TUTORIAL 4

Question 1

Mr Deane is a UK resident and is employed by BB Ltd, a company incorporated and carrying

on business in England since January 2012. On 1 April, 2017, Mr Deane had to stationed in
Hong Kong and he visited different places when carrying out his duties. It is accepted that Mr
Deane's employment with BB Ltd is located outside Hong Kong. You have been supplied with
the following information in respect of Mr Deane for the year ended 31 March 2018:
(1 ) Mr Deane stayed in the following places:
Place Days
Hong Kong 280
Mainland China 25
Europe (including 15 days' vacation leave) 60
365
In addition, he receives $41,000 per year as a ‘holiday allowance’. The purpose of this
allowance is to enable her to return to his home in the UK once a year, as well as to fund other
occasional holidays. BB does not monitor how this amount is actually spent. In fact, Deane
spent only $33,000 of this amount on holiday travel in the 2017/18 year.
(2) Salary: $1,200,000
(3) Bonus: $300,000
(4) Allowance for stays in Hong Kong: $28,000
Allowance for stays outside Hong Kong: $23,250
(5) Directorship: Mr Deane was appointed as the managing director of CC Ltd, a subsidiary of
BB Ltd is incorporated in Bermuda, and carries on an investment business in China. During
the year, Mr Deane received director’s fees of $30,000.
(6) Mr Deane leased a flat in Hong Kong for his accommodation at a monthly rent of $30,000.
His employer refunded the whole amount to him.
(7) Mr Deane's son is studying in England and the school fees were paid by the employer
directly to the school. BB Ltd paid total school fees of $120,000 during the year.
(8) On 1 February 2017, Mr. Deane was granted an option to purchase 80,000 shares of the
company’s shares at $10 per share. He took the option and paid $80,000 for it on 1
February 2017. On 1 May 2017, he exercised the option to take up the shares when the
market value was $51 per share. On 30 May 2017, he sold all the shares at the market
value of $57.
(9) BB reimburses Mr. Deane for his electricity and gas bills, up to a maximum of $12,000 per
year. To obtain this reimbursement, he must provide invoices to BB to prove that he has in
fact incurred this amount.
(10) During the year, BB received and paid the following tax bills in respect of Mr Deane:
 PRC individual income tax $30,000
Other SE Asian countries’ income tax $10,000
(11) Subscription fee
Mr Deane paid a yearly subscription fee of $30,000 to join a club as required by his
employer. Joining the club assisted Mr Deane in promoting BB Ltd's business activities.
BB Ltd reimbursed the subscription fee to him.
(12) Mr Deane earned $60,000 from his part-time employment with an university in Hong
Kong.
(13) Mr Deane gave $25,000 to charities in Hong Kong and $15,000 to charities in the UK
during the year.
(14) Mr Deane is married with a son aged 20. As mentioned in (7) above, his son is studying in
England. Mrs Deane is a housewife and is a permanent resident in Hong Kong. Mrs
Deane’s mother (aged 58) and grandmother (aged 80) live in a nursing home. Mrs Deane
paid all the nursing home bills amounting to $192,000 in the year to 31 March 2018.

REQUIRED:
a) Compute the number of days attributable to Mr Deane's Hong Kong services for the year of
assessment 2017/18.

b) Compute Mr Deane's salaries tax liabilities for the year of assessment 2017/18. Ignore
provisional salaries tax. Show all your workings.

c) Giving explanations of the treatment you have accorded for tax purposes to items (6), (9)
and (10) above.
Question 2

Mr Fan is employed as the Accounting Manager by Top Ltd, a Hong Kong incorporated company. During the year
ended 31 March 2017, Top suffered substantial losses from the economic downturn and therefore underwent a
salary package restructuring with effect from the next financial year. In order to encourage the staff to accept the
new package, each staff member who chose to continue under the new structure was paid a commitment incentive
of $30,000. Mr Fan accepted the new salary package structure, and received the commitment incentive on 1 May
2017.
Details of Mr Fan’s new salary package, income and expenditure for the year to 31 March 2018 are as follows:
(1) Salary: $50,000 per month originally (20% cut of salary for all of this level in this assessment year).
(2) Productivity incentive: $50,000 based on senior management’s recommendation. A positive recommendation
was submitted but has not yet been approved.
(3) Medical benefit: Green Cross Medicare, maximum coverage $100,000 per annum, $100 per month was
charged by Top for this benefit. During the year, Mr Fan claimed a total reimbursement of medical expenses of
$5,000 from Green Cross.
(4) Company car: Mr Fan uses a car owned by Top costing $400,000; the second hand value of the car at 1 April
2017 was $220,000. The petrol costs of $1,000 per month were reimbursed by Top.
(5) Housing benefit: Mr Fan and his family had been living in a leased flat at $14,000 per month. Top reimbursed
him half of the rental. On 1 January 2018, he terminated the lease and moved into his parents’ flat for which he
paid no rent. Top agreed to continue to pay him the same amount as before.
(6) Share option: Top operates an employee share option scheme and granted Mr Fan options to subscribe for
10,000 shares at $9 per share. Mr Fan paid $1,000 for the options on 9 September 2017. He exercised the right
to acquire 5,000 shares on 10 October 2017, and sold the remainder of the options to a colleague for $3,000 on
11 November 2017. The 5,000 shares were sold on 12 December 2017. Details of the market price per share
were:
9 September 2017 $10
10 October 2017 $11.50
11 November 2017 $9
12 December 2017 $6.50
(7) Directorship: Mr Fan was appointed as the managing director of Middle Ltd, a subsidiary of Top Middle Ltd is
incorporated in Bermuda, and carries on an investment business in Hong Kong. During the year, Mr Fan
received director’s fees of $110,000.
(8) In order to equip himself with updated knowledge, Mr Fan regularly attends investment seminars organised by
The Hong Kong Society of Financial Analysts. He paid $10,000 for these seminars in the year to 31 March
2018, half of which was reimbursed by Top.
(9) Mr Fan contributed a total of $40,000 to a mandatory provident fund.
(10) Mr Fan paid the following annual membership fees:
The Association of Chartered Certified Accountants $2,200
The Taxation Institute of Hong Kong $1,500
The International Golf Club $4,000
The Hong Kong Society of Financial Analysts $2,400

Other information:
(1) Mrs Fan is a clerk earning a monthly salary of $15,000. She contributes 5% of her salary to a mandatory
provident fund. On 31 January 2018, her employer without prior notice terminated her employment and made
her a termination payment of $50,000 being ‘in settlement of all or any claims you may have against the
company’.
(2) Mr and Mrs Fan have two children, aged 17 and 23, both of them are part-time students at Open University of
Hong Kong.
(3) Mrs Fan’s mother (aged 58) and grandmother (aged 80) live in a nursing home. Mrs Fan paid all the nursing
home bills amounting to $192,000 in the year to 31 March 2018.
(4) Mr Fan donated $200,000 to The Hong Kong Red Cross for the earthquake victims.
(5) Mr and Mrs Fan purchased a property as their dwelling as joint tenants by means of a mortgage loan from
Hang Seng Bank. The monthly repayment was wholly made by Mr Fan. The mortgage loan interest of
$160,000 was paid in the year.

Required:
a) Compute the salaries tax liability of Mr. and Mrs. Fan for the year of assessment 2017/18 assuming that:
- no joint assessment has been made by the couple; and
- any personal allowances are to be claimed by Mr. Fan.

b) Compute the salaries tax liabilities of Mr. Fan and Mrs. Fan for the year of assessment 2017/18 under joint
assessment.
Ignore provisional salary tax. Show all your workings.

c) Explain whether, and if so to what extent, the following payments are chargeable to salaries tax:
(i) the commitment incentive; and
(ii) the director’s fees.
Question 3

AB Inc. is the parent company of an international group of companies. It has two wholly-owned subsidiaries in
Hong Kong, viz. ACC(HK) Ltd. and ADD(HK) Ltd. Mr. Brown signed employment contracts with ACC(HK)
Ltd. and ADD(HK) Ltd. and was employed as general manager of these two companies starting from 1 April
2016. He is required to travel to different places in the performance of his duties. Under the terms of employment,
you have been supplied with the following information for the year ended 31 March 2017:
ACC(HK) Ltd. ADD(HK) Ltd.
(1) Salaries $900,000 $200,000
(2) Bonus $102,500 $30,000
(3) From 1 April 2016 to 31 May 2017, Mr. Brown lived in a hotel-suite with 2 bedrooms and ADD(HK) Ltd. paid
total hotel charges of $112,000. Starting from 1 June 2016, ADD(HK) Ltd. rented a flat for Mr. Brown's
accommodation at a monthly rent of $45,000. Mr. Brown paid monthly rent of $2,000 to ADD(HK) Ltd. for the
provision of accommodation from 1April 2016 to 31 March 2017.
(4) ACC(HK) Ltd. paid $160,000 to a travel agency to organise an overseas trip for its employees and their
families during the Easter holidays. There were 16 persons (including Mr. and Mrs. Brown) on the trip.
(5) In December 2016, Mr. Brown took a 5-day business trip to Australia to be followed by a 7-day vacation leave
there. ACC(HK) Ltd. paid $100,000 to a travel agency for the entire trip for Mr. and Mrs. Brown. The cost of the
air tickets was estimated to be $8,000 each.
(6) On 16 September 2016, Mr. Brown received a demand notice from the Inland Revenue Department for the
payment of provisional salaries tax for the year of assessment 2016/17 of $135,000 and $45,000 due on 4 January
2017 and 5 April 2017 respectively.' ACC(HK) Ltd. paid the tax for Mr. Brown on the due dates.
(7) During the year, Mr. Brown had rendered services in Country A and the income attributable to such services
was $250,000. Income tax of $50,000 was paid to the Tax Authority of Country A on such income.
(8) During the year, Mr. Brown paid the following:
(a) MPF contributions $30,000
(b) Approved charitable donations $220,000
(c) Self-education expense $50,000
(9) Mrs. Brown is a housewife. Mr. and Mrs. Brown have a son, aged 16, who is studying in an international
school in Hong Kong.

REQUIRED:
(a) State the circumstances under which a person is entitled to claim deduction of married person's allowance
as provided under the Inland Revenue Ordinance.
(b) Compute Mr. Brown's holiday journey benefits chargeable to salaries tax for the year of assessment
2016/17.
(c) Compute Mr. Brown's salaries tax liability for the year of assessment 2016/17.
Ignore provisional salaries tax. Show all your workings.
Question 4

Mr Chan is a designer employed by Daily Fashion Ltd. During the year of assessment 2017/18, he has the
following income and benefits:
(1) monthly salary of $40,000;
(2) bonus of $40,000;
(3) a holiday passage allowance of $50,000, 40% of which was used to purchase holiday warrants for himself
and his wife whilst the balance was retained by him;
(4) free education benefits for his son, aged 21. The tuition fee for the year was $150,000.

Mr Chan is required to incur all the sample material costs in the performance of his duties. Assessor agreed that
the total sample material expenses incurred during the year amounted $20,000.

During the year, Mr Chan donated $88,000 to the Community Chest and contributed 5% of his monthly salary to
the company's retirement scheme that is a MPF-exempted scheme.

Mr and Mrs Chan purchased a property as their dwelling as joint tenants by means of a mortgage loan from Bank
of China. The monthly repayment was wholly made by Mr Chan. The mortgage loan interest of $160,000 was
paid in the year.

Mrs Chan is a part-time teacher and her salary for the year ending 31.3.2018 was $160,000. During the year, Mrs
Chan incurred the following expenses:
(1) cash donation of $35,000 to approved charitable organizations;
(2) contribution of $8,000 to approved MPF scheme;
(3) tuition fee of $40,000 for a course at City University of Hong Kong.

Required:
(a) Compute the salaries tax liability of Mr and Mrs Chan for the year of assessment 2017/18 under separate
taxation assuming that Mr Chan is nominated to claim the child allowance.

(b) Compute the salaries tax liability of Mr and Mrs Chan for the year of assessment 2017/18 under joint
assessment and advise whether they should elect joint assessment.