The CIR confirmed that the deadlines for lodging tax returns for the year of assessment 2006/2007 are as follows:
"N" Code – 2 May 2007 (no extension)
Under the Block Extension Scheme:
- "D" Code – 15 August 2007 (no change)
- "M" Code – 15 November 2007 (no change)
- "M" Code current year loss cases – 31 January 2008 (no change)
DIPN 15 (Revised) – Part B: Leasing Arrangements
Depreciation allowance on plant and machinery under contract processing arrangement
The IRD noted that, under a contract processing arrangement, a Hong Kong company may be required to provide plant and machinery ("P&M") to a Mainland enterprise for its use in the Mainland. Where the Hong Kong company is entitled to the concession of granting a 50% depreciation allowance on the P&M, the claim should be made on the basis of a depreciation allowance and not as a capital expenditure deduction under section 16G of the Inland Revenue Ordinance ("IRO").
As regards the eligibility for claiming a depreciation allowance under a contract processing arrangement, the IRD advised tax representatives and taxpayers to take note of
paragraph 19 of Departmental Interpretation and Practice Notes ("DIPN") No. 15 (Revised) in preparing the 2006/07 tax returns.
Commercial and Industrial Building Allowance
The IRD clarified that, under the IRO, the calculation of commercial and industrial building allowances ("CBA / IBA") are based on the historical cost of construction and not the fair value of the building. Therefore, HKAS 17, which requires accounting separately for the cost of the land and building elements in proportion to their relative fair values at the inception of a lease, does not have any impact on the calculation of CBA / IBA. The IRD will continue to adopt its existing practice in the calculation of CBA / IBA.
Declaration of due representation in the application for block extension
The IRD wished to remind all tax representatives of the new arrangement introduced last year, that they are required to make a declaration in their applications for block
extension confirming that they have obtained written authorisation from their clients appointing them as tax representatives. The authorisation from clients should be in writing and bear the client’s signature. Email authorisation will not be accepted. Applications made without confirmation of authorisation from clients will be rejected and will need to be resubmitted once authorisation has been obtained.
Source: HKICPA TechWatch Issue 52.