the amount of the capital expenditure incurred in the construction of a building or structure reduced by- (a) the amount of any initial allowance made; (b) any annual allowance made; (c) any balancing allowance granted, and increased by any balancing charges made: Provided that in computing the residue of expenditure there shall be written off, in respect of any year in which no initial or annual allowance fell to be made, an amount of one-fiftieth of the capital expenditure in the case of a year prior to the year of assessment commencing on 1 April 1965, and one-twenty-fifth of the capital expenditure in the case of such or any subsequent year of assessment, and for the purposes of this proviso "year" means the period which would have comprised a year of assessment in respect of which an initial or annual allowance would have fallen to be made if the building or structure had then been in use as an industrial building or structure and the provisions of section 34 had then been in force. (Replaced 35 of 1965 s. 22) (2) For the purposes of this Part, any capital expenditure incurred for the purposes of a trade, profession or business by a person about to carry on such trade, profession or business shall be treated as if it had been incurred by that person on the first day upon which he does carry on such trade, profession or business. (Added 35 of 1965 s. 22) (3) References in this Part to capital expenditure incurred on the construction of a building or structure do not include any expenditure incurred on the acquisition of, or of rights in or over, any land. (Added 29 of 1982 s.

11) (Replaced 36 of 1955 s. 46) 40A. Initial allowances in years of assessment 1974/75 to 1975/76 (1) Where- (a) the assessable profits of a person for the year of assessment commencing on 1 April 1974 are computed under section 18A; and (b) there is an interval between the end of the basis period for the year of assessment ending on 31 March 1974 and the beginning of the basis period for the year of assessment ending on 31 March 1975, then, notwithstanding paragraph (b) of the definition of "basis period" in section 40 (1), but subject to subsection (3) the initial allowance on capital expenditure provided under this Part shall be made only on the higher of the capital expenditure incurred in the interval or the second basis period referred to paragraph (b) of this subsection.

(2) Where- (a) the assessable profits of a person for the year of assessment commencing on 1 April 1974 have been computed under section 18; and (b) there is an interval between the end of the basis period for the year of assessment ending on 31 March 1975 and the beginning of the basis period for the year of assessment ending on 31 March 1976, then, notwithstanding paragraph (b) of the definition of "basis period" in section 40 (1), but subject to subsection (3), the initial allowance on capital expenditure provided under this Part shall, in respect of the year of assessment commencing on 1 April 1975, be made only on the higher of the capital expenditure incurred in the interval or in the second basis period referred to in paragraph (b) of this subsection.

(3) Where the amount of capital expenditure incurred in the interval and the second basis period referred to in subsection (1) (b) or (2) (b) is the same, the initial allowance shall be made only in respect of the capital expenditure incurred in the second basis period.

(Added 7 of 1975 s. 28) PART VII PERSONAL ASSESSMENT 40B. Interpretation In this Part, unless the context otherwise requires- "income", in relation to any person, means income derived beneficially by that person; "individual" means a person electing or who has elected to be chargeable to tax under this Part; "joint total income" means joint total income calculated in accordance with section 42A; "loss" and "losses" do not include a loss sustained by a person acting in his capacity as trustee of a trust.
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