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CLUBS AND TRADE ASSOCIATION
LEARNING OBJECTIVES After this lecture. you should be able to: Define the meaning of a club & trade association Ascertain the assessable profits of clubs Ascertain the assessable profits of trade associations 2 .
It is not formed for business purposes and it should not exist for the financial advantage of its members 3 . social. cultural. educational purposes. etc.Clubs An association of persons Gather together for recreational. sports.
Chargeable of its profits under profits tax? Whether not less than half of its gross receipts on revenue account (including entrance fees and subscriptions) are from members If not less than half are from members =>deemed not to carry on business If less than half are from members => carry on business => whole of its receipts from transactions both with members and others are deemed to be business receipts 4 .
Trade. Professional or Business Associations (s.24(2)) Any body of persons which is formed for the purpose of furthering the trade interests of its members Trade association deemed to carry on a business and it’s income assessable under profits tax 5 .
the trade association is deemed to carry on business => the whole of its income from transactions with members and others is business income and the profits as adjusted are chargeable (s.24(2)) If it is not caught by s. More than half of the receipts by way of subscriptions are from persons who would claim a deduction of such payments under s.16. its profits might be taxable under profits tax if it is in fact carrying out trade or business 6 .24(2).
14 excludes profits from the sale of capital assets from charge The Privy Council held that the entrance fees were taxable 7 .Far East Stock Exchange Ltd v CIR (1979) Whether entrance fees received by the stock exchange should be subject to tax? Section 24(2) expressly includes entrance fees as trading receipt if the trade association is deemed to be carrying on a business Entrance fee =>capital in nature and s.
8 . they were members within s 24(1).Members Refer to those who have voting rights only (s 24(3)) In D91/89 a snooker club admitted any person who paid $10 and completed an application form for membership so that he could use the club facilities. The CIR argued that its ‘members’ were not members within s 24(1). The BoR held that as the articles of association conferred voting rights on these ‘members’.
and entrance fees and subscriptions. subventions from public funds 9 .Gross Receipts on revenue account Gross receipts on revenue account include all receipts not of capital nature and all receipts from club activities and other activities such as rental income. donations to capital project iii. but exclude: i. catering and bar receipts. debentures ii.
rent received by an incorporated owner of a building from the letting of car parks was assessed to property tax. they may be liable to property tax on rental income received In D27/98.Property Tax If the club and trade association are not liable to profits tax. The exemption of s 5(2)(a) from property tax does not apply to this incorporated owner 10 .
Kowloon Stock Exchange Ltd v CIR (1984) The decisions in this case: a stock exchange is a market where stocks and shares are traded. Brokers are traders and an association formed by traders is a trade association An association which has as its primary object the financial benefit of its members is not a club or similar institution Entrance fees and founders’ contributions (once and for all payments) were not subscriptions and thus should not be included in the formula for determining whether a trade association is taxable under s 24(2) 11 .
Example Joyful Club owns a building.000 Rental receipts 245. 1/3 of which is used by members for club activities and the other 2/3 is let out to local business.000 General administration exp (250.000 430.000) Property outgoings (60.000) Net profit $120.000 Catering and bar receipts 85.000 ======= 12 . It has the following income and expenditure for a basis period: Subscription from members $100.
Gross receipts from non-members: Rents $245. Entrance fees of $25.000 have been credited direct to the Accumulated Fund.All members are entitled to vote at general meetings and only members can purchase food and drinks.000 ======== 13 .
Gross receipts from members: Subscriptions $100.000 ======= 14 .000 Catering etc 85.000 Entrance fees 25.000 $210.
As less than half derives from members.000 Add: Entrance fees 25.000 ======= 15 .000 $145. the whole of the profits are subject to Profits Tax and the assessment would be: Profits per account $120.
Conclusion General definition of a club and a trade association Chargeability of a club under s24(1) Chargeability of a trade association under s24(2) Computation of tax liability of a club 16 .