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Income Taxes
 12 Months Ended
Jun. 30, 2021
Income Tax Disclosure [Abstract]  
Income taxes

Note 13 – Income taxes

 

(a) Corporate income tax

 

Color Star

 

Under the current laws of the Cayman Islands, Color Star is not subject to tax on income or capital gains. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.

 

CACM and Baytao

 

CACM and Baytao are organized in the New York State in the United States. CACM and Baytao had no taxable income for the U.S. income tax purposes for the years ended June 30, 2021, 2020 and 2019. The applicable tax rate is 21.0% for federal and 7.1% for New York State with an effective tax rate of 26.6%.

  

Color China and Modern Pleasure

 

Color China and Modern Pleasure are organized in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax law, Color China is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

 

Loss before provision for income taxes consisted of:

 

   For the
year ended
June 30,
2021		   For the
year ended
June 30,
2020		   For the
year ended
June 30,
2019		 
Cayman  $(7,120,310)  $(4,851,668)  $(6,470,553)
United States   (541,744)   (316,142)   (188,869)
Hong Kong   (576,459)   (832)   
-
 
   $(8,238,513)  $(5,168,642)  $(6,659,422)

 

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended June 30, 2021, 2020 and 2019:

 

   For the
year ended
June 30,
2021		   For the
year ended
June 30,
2020		   For the
year ended
June 30,
2019		 
Federal statutory rate   21.0%   21.0%   21.0%
State statutory rate   5.6%   5.6%   5.6%
Valuation allowance   (26.6)%   (26.6)%   (26.6)%
Effective tax rate   0.0%   0.0%   0.0%

 

Significant components of deferred tax assets were as follows:

 

   June 30,
2021		   June 30,
2020		 
Deferred tax assets        
Net operating loss carryforward in the U.S.   278,531    134,378 
Net operating loss carryforward in Hong Kong   95,253    137 
Valuation allowance   (373,784)   (134,515)
Total net deferred tax assets  $
-
   $
-
 

 

As of June 30, 2021 and 2020, CACM and Baytao’s net operating loss carry forward for the U.S. income taxes was approximately $0.9 million and $0.5 million, receptively. The net operating loss carry forwards are available to reduce future years’ taxable income for unlimited years but limited to 80% use per year. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in the U.S. If the Company is unable to generate taxable income in its United States operations, it is more likely than not that it will not have sufficient income to utilize its deferred tax assets. Accordingly, the Company has provided a 100% valuation allowance on its net deferred tax assets of approximately $279,000 and $134,000 related to its U.S. operations as of June 30, 2021 and 2020, respectively.

 

As of June 30, 2021 and 2020, Color China and Modern Pleasure’s net operating loss carry forward for the Hong Kong income taxes was approximately $0.6 million and $800, receptively. The net operating loss carry forwards are available to reduce future years’ taxable income for unlimited years. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in Hong Kong. If the Company is unable to generate taxable income in its Hong Kong operations, it is more likely than not that it will not have sufficient income to utilize its deferred tax assets. Accordingly, the Company has provided a 100% valuation allowance on its net deferred tax assets of approximately $95,000 and $137 related to its Hong Kong operations as of June 30, 2021 and 2020, respectively.

 

Changes in the valuation allowance for deferred tax assets increased by $239,269 from $134,515 at June 30, 2020 to $373,784 at June 30, 2021. Changes in the valuation allowance for deferred tax assets increased by $84,259 from $50,256 at June 30, 2019 to $134,515 at June 30, 2020.

 

(b) Uncertain tax positions

 

There were no uncertain tax positions as of June 30, 2021 and 2020, management does not anticipate any potential future adjustments which would result in a material change to its tax positions. For the years ended June 30, 2021, 2020 and 2019, the Company did not incur any tax related interest or penalties.