INCOME TAXES
 3 Months Ended 12 Months Ended
Oct. 31, 2016
Jul. 31, 2016
INCOME TAXES [Text Block]

NOTE 11 - INCOME TAXES

United States

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The cumulative tax effect at the expected rate of 34% of significant items comprising the net deferred tax amount is at October 31, 2016 and July 31, 2016 as follows:

    October 31, 2016     July 31, 2016  
    (Unaudited)        
Deferred tax assets:            
Net operating losses $ 76,320   $ 228,278  
             
Total deferred tax assets   76,320     228,278  
Less: valuation allowance   (76,320 )   (228,278 )
             
Deferred tax assets, net $   -   $   -  

As of October 31, 2016, for U.S. federal income tax reporting purposes, the Company has approximately $956,323 of unused net operating losses (“NOLs”) available for carry forward to future years. The benefit from the carry forward of such NOLs will begin expiring during the year ended July 31, 2029. Because United States tax laws limit the time during which NOL carry forwards may be applied against future taxable income, the Company may be unable to take full advantage of its NOLs for federal income tax purposes should the Company generate taxable income. Further, the benefit from utilization of NOL carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain.

Hong Kong

The Company’s subsidiaries established in HKSAR are subject to Hong Kong Profits Tax. However, these subsidiaries did not earn any income derived in Hong Kong from its date of incorporation to October 31, 2016, and therefore were not subject to Hong Kong Profits Tax.

PRC

The Company’s subsidiaries established in PRC are subject to income tax rate of 25%.

1)  Luck Sky Shenzhen

For the three months ended October 31, 2016 and 2015, Luck Sky Shenzhen had $1,111 in net profit and $27,098 in net loss,$278 income tax was accrued in 2016 accordingly.

2)  Sanhe

For the three months ended October 31, 2016, Sanhe had $427,653 in net loss. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The cumulative tax effect at the expected rate of 25% of significant items comprising the net deferred tax amount is at October 31, 2016 and July 31, 2016 as follows:

    October 31, 2016     July 31, 2016  
    (Unaudited)        
Deferred tax assets:   -     -  
Net operating losses $   -   $   -  
             
Total deferred tax assets            
Less: valuation allowance   -     -  
             
Deferred tax assets, net $   -   $   -  
             
Deferred tax liabilities:            
Timing differences of revenue recognition $ 72,946   $ 107,609  
             
Total deferred tax liabilities   72,946     107,609  

Significant components of income tax expense for the three months ended October 31, 2015 and

    For the three months     For the three months  
    Ended     ended  
    October 31, 2016     October 31, 2015  
    (Unaudited)     (Unaudited)  
Current tax expense $ (235 ) $ 48,386  
Deferred tax expense   (32,948 )   (81,238 )
Tax expense (benefit) $ (33,183 ) $ (32,852 )

 

 

Reconciliation of Effective Income Tax Rate

    For the three months     For the three months  
    ended     ended  
    October 31, 2016     October 31, 2015  
    (Unaudited)     (Unaudited)  
Statutory U.S. tax rate   34.00%     34.00%  
PRC Statutory Tax Rate   25.00%     25.00%  
HK Statutory Tax Rate   15.00%     15.00%  
Less: Valuation Allowance   ( 73.96% )   ( 27.47% )
             
Deferred Tax   4.81%     ( 33.13% )
Tax expense (benefit)   4.85%     13.40%  

 

 

NOTE 11 - INCOME TAXES

United States

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The cumulative tax effect at the expected rate of 34% of significant items comprising the net deferred tax amount is at July 31, 2016, 2015 and 2014 as follows:

    2016     2015     2014  
Deferred tax assets:                  
Net operating losses $ 228,278   $ 78,278   $ 170,552  
                   
Total deferred tax assets   228,278     78,278     170,552  
Less: valuation allowance   (228,278 )   (78,278 )   (170,552 )
                   
Deferred tax assets, net $   -   $   -   $   -  

As of July 31, 2016, for U.S. federal income tax reporting purposes, the Company has approximately $1,403,259 of unused net operating losses (“NOLs”) available for carry forward to future years. The benefit from the carry forward of such NOLs will begin expiring during the year ended July 31, 2029. Because United States tax laws limit the time during which NOL carry forwards may be applied against future taxable income, the Company may be unable to take full advantage of its NOLs for federal income tax purposes should the Company generate taxable income. Further, the benefit from utilization of NOL carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain.

Hong Kong

The Company’s subsidiaries established in HKSAR are subject to Hong Kong Profits Tax. However, these subsidiaries did not earn any income derived in Hong Kong from its date of incorporation to July 31, 2016, and therefore were not subject to Hong Kong Profits Tax.

PRC

The Company’s subsidiaries established in PRC are subject to income tax rate of 25%.

  1)

Luck Sky Shenzhen

For the years ended July 31, 2016, 2015 and 2014, Luck Sky Shenzhen had $432,088, $963,727 in net income before tax and $6,283 in net operating loss, respectively. Income tax expense were $108,022 and $239,383 income tax expenses were 2016 and 2015, respectively.

  2)

Sanhe

For the year ended July 31, 2016, Sanhe had $145,136 net loss before tax. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The cumulative tax effect at the expected rate of 25% of significant items comprising the net deferred tax amount is at July 31, 2016, 2015 and 2014 as follows:

    2016     2015     2014  
Deferred tax assets:                  
Net operating losses $   -   $   -   $ 111,844  
                   
Total deferred tax assets   -     -     111,844  
Less: valuation allowance   -     -     -  
                   
Deferred tax assets, net $   -   $   -   $ 111,844  
                   
Deferred tax liabilities:                  
Timing differences of revenue recognition $ 107,609   $ 83,101   $   -  
                   
Total deferred tax liabilities   107,609     83,101     -  

Significant components of income tax expense for the years ended July 31, 2016, 2015 and 2014 are as follows

                For the  
    For the     For the     year  
    year     year     ended  
                July 31,  
    ended     ended     2014  
    July 31,     July 31,        
    2016     2015        
Current tax expense $ 196,099   $ 833,452   $   -  
Deferred tax expense   30,583     83,388     -  
Benefits of operating loss carryforwards   -     -     (113,932 )
Tax expense (benefit) $ 226,682   $ 916,840   $ (113,932 )

Reconciliation of Effective Income Tax Rate

                For the  
    For the year     For the year     year  
    ended     ended     ended  
    July 31,     July 31,     July 31,  
    2016     2015     2014  
Statutory U.S. tax rate   34.00%     34.00%     34.00%  
PRC Statutory Tax Rate   25.00%     25.00%     25.00%  
HK Statutory Tax Rate   15.00%     15.00%     15.00%  
Less: Valuation Allowance   (92.85% )   (45.44% )   (59.67% )
Nondeductible/nontaxable items   (40.57% )   29.40%     -  
Tax expense (benefit)   (59.42% )   57.96%     14.33%  

Reconciliation of Effective Income Tax Expense

                For the  
    For the year     For the year     year  
    ended     ended     ended  
    July 31,     July 31,     July 31,  
    2016     2015     2014  
Statutory U.S. tax rate $ (228,278 ) $ (78,278 )  $ (170,552 ) 
PRC Statutory Tax Rate   71,923     451,874     (113,932 )
HK Statutory Tax Rate   (185 )   (252 )   (675 )
Less: Valuation Allowance   228,463     464,966     171,227  
Nondeductible/nontaxable items   154,759     75,530     -  
Tax expense (benefit) $ 226,682   $ 916,840   $ (113,932 )