The tainted income ratio is worked out by dividing the gross tainted turnover of a CFC by the gross turnover of the CFC.
The following is a simple example of how to work out the tainted income ratio.
Example 14: Working out the active income test ratio
Calculation element |
$HK |
---|---|
Interest - passive |
2 million |
Royalty - passive |
1 million |
Business income - from goods manufactured in Hong Kong |
60 million |
Manufacturing expenses |
40 million |
Tainted income ratio = gross tainted turnover ÷ gross turnover
= 3 million ÷ 63 million
= 4.8% of gross turnover
Therefore, the CFC passes the test.
End of exampleIs the tainted income ratio is less than 5%?
Yes |
The CFC has passed the active income test. Read on. |
No |
The CFC has failed the active income test. Go to part 3. |