• Working out the tainted income ratio

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    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

     

    $HK

    shown in accounts

    Interest - passive

    2m

    Royalty - passive

    1m

    Business income - from goods manufactured in Hong Kong

    60m

    Manufacturing expenses

    40m

    Tainted income ratio

    = Gross tainted turnover gross turnover

    = 3m/63m

    = 4.8%

     

    Therefore, the CFC passes the test.

    Is 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.

    Last modified: 05 Dec 2006QC 18000