13. What is the effect on my liability for Profits Tax if I did not make any profit, but incurred a loss in my business?

13. What is the effect on my liability for Profits Tax if I did not make any profit, but incurred a loss in my business?

The loss can be carried forward for setting off against the future profits of your business. A corporation carrying on more than one trade may have losses in one trade offset against profits of the other.

Alternatively, if you have other income (e.g. salary income) for the same year of assessment, you can select the Personal Assessment option on your tax return. This will enable you to set off the business loss against your other taxable income. Any unutilized loss can be carried forward for setting off against your taxable income in future years.

In allocating losses between partners of a partnership, any salary or interest on loan or capital invested which has been paid to a partner or his/her spouse will be taken into account. Such a payment is treated as if it were a distribution of profits to the partner and the balance of the loss is apportioned on the basis of the agreed profit sharing ratio.

You are warned not to falsify your accounts to show a loss in order to evade tax liability. The Inland Revenue Ordinance contains anti-avoidance provisions to punish people who evade tax.