INCOME TAXES

12 Months Ended

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 July 31, 2016 and 2015 as follows:

		2016			2015
Deferred tax assets:
Net operating losses	$	228,278		$	78,278
Total deferred tax assets		228,278			78,278
Less: valuation allowance		(228,278	)		(78,278	)
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 and 2015, Luck Sky Shenzhen had $432,088 and $963,727 in net income before tax, 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 and 2015 as follows:

		2016		2015
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	$	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 and 2015 are as follows

		For the		For the
		year		year
		ended		ended
		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		-		-
Tax expense (benefit)	$	226,682	$	916,840

Reconciliation of Effective Income Tax Rate

	For the year		For the year
	ended		ended
	July 31,		July 31,
	2016		2015
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	(92.85%	)	(45.44%	)
Nondeductible/nontaxable items	(40.57%	)	29.40%
Tax expense (benefit)	(59.42%	)	57.96%

Reconciliation of Effective Income Tax Expense

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