ACCT 4410 Taxation

Take home assignment # 4 (Topic: Salaries Tax Computation)

Instructions to Students:

1. Students should complete the assignment on his or her own, i.e., on

individual basis.
2. Each student should submit his or her own answers in bullet points form. Do
not write long paragraphs.
3. No cover page is necessary.
4. Font type/Size: Times New Roman/11
5. 1.5 lines spacing
6. Save your file as [studentID].pdf for submission purpose via Canvas online
7. Assessment criteria: approach to questions; articulation of arguments; clear
discussion; and references
8. The total marks of this assignment are 30. It accounts for 5% of total course
assessment.
9. Deadline for submission: 15 April 2023 – Submit the completed assignment
to the online course platform – canvas; by 5:00 p.m.

Course Instructor: Dr. MAK Kelvin P.

Lecture sessions: L1; L2 and L3
Subject: Salaries Tax Computation – Separate vs Joint Assessment
Date: 3rd April 2023

1
Take home exercise #4: ACCT 4410 Taxation – 2023 Spring Semester
Deadline for submission: 15 April 2023, by 17:00 via Canvas submission
Danny Craig is a British subject who has been living in London, the UK. On 1 April 2019, he was
employed by Intuite Limited (“Intuite”), a company carrying on a business in Kent, the UK. Danny
was appointed as the Vice-President of Customer Accounts, who is responsible for the business
development of Intuite’s video streaming subscription accounts in Asia Pacific regions. His
contract was negotiated, concluded and enforceable in London and his salary is paid directly into
his bank account in London.

Danny’s travel itinerary for the year ended 31 March 2023 included his trips in:

 Hong Kong and stayed 160 days, for which they were including his 20 days annual leave
 Beijing and stayed 120 days, and there wasn’t any vacation day taken
 Singapore and stayed 40 days, for which they were including his 5 days annual leave
 Seoul, Korean and stayed 45 days and no vacation day was taken.

During the year of assessment 2022/23, Danny received the following income and made the
following payments:

i. Annual basic salary of $1,409,500.

ii. A Cost-of-Living Allowance (COLA) of $36,000 a year, in the form of cash.

iii. Cash bonus of $30,000, and it was received for winning the regional “Best Business
Development Proposal” of the year. That was a yearly cash award given to the employee
who had proposed the best strategy, and yet through viable means to expand the
business of Intuite.

iv. Danny lived in a serviced apartment at Hung Hom, Kowloon, Hong Kong SAR; with 2-
bedroom. The accommodation was arranged and paid by Intuite. Total charges during
the year were $96,000; and he was required to contribute and pay 10% of the total
charges towards this housing arrangement.

v. He took a 35-day business trip to Singapore and stayed behind for an extra 5 days to visit
his friends. Intuite approved Danny’s itinerary of this trip and paid the hotel room charges
amounting $60,000 for the entire trip of 40 days.

vi. Danny joined the British Chamber of Commerce in Hong Kong (“BritCham HK”) with effect
from 1 January 2023. He paid an annual subscription of $4,500. Danny often met with
his business contacts in BritCham HK. He obtained a full reimbursement from Intuite.

2
vii. Danny enrolled and undertook an MBA course with The University of Hong Kong. He paid
a tuition fee of $435,000.

viii. Danny donated $48,000 to the British Red Cross: Humanitarian Aid, Headquarter in
Moorfields, London. He also donated $80,000 to Community Chest Hong Kong, an
approved charity for tax purpose.

ix. Apart from the mandatory MPF contributions made, Danny also contributed 5% of his
basic salary into a Tax-deductible Voluntary Contribution (TVC) account in Hong Kong.

x. Danny lives with his wife, Jennifer in Hong Kong. They have a daughter, Michelle, who
was 20 years old. Michelle studied her bachelor degree at the Hong Kong University. She
married to a local businessman in 2021.

xi. Danny paid qualifying premiums of Voluntary Health Insurance Scheme (VHIS) policies
purchased for himself and his daughter in the amount of $12,000 and $6,000 respectively.

xii. Danny supports his mother Judy, aged 65 who lives in Macau SAR. Judy was a Hong Kong
permanent resident and visited Hong Kong often for her son and granddaughter.

xiii. Jennifer had a part-time job in Hong Kong. Her annual income was $141,600. She made
an approved charitable donation of $10,000.

Required:

a) Advise Danny on the extent to which he is liable to Hong Kong salaries tax for the year of
assessment 2022/23. Note: Ignore double tax issues (5 marks)

b) Calculate the Hong Kong salaries tax payable by Danny Craig for the year of assessment
2022/23. Show all your numerical workings.
Round to whole numbers for income and expenses; truncate to whole numbers for tax
liabilities.
Note: Ignore foreign tax issues; provisional salaries tax; tax rebate (15 marks)
c) Advise whether Danny Craig and his wife should elect for joint assessment for the year of
assessment 2022/23. Show all your numerical workings. (10 marks)
Round to whole numbers for income and expenses; truncate to whole numbers for tax
liabilities.
[End of Assignment 4]

3
ACCT 4410 Taxation – Assignment 4

ANSWER

1
Take home exercise #4: ACCT 4410 Taxation – 2023 Spring Semester – ANSWER
Question:

a) To what extent Danny Craig is liable to Hong Kong salaries tax

1. Salaries tax is charged on income from an employment, office and pension arising in or derived
from Hong Kong.

2. Income from employment includes income derived from services rendered in Hong Kong but
excludes income derived from services rendered outside Hong Kong.

3. Concerning locality of employment, there are 3 factors that determine its locality: location of
employment contract; location of employer (residence); and location of remuneration paid.

4. Since Danny Craig’s employer is a company that carries on business in Kent, the UK, the
residence of his employer is outside Hong Kong, he was having a foreign (offshore) employment.
Potentially, all his income is NOT assessable to salaries tax.

5. However, income relating to services rendered in Hong Kong is still assessable to salaries tax,
i.e., based on time apportionment of income, day-in & day-out apportionment.

6. As Danny lives with family in Hong Kong, he did not qualify as visitor.

7. At the same time, he was in Hong Kong longer than 60 days, and he performed services in Hong
Kong, he was not able to exempt his income from tax by claiming all the services rendered
outside Hong Kong.

2
Part b) Danny Craig’s salaries tax liabilities for the year of assessment 2022/23

Danny Craig
Salaries Tax Computation
For the year of assessment 2022/23

$
Salaries 1,409,500
COLA cash allowance 36,000
Cash bonus 30,000
Holiday journey benefit 7,500
Hotel room charges (60,000 x 5/40)
Reimbursement of BritCham HK subscription 4,500
1,487,500

Time apportionment:
HK: 1,487,500 x (160-20) / (365-25) 612,500

Rental value of residence (612,500 x 10%) 61,250

Less: rent suffered (96,000 x 10%) 9,600 51,650

Assessable income 664,150

Less: self-education expenses (max.) 100,000
Net assessable income 564,150
Less: concessionary deductions
MPF contribution (max.) 18,000
Qualifying premium paid under VHIS (8K) 8,000
Tax deductible MPF voluntary contributions (cap) 60,000
Approved charitable donations (664,150 x 35%) 80,000 166,000

Net assessable income before personal allowances 398,150

Less: personal allowances
Basic allowance 132,000
Net chargeable income 266,150

Salaries tax payable at progressive rates 27,245

(266,150 – 200,000) x 17% + 16,000

Salaries tax at standard rate (398,150 x 15%) 59,722

(which is higher than that of at progressive rates, so not
applied)

Correct treatment of items which require no adjustment:

Total serviced apartment charges $96,000; Donation to British Red Cros $48,000;
Child allowance $120,000; Dependent parent allowance $50,000; VHIS on Michelle $6,000

3
Part c) Advise whether Danny and Jennifer Craig should elect for joint assessment

Jennifer Craig
Salaries Tax Computation
For the year of assessment 2022/23

$
Salaries 141,600
Less: concessionary deductions
MPF contribution (actual) 141,600 x 5% 7,080
Approved charitable donations 10,000 17,080

Net assessable income before personal allowances 124,520

Less: personal allowances
Basic allowance 132,000
Net chargeable income -7,480

Salaries tax payable at progressive rates 0

Salaries tax at standard rate (124,520 x 15%) 18,678

(which is higher than that of at progressive rates, so not
applied)

4
 Danny and Jennifer Craig
Salaries Tax Computation (Joint)
For the year of assessment 2022/23

$
Salaries 564,150 + 141,600 705,750
Less: concessionary deductions
MPF contribution 18,000 + 7,080 25,080
Qualifying premium paid under VHIS (8K) 8,000
Tax deductible MPF voluntary contributions (cap) 60,000
Approved charitable donations 80,000 + 10,000 90,000 183,080

Net assessable income before personal allowances 522,670

Less: personal allowances
Married person’s allowance 264,000
Net chargeable income 258,670

Salaries tax payable at progressive rates 25,973

(258,670 – 200,000) x 17% + 16,000

Salaries tax at standard rate (522,670 x 15%) 78,400

(which is higher than that of at progressive rates, so not
applied)

Advice: based on the amount of tax savings of $(27,245 – 25,973) = $1,272, it is advisable for
the couple to elect for joint assessment.

5
5 John has been employed by Better Ltd (Better), a trading company carrying on business in Hong Kong, as its chief
sales executive since 1 May 2017. The following information relates to John concerning the year of assessment
2018/19:
(1) Salary and commission of $1,300,000, subject to a deduction of 5% as his contribution to the mandatory
provident fund (MPF).
(2) Discretionary bonuses declared by Better and credited to John’s account on:
– 16 May 2018: $80,000 for the period from 1 May 2017 to 31 March 2018
– 19 May 2019: $90,000 for the period from 1 April 2018 to 31 March 2019
(3) Accommodation
– 1 April 2018 to 31 May 2018
John accommodated a two-room hotel suite. The rent was directly paid by Better to the hotel, although John
had to contribute $4,000 for the period. In addition, John paid $1,200 directly to the hotel as a service
charge.
– 1 June 2018 to 31 March 2019
John resided with his family in a flat in Discovery Bay. He purchased the flat with a loan of $5,000,000
which was provided to him under a low-interest staff housing loan scheme by Better. During the year, John
paid total interest of $40,000 to Better. Had John paid interest at market rate, the total interest would have
been $85,000.
(4) Electricity and water bills
From 1 June 2018, when John and his family moved into their own flat in Discovery Bay, the electricity and water
bills totalling $15,000 were paid by Better.
(5) Education allowance
John placed his 12-year-old daughter into the International School of Hong Kong. The tuition fees were directly
borne by Better for which it paid $84,000.
(6) Travelling allowance
John incurred travelling expenses of $2,000 each month which were reimbursed in full by Better. It was agreed
with the assessor that half of these expenses were for journeys between John’s home and his office, whereas the
remainder were for journeys between John’s office and the offices of potential customers.
(7) Gift from employer
In December 2018, in recognition of John’s outstanding sales record, Better purchased and gave him a watch at
a cost of $30,000. The watch had a second-hand market value of $25,000.
(8) Shares from employer
On 1 February 2018, John was granted 8,000 shares by Better subject to a vesting period up to 31 January
2019. John sold the 8,000 shares on 15 February 2019. The market price of each share was $5 on 1 February
2018, $6 on 31 January 2019 and $7 on 15 February 2019.
(9) Holiday passage allowance
John was granted an allowance of $32,000 in March 2019 for the purchase of a holiday passage, of which he
spent $30,000 when he was on vacation leave in April 2019. He spent the remaining $2,000 buying a souvenir
for his secretary during the trip.
(10) Removal expenses
Half of the total removal expenses of $14,000 which John incurred on 1 June 2018 were refunded to him by
Better.
(11) Compensation and medical expenses
In July 2018, John was injured while visiting Better’s warehouse in Shenzhen, China. John received compensation
of $33,000 from Better’s insurer. In addition, his medical treatment expenses of $18,000 were fully reimbursed
by Better.

10
 (12) Charitable donations
John made cash donations of $12,000 in January 2019 to the Tung Wah Group of Hospitals (the Hospitals). He
also paid $3,000 for a ticket to attend a fund-raising show organised by the Hospitals in March 2019.
(13) Tax liability
John’s salaries tax liabilities of $160,000 for the year of assessment 2017/18 were paid and borne by Better on
20 January 2019.
(14) John is married with one daughter aged 12. His wife is a housewife.

Required:
Compute the Hong Kong salaries tax payable by John for the year of assessment 2018/19.

(15 marks)

11 [P.T.O.
 Marks
(b) Calculation of time-apportionment ratio for 2018/19:
Arriving Hong Kong Departing Hong Kong Number of business days Number of
in Hong Kong (either leave days
arriving or departing
days counted)
1 April 2018 15 April 2018 14 0·5
10 June 2018 25 June 2018 9 6 1·0
8 November 2018 29 November 2018 21 0·5
16 January 2019 17 January 2019 1 0·5
19 February 2019 24 February 2019 5 0·5
–––
50 0·5
–––
Vacation taken other than in Hong Kong 14
–––
Total vacation days in 2018/19 20
–––
Vacation days attributable to Hong Kong services: 20 x [50/(365 – 20)] 3 1·5
Time-apportionment ratio:
Business days of services in Hong Kong 50
Vacation days attributable to services in Hong Kong 3
–––
Total days attributable to services in Hong Kong 53
–––
Total days in 2018/19 365
Therefore, time-apportionment ratio 53/365 1·0
–––
6·0
–––
10
–––

5 John’s salaries tax assessment

Year of assessment 2018/19
$ $
Salary and commission 1,300,000 0·5
Discretionary bonuses 80,000 0·5
Electricity and water bills 15,000 0·5
School fees 84,000 0·5
Reimbursement of travelling expenses (1,000 x 12) 12,000 0·5
Second hand value of watch 25,000 0·5
Share award benefit (8,000 x 6) 48,000 1·0
Holiday passage allowance 32,000 0·5
Reimbursement of removal expenses 7,000 0·5
Reimbursement of medical expenses 18,000 0·5
Salaries tax paid 160,000 0·5
––––––––––
1,781,000
Rental value (1,781,000 – 15,000 – 7,000) x 2/12 x 8% 23,453 1·5
Less: rent paid (4,000) 19,453 0·5
–––––––– ––––––––––
Assessable income 1,800,453
Less: Part 4A concessionary deductions
Donations (12,000) 0·5
Home loan interest (40,000) 0·5
Contributions to mandatory provident fund (MPF) (maximum) (18,000) (70,000) 0·5
–––––––– ––––––––––
1,730,453
Less: Part 5 allowances
Married person’s allowance (264,000) 0·5
Child allowance (120,000) (384,000) 0·5
–––––––– ––––––––––
Net chargeable income 1,346,453

–––––––––– ––––––––––
Tax at progressive rates 210,897 0·5
––––––––––
––––––––––
Tax at standard rate (1,730,453 x 15% = 259,567) is not applicable. 0·5

22
 Marks
Correct treatment of items that require no adjustment:
Taxable/non-deductible items $ Deductible/non-taxable items $
Hotel service charge 1,200 Interest saved 45,000
Souvenir 2,000 Compensation 33,000
Removal expenses 7,000 Discretionary bonuses 90,000
Ticket for fund-raising show 3,000
(0·5 mark each) maximum 3·5
–––
15
–––

6 Summer Ltd
Profits tax computation for the year of assessment 2018/19 0·5
Basis period: year ended 31 March 2019 0·5
$ $
Profit for the year per accounts 15,000 0·5
Add: Excess mandatory provident fund (MPF) contribution (maximum 15%) 25,000 0·5
(100,000 x 5/20)
Donation 20,000 0·5
Loan to staff written off 30,000 0·5
Commission to undisclosed agent 20,000 1·0
Depreciation 100,000 0·5
Interest on loan from shareholder 9,000 204,000 0·5
–––––––– –––––––––
219,000
Less: Loan interest to director in China 20,000 0·5
Environmental protection vehicle 440,000 1·0
Depreciation allowance 74,400 (534,400) 0·5
–––––––– –––––––––
(315,400)
Less: Donation (maximum 35%) (0) 0·5
–––––––––
Adjusted loss (315,400)
–––––––––
–––––––––
Profits tax payable 0 0·5
Less: Property tax paid set-off (s.25) (25,920) 1·0
–––––––––
Tax refund 25,920 0·5
–––––––––
–––––––––
Correct treatment of items which require no adjustment. (Candidates are NOT required to prepare the following
table in their answers. Marks will be awarded if they are not adjusted in the tax computation.):
Taxable/non-deductible items $ Deductible/non-taxable items $
Sales to China 400,000 Rent and rates for warehouse in China 100,000
Interest income from customer   12,000 Club fee (entrance and subscription)   58,000
Net rental income 200,000
0·5 mark each 2·5
Depreciation allowance schedule
Plant and machinery 20% 30% Total
allowance
$ $ $
Written down value (WDV) b/f 30,000 40,000 0·5
Disposal – motor car (12,000) 0·5
–––––––––– –––––––
30,000 28,000
Annual allowance (6,000) (8,400) 14,400 1·0
–––––––––– –––––––
WDV carried forward 24,000 19,600

––––––––––
–––––––––– –––––––
–––––––
Commercial building allowance:
Qualifying expenditure 1,500,000

––––––––––
––––––––––
Annual allowance at 4% 60,000 1·0
–––––––
74,400

–––––––
––––––– –––
15
–––

23
5 Stevenson is employed by a multinational group with a head office in the US where Stevenson and his family are
residing. Stevenson has been working at the US head office for several years, reporting his employment income to
the US tax authorities. On 1 April 2018, Stevenson was sent overseas by his employer to provide support to both the
Hong Kong and China subsidiaries in connection with a newly launched automated system. For convenience, he will
live in Hong Kong for at least two years until the project is complete.
Stevenson is remunerated by a fixed monthly salary of $80,000 and a fixed monthly travelling allowance of $5,000.
With effect from 1 April 2018, he is provided with a two-room serviced apartment in Hong Kong at a monthly rental of
$30,000 paid by the Hong Kong subsidiary, but Stevenson was required to contribute $2,000 per month. Stevenson
also paid monthly laundry charges of $1,000 to the apartment company.
During the year ended 31 March 2019, Stevenson also received the following items from his US employer:
(1) On 1 April 2018, he received a cash allowance of $16,000 towards relocating his wife and a daughter from the
US to Hong Kong. He spent around $15,000 in total for this purpose.
(2) A tuition fee of $60,000 for Stevenson’s daughter, Mary, to enrol in an international school in Hong Kong was paid
directly by Stevenson’s employer from the US.
(3) On 15 August 2018, Stevenson was granted an option to acquire 10,000 shares at $10 each in his US employer
company, at an option cost of $4,000. On 30 March 2019, he exercised the option on all of the shares and sold
the shares the next day. The market values per share were as follows:
15 August 2018 $13
30 March 2019 $19
31 March 2019 $20
(4) Stevenson was sick at the end of 2018 and hospitalised for two weeks in China. The total medical expenses
amounted to $48,000, of which $30,000 was successfully claimed against his employer’s insurance company.
The balance was reimbursed by his employer.
During the year ended 31 March 2019, Stevenson spent a total of 190 days (including his days of arrival and
departure) in Hong Kong as follows:
1 April 2018 to 9 July 2018 100 days
1 November 2018 to 29 January 2019 90 days (including 10 days annual leave)
––––––––
190 days

––––––––
––––––––
Note: You should assume Stevenson stayed in Hong Kong throughout both of the above periods.
By virtue of his employment status, Stevenson and his employer are not required to make any contribution to the
mandatory provident fund in Hong Kong.
Stevenson’s father resides in an elderly home in the US, for which the annual residential cost of $110,000 is paid by
Stevenson. Stevenson also maintains a son from his first marriage, George, who is currently aged 18 and is studying
in the United Kingdom.
During the year 2018/19, Stevenson made a cash donation of $20,000 to World Vision Hong Kong under the ‘Child
Adoption Scheme’.

Required:
Calculate Stevenson’s Hong Kong salaries tax liability for the year of assessment 2018/19.
Note: You should ignore any overseas tax aspects.

(15 marks)

11 [P.T.O.
 Marks
5 Stevenson

Salaries tax assessment

Year of assessment 2018/19
$
Salary (80,000 x 12) 960,000 0·5
Travelling allowance (5,000 x 12) 60,000 0·5
Removal allowance 16,000 0·5
Education for daughter 60,000 0·5
Medical expense reimbursement (48,000 – 30,000) 18,000 0·5
––––––––––
1,114,000
––––––––––
––––––––––
Time-apportionment:
Hong Kong: (99 + 89 – 10) days + (10 x 178/(365 – 10)) days = 183 days 3
Taxable: 1,114,000 x 183/365 558,526 1
Rental value at 10% 55,852 0·5
Less: Rent paid (2,000 x 12) (24,000) 31,852 0·5
––––––– ––––––––––
590,378
Gain on share option
– On exercise [10,000 x (19 – 10) – 4,000] 86,000 1
–––––––
Apportioned on time-basis (86,000 x 183/365) 43,117 1
––––––––––
Assessable income 633,495
Less: Concessionary deduction:
Approved charitable donation (20,000) 0·5
––––––––––
613,495
Less: Part 5 allowance
Married person’s allowance (264,000) 0·5
Child allowance (daughter) (120,000) 0·5
Child allowance (son) (120,000) 0·5
––––––––––
Net chargeable income 109,495
––––––––––
––––––––––
Tax at progressive rates 4,949 0·5
––––––––––
––––––––––
Tax at standard rate (613,495 x 15%) 92,024 0·5
––––––––––
––––––––––
Tax payable 4,949 0·5
––––––––––
––––––––––
Correct treatment of items which require no adjustment: $1,000 laundry service charge, sale of shares obtained
from option, $30,000 medical expenses claimed against insurance company, $110,000 elderly home expenses
for father.
0·5 mark each 2
–––
15
–––

22
5 Mr Black is a British citizen working for a computer company in London. Effective from 1 April 2017, he was promoted
to regional IT director looking after the group’s IT services. For convenience, he is seconded to a group company in
Hong Kong (HK-Co) to facilitate his travelling in the region. No separate employment contract was signed. He continues
to receive his salary in GBP from HK-Co payable to his bank account in London, and HK-Co will recharge the cost to
the London company.
During the secondment period from 1 April 2017, Mr Black was remunerated $90,000 salary per month and $10,000
travelling allowance per month. The residential flat in London which was provided by the London company is still kept
for Mr Black. He was also provided with a two-room serviced apartment in Hong Kong.
Other remuneration details of Mr Black included:
(1) In April 2017, he arranged for the shipment of his belongings from London to Hong Kong at a cost of $58,000,
of which $50,000 was settled by HK-Co.
(2) He was entitled to a holiday passage of $20,000 per year. In August 2017, he used the passage to book a family
trip to New Zealand on vacation.
(3) On 15 December 2017, he was granted an option to acquire 10,000 shares at $15 each in HK-Co at a cost of
$2,000. On 2 January 2018, he sold part of the option to acquire 2,000 shares to a colleague for $9,000. On
3 February 2018, he exercised the option for the remaining shares and sold all of them the next day. The market
values per share were as follows:
15 December 2017 $17
2 January 2018 $18
3 February 2018 $19
4 February 2018 $20
(4) On 25 March 2018, he was hospitalised for two weeks and incurred a total medical cost of $60,000. Mr Black
settled the hospital bill and then made a claim against HK-Co’s insurance company. In May 2018, 80% of
the total hospital bill was reimbursed by the insurance company. HK-Co paid an annual insurance premium of
$1,500 per employee to the medical scheme.
(5) HK-Co paid the monthly salary to Mr Black through remittance to his bank account in London. No mandatory
provident fund (MPF) contribution in Hong Kong is required.
(6) On 1 February 2018, Mr Black enrolled on a master’s degree in a Hong Kong university to develop his IT
knowledge. The total tuition fee paid by Mr Black upon enrolment was $45,000.
(7) During the year ended 31 March 2018, Mr Black spent a total of 200 days (including his days of arrival and
departure) in Hong Kong as follows:
Days
1 April 2017 to 30 September 2017 122
1 January 2018 to 19 March 2018 78 (including 10 days annual leave)
––––
200

––––
––––

Required:
(a) Explain Mr Black’s liability to Hong Kong salaries tax for the year of assessment 2017/18. (3 marks)

(b) Compute the NET ASSESSABLE INCOME of Mr Black for the year of assessment 2017/18. Ignore any
overseas tax and Hong Kong provisional tax. (12 marks)

(15 marks)

12
 Marks
4 (a) Mr Ng
Property tax assessment
Year of assessment 2017/18
$
Rent: 1 July 2017 to 31 March 2018 (25,000 x 9) 225,000 0·5
Premium (100,000 x 11/36) 30,555 0·5
Premium (balance upon tenant moving out) 69,445 0·5
––––––––
325,000
Less: Irrecoverable rent (25,000 x 5 – 50,000) (75,000) 1·5
––––––––
250,000
Less: 20% statutory deduction (50,000) 0·5
––––––––
Net assessable value 200,000
––––––––
––––––––
Tax at 15% 30,000 0·5
––––––––
––––––––
Correct treatment of non-adjustable items:
No deduction for rates and management fee, no bad debt recovery, no bad debt for management fee
(0·5 mark each) 2
Tutorial note: The rental deposit is used to compensate any loss of revenue when the tenant defaults on the
rent and so is offset against irrecoverable rent.
Mr Ng
Property tax assessment
Year of assessment 2018/19
$
Rent recovered 30,000 0·5
Less: 20% statutory deduction (6,000)
–––––––
Net assessable value 24,000

–––––––
–––––––
Tax at 15% 3,600 0·5

–––––––
–––––––
Correct treatment of non-adjustable items:
No tax on car park sale, no deduction on repair. 1
–––
8
–––

(b)
Depreciation allowance is not allowable under property tax but should be claimable by Mr Ng under profits
tax as he occupied the shop unit for his own business. The cost of $50,000 should qualify as plant and
machinery and be eligible for initial allowance of 60% and annual allowance of 20%. 2
–––
10
–––

5 (a) Salaries tax is charged on income from an employment, office and pension arising in or derived from Hong
Kong (s.8). Income from employment includes income derived from services rendered in Hong Kong and
excludes income derived from services rendered outside Hong Kong (s.8(1A)) but apart from this, no guidance
is given in the Inland Revenue Ordinance (IRO) and the phrase ‘arising in or derived from Hong Kong’ is to be
interpreted according to case law and Board of Review decisions. 1
In accordance with the principle in the Goepfert case, Mr Black’s employment does not have its source in
Hong Kong. No separate employment contract was entered into between Mr Black and HK-Co, and thus the
London company remains as his employer which is resident outside Hong Kong. The employment contract
with the London company was reasonably assumed to be negotiated and concluded outside Hong Kong, and
the salary was paid outside Hong Kong even during the secondment period. Therefore, his employment is an
offshore employment. However, as Mr Black has performed services in Hong Kong during visits of more than
60 days, he will be chargeable to Hong Kong salaries tax based on the portion of his income attributable to
his Hong Kong services, unless he has rendered all his services outside Hong Kong (s.8(1A)(b)). 2
–––
3
–––

22
 Marks
(b) Mr Black
Salaries tax assessment
Year of assessment 2017/18
$
Salary (90,000 x 12) 1,080,000 0·5
Travelling allowance (10,000 x 12) 120,000 0·5
Passage allowance 20,000 0·5
––––––––––
1,220,000

––––––––––
––––––––––
Time-apportionment:
HK: (121 + 77 – 10) days + 10 days x 188/(365 – 10) days = 193 days 2·5
Taxable: 1,220,000 x 193/365 645,096 0·5
Rental value (10% x 645,096) 64,509 1
––––––––––
709,605
Gain on share option
– On sale (9,000 – 2,000 x 2/10) 8,600 1
– On exercise [8,000 x (19 – 15) – 2,000 x 8/10] 30,400 1
–––––––
39,000
–––––––
Apportioned on time-basis (39,000 x 193/365) 20,622 0·5
––––––––––
Assessable income 730,227
Less: Self-education expenses (45,000) 0·5
––––––––––
Net assessable income 685,227

––––––––––
––––––––––
Correct treatment of items which require no adjustment: no tax on shipment of belongings settled by HK‑Co
($50,000), no tax on medical expenses claimed from insurance company ($48,000), no deduction for
unclaimed medical ($12,000), no tax on annual insurance premium ($1,500), no tax on London residence,
no mandatory provident fund (MPF) deduction, and no tax on sale of shares.
(0·5 mark each) 3·5
–––
12
–––
15
–––

6 Purple Ltd
Profits tax computation for the year of assessment 2017/18
Basis period: year ended 31 March 2018 0·5
$ $
Profit for the year per accounts 63,000 0·5
Add: Loss from trading in China listed shares 300,000 0·5
Donation 70,000 0·5
Depreciation 40,000 0·5
Loss on disposal of fixed asset 15,000 425,000 0·5
–––––––– ––––––––
488,000
Less: Dividend income from HK listed shares 13,000 0·5
Dividend income from China listed shares 22,000 0·5
Special contribution to mandatory provident fund (MPF) in 60,000 1
2015/16 (300,000 x 20%)
Interest income on HK$ deposit 1,000 0·5
Replacement of carpet 50,000 0·5
Environment-friendly vehicle 300,000 1
Depreciation allowance for plant and machinery 4,000 (450,000) 0·5
–––––––– ––––––––
38,000
Less: Donation (limited to 35%) (13,300) 1
––––––––
Assessable profit for the year 24,700

––––––––
––––––––
Tax payable at 16·5% 4,075 0·5

––––––––
––––––––

23
5 Peter Jones, an American citizen, is single and does not have any relatives in Hong Kong. Peter is employed by a
US‑operated entity, JK Technology Inc (JK). His employment contract, which is enforceable in the US, requires Peter to
travel to Asian countries to oversee the operations of JK’s subsidiaries. During the year ended 31 March 2018, Peter’s
travelling schedule was as follows:
Hong Kong 210 days
Singapore 90 days
USA 65 days (including 15 days’ annual leave)
––––––––
365 days
––––––––
For the year ended 31 March 2018, Peter’s remuneration from JK together with his relevant personal expenditures
were as shown below (all amounts are denominated in Hong Kong dollars):
(1) Annual salary of $2,400,000.
(2) A hardship allowance of $10,000 per month.
(3) A company car and a driver for use in Hong Kong. The car is worth $400,000 and is registered in the name of
JK. The driver was hired by JK at $20,000 per month. Peter incurred $50,000 for petrol and car maintenance
during the year, for which he was fully reimbursed by JK. Peter estimated that about 20% of the car’s usage was
for his personal use.
(4) Peter lives in a hotel room during his stays in Hong Kong. The total hotel charges of $300,000 were paid by JK.
Peter agreed that 5% of the hotel charges would be deducted from his salary in return for an upgrade of the hotel
package.
(5) In June 2017, Peter had a car accident on his way to a client meeting in Hong Kong and was hospitalised for
three weeks. The total hospital bill of $440,000 was paid by Peter. He subsequently made a claim to JK to
recover these costs. In January 2018, Peter obtained a full refund from JK, comprising $300,000 reimbursed by
JK’s insurance company under JK’s employees’ group insurance policy and $140,000 subsidised directly by JK.
(6) Peter received a bonus of $160,000, 30% of which he donated to the US Red Cross.
(7) On 1 February 2018, Peter was granted an option to acquire 60,000 shares in JK, at $5 each. He paid $6,000
for this option. On 1 March 2018, Peter sold one-third of the share option for $45,000 and on the same day,
exercised the balance of the option himself. On 31 March 2018, Peter sold all of the shares acquired. The fair
market values per share were as follows:
1 February 2018 $8
1 March 2018 $9
31 March 2018 $10
(8) Peter paid an annual subscription of $10,000 to the Hong Kong Jockey Club.
(9) JK settled Peter’s Hong Kong and Singapore tax bills of $240,000 and $10,000, respectively.
(10) No mandatory provident fund contribution was made in Hong Kong.

Required:
Calculate the Hong Kong salaries tax payable by Peter Jones for the year of assessment 2017/18.
Note: You should ignore overseas tax, including the effect of any comprehensive double taxation agreement between
Hong Kong and other countries.

(15 marks)

11 [P.T.O.
 Marks
5 Peter Jones

Salaries tax assessment

Year of assessment 2017/18
$ $
Salary 2,400,000 0·5
Hardship allowance (10,000 x 12) 120,000 0·5
Bonus 160,000 0·5
––––––––––
2,680,000
––––––––––
––––––––––
Time-apportionment:
HK: 210 days + [15 days x 210/(365 – 15) days] = 219 days 2
Taxable: 2,680,000 x 219/365 1,608,000 0·5
Reimbursement of petrol and maintenance costs in HK (50,000 x 20%) 10,000 1
Hospital bill reimbursed by employer 140,000 0·5
Hong Kong salaries tax paid by employer 240,000 0·5
––––––––––
1,998,000
Rental value (1,998,000 x 4%) 79,920 1
Less: Rent suffered (300,000 x 5%) (15,000) 64,920 0·5
––––––––
Gain on share option
– On sale (45,000 – 6,000 x 1/3) 43,000 1
– On exercise [(40,000 x (9 – 5)) – (6,000 x 2/3)] 156,000 1
––––––––
199,000
––––––––
Apportioned on time basis (199,000 x 219/365) 119,400 0·5
––––––––––
Assessable income 2,182,320
Less: Part 5 allowances
Basic allowance (132,000) 0·5
––––––––––
Net chargeable income 2,050,320
––––––––––
––––––––––
Salaries tax liability at progressive rates 335,054 0·5
––––––––––
––––––––––
Salaries tax liability at standard rate (2,182,320 x 15%) 327,348 0·5
––––––––––
––––––––––
Salaries tax payable 327,348 0·5
––––––––––
––––––––––
Correct treatment of:
Taxable/non-deductible items $ Deductible/non-taxable items $
Hospital bill reimbursed by insurance company 300,000 Cost of the car 400,000
Driver’s wages 240,000
Jockey Club subscription 10,000 Gain on sale of shares any amount
US Red Cross donation 48,000 Singapore tax bill 10,000
(0·5 mark each) maximum 3
–––
15
–––

20
5 Mr Li worked in Hong Kong as financial director for South Ltd (South) which carries on business in Hong Kong. On
31 March 2017, Mr Li received a notice from South to terminate his employment with effect from 1 April 2017.
Mr Li was requested to sign an undertaking to waive any right of claim against South, and in return for such
undertaking, he was paid a termination payment of $200,000.
In relation to the year ended 31 March 2017, Mr Li had the following income and expenditure:
(1) A monthly salary of $80,000, subject to a deduction of 7% as his contribution to a registered retirement fund.
(2) A reimbursement of a medical claim in the sum of $20,000 from South’s insurance company under a group
employee medical plan. The annual premium paid to this plan by South for each staff member is $1,000.
(3) A travel package (flight and accommodation) with a value of $118,000 purchased by South for Mr Li and his
family’s holiday in Paris. The package could not be transferred to other persons.
(4) A company motor car provided for Mr Li’s use. The purchase cost of the motor car was $250,000 and its second
hand value as at 31 March 2017 was $100,000. Mr Li used the car for both business and personal purposes
on a 80:20 basis, which was agreed with the Inland Revenue Department for tax purposes. He was also
provided with a corporate credit card which he used to pay for his petrol costs of $2,000 per month. The credit
card balance was settled by South. During the year ended 31 March 2017, Mr Li did not use the corporate
credit card for any other purpose.
(5) Mr Li spent $62,000 to join the Shenzhen Golf Club plus an annual membership fee of $12,000. He was
reimbursed half of the joining fee by a shareholder of South.
(6) During the period from 1 April 2016 to 31 July 2016, Mr Li’s family lived in a flat leased at a monthly rental
of $30,000, of which $20,000 was reimbursed by South under the company’s staff rental reimbursement
scheme. With effect from 1 August 2016, the family moved into a new property purchased by Mr Li. The
property is jointly owned by Mr Li and his wife and its purchase was financed by a staff loan provided by South.
The property is mortgaged against the loan. The total interest paid on the staff loan for 2016/17 was $150,000.
If a market interest rate had been charged by South, the interest cost would have been $200,000.
(7) Since Mr Li’s family moved into their own property, the electricity and water bills totalling $8,000 have been
paid by South.
(8) Mr Li incurred the following annual membership fees in the year:
The Association of Chartered Certified Accountants $2,300
The Shenzhen Golf Club (see (5) above) $12,000
(9) On 1 April 2013, Mr Li was granted 5,000 shares by South subject to a vesting period up to 30 September
2016. Mr Li sold the 5,000 shares on 1 October 2016. The market price of each share was $5 on 1 April
2013, $7 on 30 September 2016 and $7·50 on 1 October 2016.
(10) Mr Li paid a tuition fee of $200,000 for a part-time MBA course. Half of this tuition fee was reimbursed by
South.
(11) Mr Li made a monthly contribution of $2,000 to an approved charitable organisation.
Apart from the above, the following additional information is available:
(12) Mrs Li is a housewife. Mr and Mrs Li have two children. The elder child is aged 19 and studying part-time in
the UK; and the younger child is aged six.
(13) Mrs Li’s mother, aged 65, who lives in her own apartment in Hong Kong, is maintained by Mrs Li.
(14) Mr Li’s father, aged 55 and disabled, lives in a nursing home in Hong Kong. The total nursing home bills
amounting to $220,000 for 2016/17 were paid by Mr Li.

Required:
Compute the Hong Kong salaries tax payable by Mr Li, if any, for the year of assessment 2016/17.

(15 marks)

12
 Marks
East is also obliged to retain the final payment to Mr Chan within one month of having filed the above
cessation/departure notice, until the IRD’s written consent is received. Normally, the consent will be given
after Mr Chan has cleared all Hong Kong tax liabilities or the IRD is satisfied that Mr Chan has no intention
to depart from Hong Kong for good. The fact that Mr Chan requested his final payment to be remitted
overseas does not alter the nature of the payment nor the obligation of East to retain the payment. 1
–––
4
–––
10
–––

5 Mr Li

Salaries tax assessment for the year of assessment 2016/17

$ $
Salary (80,000 x 12) 960,000 0·5
Holiday travel package 118,000 0·5
Petrol cost (2,000 x 12 x 20%) 4,800 1
Reimbursement of club’s joining fee (62,000 x 50%) 31,000 0·5
––––––––––
1,113,800
Rental value: ((1,113,800 – 2,300) x 4/12 x 10%) 37,050 1·5
Less: Rent suffered (10,000 x 4) (40,000) 0 0·5
––––––––
Electricity and water bills 8,000 0·5
Share award benefit (5,000 x 7) 35,000 1
––––––––––
Assessable income 1,156,800
Less: ACCA membership fee 2,300 0·5
Self-education expenses (maximum) 80,000 (82,300) 0·5
–––––––– ––––––––––
Net assessable income 1,074,500
Less: Concessionary deductions
Approved charitable donations (limited to 35% of (1,156,800 – 2,300)) 24,000 0·5
Elderly residential care expenses – Mr Li’s father (maximum) 92,000 0·5
Home loan interest (maximum) 100,000 1
Contributions to mandatory provident fund (maximum) 18,000 (234,000) 0·5
–––––––– ––––––––––
840,500
Part V allowance
Married person’s allowance 264,000 0·5
Child allowance: younger son 100,000 0·5
older son (not eligible) 0 0·5
Dependent parent allowance – Mrs Li’s mother 46,000 0·5
Disabled dependant allowance – Mr Li’s father 66,000 (476,000) 0·5
–––––––– ––––––––––
Net chargeable income 364,500
––––––––––
––––––––––
Salaries tax payable at progressive rates 49,965 0·5
––––––––––
––––––––––
Salaries tax at standard rate ($840,500 x 15%) not applicable 126,075 0·5
––––––––––
––––––––––
Non-taxable/non-deductible items for which marks are allocated:
1. Medical claim reimbursement of $20,000 (not taxable)
2. Annual premium on medical plan $1,000 (not taxable)
3. Provision of company car of $250,000 or $100,000 (not taxable)
4. Loan interest saving of $50,000 (not taxable)
5. Shenzhen Golf Club annual fee of $12,000 (non-deductible)
6. Termination payment of $200,000 (non-taxable)
0·5 mark each, maximum 2
–––
15
–––

22
5 Mrs Shi, a Hong Kong resident, is currently employed as the accounting controller of KK Ltd, a company incorporated
and carrying on business in Hong Kong. In relation to the year ended 31 March 2017, Mrs Shi had the following
income and expenditure:
(1) A monthly salary of $55,000, out of which KK Ltd deducted a mandatory provident fund (MPF) contribution of
$2,750 (5%).
(2) A travelling allowance of $16,000, of which Mrs Shi spent $10,000 on a holiday and is supported with vouchers.
The balance of $6,000 was kept by Mrs Shi.
(3) A reimbursement of medical expenses of $35,000 under the Blue Cross Medicare Scheme entered into by KK Ltd
for all staff members.
(4) KK Ltd provided Mrs Shi with a company car for her use. The original cost of the car was $300,000 and the
second hand value as at 31 March 2017 was $50,000. The total petrol cost for the year of $12,000 was
reimbursed by KK Ltd. Mrs Shi has agreed with the Inland Revenue Department (IRD) that 80% of the car usage
was related to company business.
(5) Mrs Shi was requested by KK Ltd to join the Chinese Recreation Club for client entertainment purposes. During
the year, Mrs Shi paid a club entrance fee of $30,000 and an annual membership fee of $5,000. KK Ltd agreed
to reimburse 20% of the total costs incurred by Mrs Shi.
(6) Mrs Shi’s family was provided with a two-room flat by KK Ltd at a nominal cost of $3,000 per month for the
period 1 April to 31 July 2016.
(7) With effect from 1 August 2016, the family moved into a property newly acquired by Mrs Shi with the finance
obtained from KK Ltd under the company’s low-interest mortgage loan scheme. The property was registered in
the joint names of Mr and Mrs Shi. During the year, the total loan repayment paid to KK Ltd by Mrs Shi amounted
to $180,000, including $110,000 as loan interest. If a market interest rate had been charged Mrs Shi’s total
interest cost would have been $150,000.
(8) During the period from 1 August 2016, when the family lived in the property purchased by Mrs Shi, KK Ltd
reimbursed Mrs Shi the total utilities cost of $3,000.
(9) On 31 March 2014, Mrs Shi was granted an option at a cost of $10,000 to purchase 20,000 shares in KK Ltd’s
parent company at an exercise price of $5 per share. On 30 April 2016, Mrs Shi exercised the option to acquire
5,000 shares and sold the shares on the following day. The market values per share were $9·5 on 31 March
2014, $15·5 on 30 April 2016, and $17 on 1 May 2016.
(10) Mrs Shi paid the following annual membership fees:
The Association of Chartered Certified Accountants (ACCA) $2,600
The Chinese Recreation Club (as in (5) above) $5,000
The following additional information is available:
(11) Mrs Shi’s husband owns a property which is leased for rental. During the year ended 31 March 2017, Mr Shi
paid total interest of $60,000 on a bank loan which was acquired to finance the property acquisition two years
ago. The net assessable value of the property for the year of assessment 2016/17 is $48,000.
(12) Mr and Mrs Shi have a son, aged 24, who is studying full time overseas.
(13) Mrs Shi’s father, aged 70, lives in a flat next to Mrs Shi and her family. Mrs Shi paid a total of $12,000 to her
father during the year.
(14) Mr Shi’s step mother, aged 55, has been living in a nursing home in Hong Kong since January 2014, when she
was disabled in an accident. She is paid the Government Disability Allowance of $2,000 per month. The total
bills from the nursing home, amounting to $100,000 for the year, were paid by Mrs Shi.
(15) During the year, Mr Shi made a total charitable donation of $26,000 to the Red Cross of Hong Kong (comprising
$500 for raffle tickets and $25,500 cash).
(16) Mr and Mrs Shi elected for personal assessment for the year of assessment 2016/17.

12
 Required:
(a) Compute the net assessable income of Mrs Shi for the year of assessment 2016/17. (8 marks)

(b) Prepare the personal assessment computation for Mr and Mrs Shi for the year of assessment 2016/17,
showing the tax payable, if any, by the couple. (7 marks)

(15 marks)

13 [P.T.O.
 Marks
Profits tax payable = $291,000 x 15% = $43,650 0·5
–––
8
–––
10
–––

4 Mr Mo – Property tax computation for the year of assessment 2016/17

Basis period: 1 April 2016 to 31 March 2017
$
Rental (48,000 x 6) 288,000 1
Premium (30,000 x 7/24) 8,750 1
Repair to keylock 500 0·5
––––––––
Assessable value 297,250
Less: Rates (3,000/3 x 7) (7,000) 0·5
––––––––
290,250
Less: 20% statutory allowance (58,050) 0·5
––––––––
Net assessable value 232,200
––––––––
––––––––
Property tax at 15% 34,830 0·5
––––––––
––––––––
Correct treatment of the following items: rental deposit, management fee, agency fee, mortgage interest, renovation
cost, no deduction of bad debt, water dripping repair cost, legal cost.
(0·5 mark each, maximum) 3
Mr Mo – Property tax computation for the year of assessment 2017/18
Basis period: 1 April 2017 to 31 March 2018
$
Rental (48,000 x 3) 144,000 0·5
Premium (30,000 x 17/24) 21,250 1
––––––––
Assessable value 165,250
Less: Rates (3,000/3 x 3) (3,000) 0·5
––––––––
162,250
Less: 20% statutory allowance (32,450) 0·5
––––––––
Net assessable value 129,800
––––––––
––––––––
Property tax at 15% 19,470 0·5
––––––––
–––––––– –––
10
–––

5 (a) Mrs Shi – Computation of net assessable income for the year of assessment 2016/17
Basis period: 1 April 2016 to 31 March 2017
$ $
Salary (55,000 x 12) 660,000 0·5
Travelling allowance 16,000 0·5
Petrol cost (12,000 x 20%) 2,400 0·5
Reimbursement of membership fee (35,000 x 20%) 7,000 0·5
––––––––
685,400
Rental value: ((685,400 – 2,600) x 4/12 x 10%) 22,760 1·5
Less: Rent suffered (3,000 x 4) (12,000) 10,760 0·5
–––––––
Reimbursement of utilities bills 3,000 0·5
Share option gain [(15·5 – 5) x 5,000 – 10,000 x 5,000/20,000] 50,000 1
––––––––
Assessable income 749,160
Less: ACCA membership fee (2,600) 0·5
––––––––
Net assessable income 746,560

––––––––
––––––––

21
 Marks
Non-taxable/non-deductible items for which marks are allocated:
1. Medical expense reimbursement ($35,000) (not taxable)
2. Company car ($300,000/$50,000) (not taxable)
3. Interest savings of $40,000 (150,000 – 110,000) on low-interest loan (not taxable)
4. Sale of shares (not taxable)
0·5 mark each 2
–––
8
–––

(b) Mr and Mrs Shi – Personal assessment computation for the year of assessment 2016/17
Basis period: 1 April 2016 to 31 March 2017
$ $
Mr Shi Mrs Shi
Net assessable income (from part (a)) 746,560
Net assessable value (NAV) of rental property 48,000 0·5
Less: Interest on leased property (limited to NAV) (48,000) 1
–––––––– ––––––––
0 746,560
Less: Concessionary deductions
Approved charitable donations [limited to 35% of $746,560] (25,500) 0·5
Elderly residential care expenses – Mr Shi’s step-mother (maximum) (92,000) 0·5
Home loan interest (maximum) (100,000) 0·5
Contributions to mandatory provident fund (MPF) (maximum) (18,000) 0·5
–––––––– ––––––––
0 511,060

––––––––
–––––––– ––––––––
––––––––
Reduced total income 511,060
Less: Part 5 allowances
Married person’s allowance (264,000) 0·5
Child allowance (100,000) 0·5
Dependent parent allowance – Mrs Shi’s father (46,000) 0·5
Disabled dependant allowance – Mr Shi’s step-mother (66,000) (476,000) 0·5
–––––––– ––––––––
Net chargeable income 35,060

––––––––
––––––––
Tax at progressive rates (35,060 x 2%) 701 0·5

––––––––
––––––––
Tax at standard rate (511,060 x 15%) is not applicable 76,659 0·5

––––––––
––––––––
Tax payable by Mrs Shi 701 0·5

––––––––
–––––––– –––
7
–––
15
–––

22
5 Frank is the general manager of Hi-tech Ltd (Hi-tech), a company carrying on business in Hong Kong. Frank is in
charge of Hi-tech’s office in Shanghai and travels to Hong Kong on a regular basis. The following information is
available in respect of Frank for the year ended 31 March 2016:
(1) Frank’s basic salary is $90,000 per month.
(2) During the year, Frank spent eight months in Mainland China. Two-thirds of his salary was attributable to services
rendered in Mainland China, upon which he was required to pay $120,000 income tax to the China tax
authority. The Chinese income tax was paid and borne by Hi-tech.
(3) For the month of April 2015, Frank was given a cash allowance of $12,000 to cover his accommodation costs.
From 1 May 2015 to 30 September 2015, he was provided with a flat owned by Hi-tech in Shanghai, rent-free.
On 1 October 2015, he purchased the flat from Hi-tech for $4,000,000. The market value of the flat at that date
was $4,500,000. Frank mortgaged the flat to a bank for $2,000,000, and obtained a staff loan of $1,000,000
from Hi-tech at a below-market interest rate. During the year ended 31 March 2016, Frank paid interest of
$28,000 to the bank, and $10,000 to Hi-tech. If Hi-tech had charged Frank a market interest rate, his interest
cost would have been $14,000.
(4) Hi-tech gave Frank an allowance of $30,000 to spend during his holidays in France. He actually spent $26,000
and retained the balance.
(5) On 1 September 2015, Frank was granted options for 15,000 shares in Hi-tech at a cost of $5,000. There is
no vesting period but the options will expire at the fifth anniversary from the date the options were granted.
(6) Frank is studying for the EMBA degree at the Shanghai University of Finance and Economics. During the year,
he paid a tuition fee of $180,000, half of which was reimbursed by Hi-tech.
(7) Frank’s wife is a housewife. The couple have two children, aged 10 and 12 years.
(8) Frank supports his mother, aged 68, who lives with his family in Shanghai. His mother has a Hong Kong identity
card and travels frequently to Hong Kong.
(9) During the year, Frank contributed $20,000 to the Mandatory Provident Fund.

Required:
(a) Advise Frank on the extent to which he is liable to Hong Kong salaries tax for the year of assessment
2015/16. (4 marks)

(b) Calculate the Hong Kong salaries tax payable by Frank for the year of assessment 2015/16.
Note: You should ignore overseas tax. (11 marks)

(15 marks)

11 [P.T.O.
 Marks
X-mas Ltd is obliged to notify the Inland Revenue Department (IRD) of Toys-n-Me Inc’s chargeability to profits
tax within four months after the accounting year-end date of the year in which the royalty payment is paid
(i.e. on or before 31 July 2016). X-mas Ltd is also required to file a Hong Kong profits tax return on behalf
of Toys-n-Me Inc, reporting the chargeable royalty income and the appropriate tax amount withheld. Upon
receiving the assessment, X-mas Ltd will be required to settle the tax liability on behalf of Toys-n-Me Inc. 2
–––
4
–––
10
–––

5 Frank

(a) Salaries tax is charged on income from an employment, office and pension arising in or derived from
Hong Kong (s.8). Income from employment includes income derived from services rendered in Hong Kong
and excludes income derived from services rendered outside Hong Kong (s.8(1A)) but apart from this, no
guidance is given in the Inland Revenue Ordinance and the phrase ‘arising in or derived from Hong Kong’ is
to be interpreted according to case law and Board of Review decisions. 1·5
In accordance with the principle in the Goepfert case, Frank’s employment has its source in Hong Kong as
his employer is a Hong Kong company resident in Hong Kong. Therefore, his income will be fully chargeable
to salaries tax unless he has rendered all his services outside Hong Kong (s.8(1A)(b)). As Frank has
performed services in Hong Kong during visits of more than 60 days, he cannot claim the exemption for
services rendered in Hong Kong during visits not exceeding 60 days (s.8(1A)(b) as qualified by s.8(1B)).
However, Frank has paid tax in the Mainland, so will qualify for the exemption under s.8(1A)(c), which
excludes income from services rendered outside Hong Kong if the taxpayer is chargeable to tax in the country
in which the services are rendered and tax of substantially the same nature as salaries tax in Hong Kong,
has been paid in respect of the income attributable to the services rendered in that country. It does not matter
that the tax was paid or reimbursed by the employer. 2·5
–––
4
–––

(b) Salaries tax assessment

Year of assessment 2015/16
$
Salary (90,000 x 12) 1,080,000 0·5
Less: Amount charged to income tax in China (1,080,000 x 2/3) (720,000) 1
––––––––––
360,000
Holiday benefit 30,000 0·5
––––––––––
390,000
Rental value (390,000 x 5/12 x 10%) 16,250 1·5
––––––––––
406,250
Cash allowance to cover accommodation cost 12,000 0·5
Difference between market value and purchase price of the flat 500,000 1
––––––––––
Assessable income 918,250
Less: Self-education expenses (maximum) (80,000) 1
––––––––––
Net assessable income 838,250
Less: Concessionary deductions
Home loan interest (28,000 + 10,000) (38,000) 0·5
Contributions to mandatory provident fund (maximum) (18,000) 0·5
––––––––––
782,250
Less: Part V allowances
Married person’s allowance (240,000) 0·5
Child allowance (100,000 x 2) (200,000) 0·5
––––––––––
Net chargeable income 342,250
––––––––––
––––––––––
Salaries tax payable at progressive rates 46,182 0·5
––––––––––
––––––––––
Salaries tax at standard rate is not applicable (782,250 x 15%) 117,337 0·5
––––––––––
––––––––––

20
 Marks
Non-taxable/non-deductible items for which marks are allocated:
1. China income tax paid by Hi-tech of $120,000 (not taxable).
2. Interest savings of $4,000 (14,000 – 10,000) on Hi-tech’s staff loan (not taxable).
3. Share option cost of $5,000 (not deductible).
4. Reimbursement of deductible expense (half of the tuition fee) of $90,000 (not taxable).
5. Dependent parent allowance (not available/deductible).
0·5 mark each, maximum 2
–––
11
–––
15
–––
Tutorial note: As Frank’s mother lives in Shanghai, she is not ordinarily resident in Hong Kong, so Frank is
not entitled to any dependent parent allowance.

6 Winner Ltd

Profits tax computation for the year of assessment 2015/16

Basis period: year ended 31 March 2016 0·5
$ $
Profit for the year per accounts 33,000 0·5
Add: Loss from trading in China listed shares 30,000 0·5
Donation 5,000 0·5
Depreciation 40,000 0·5
Loss on disposal of fixed asset 5,000 0·5
Special contribution to MPF (22,000 x 80%) 17,600 1
Interest expense on shareholder loan 17,000 0·5
Balancing charge 1,000 115,600 0·5
––––––– ––––––––
148,600
Less: Dividend income from HK listed shares 23,000 0·5
Dividend income from China listed shares 11,000 0·5
Exchange gain (unrealised) from year-end conversion 20,000 0·5
Interest income on RMB deposit 6,000 0·5
Interest income on loan made to director 17,000 0·5
Replacement of carpets 70,000 0·5
Depreciation allowance for plant and machinery 4,000 (151,000) 0·5
––––––– ––––––––
(2,400)
Less: Donation 0 0·5
––––––––
Adjusted loss for the year (2,400)
––––––––
––––––––
Tax payable Nil 0·5
––––––––
––––––––
Correct treatment of items which require no adjustment (candidates are NOT required to prepare the following
table in their answer. Marks will be awarded if they are not adjusted in the tax computation):
Taxable/non-deductible items $ Deductible/non-taxable items $
Gain from HK listed shares 500,000 Wages to helper for director’s use 100,000
Gain from foreign currencies 150,000 Rent and rates for director’s residence 150,000
Interest income on HK$ deposit 1,000 Contribution to MPF (10,000 + 4,000) 14,000
Rental income 120,000 Interest on bank loan of $100,000 2,000
Interest on bank overdraft and credit line 12,000
0·5 mark, maximum 3·5

21
5 Roger is employed by Golden Inc (Golden), a company incorporated in the US, as regional finance director. His
employment contract was discussed and signed in New York and his salary is paid directly into his bank account in
New York. Since 2012, Roger has been based in the Hong Kong office but is required to travel within the region when
necessary. During the year ended 31 March 2016, he made the following overseas trips:
PRC 120 days
Other Asian countries 50 days
US 55 days (including 15 days annual leave)
For the rest of the year, Roger stayed in Hong Kong and did not take any annual leave in Hong Kong.
The following additional information relates to Roger for the year ended 31 March 2016 (all amounts are denominated
in Hong Kong dollars):
(1) Annual salary: $1,440,000.
(2) Director’s fee: $36,000 from Silver Ltd (Silver), the Hong Kong subsidiary of Golden. Silver trades with exporters
in the South-East Asian countries. Directors’ meetings are conducted in Hong Kong to comply with the
Companies Ordinance, but all business decisions are made by Golden and the directors of Silver in the US.
Occasionally Roger acts as an alternative director of Silver.
(3) On becoming a director of Silver, Roger was granted an option to buy 50,000 shares in Silver. He paid a
nominal amount of $5,000 for this option. On 1 February 2016, Roger exercised the option to take up 30,000
shares for $45,000. The fair market values of a Silver share were as follows:
1 February 2016 $3·00
31 March 2016 $3·50
(4) Roger lives with his family in a serviced apartment in Causeway Bay. The cost of the apartment is $30,000
per month and this is paid by Silver. Roger paid $12,000 to join the clubhouse and was reimbursed half of this
amount by Golden as he would meet clients at the clubhouse for the purpose of fostering business contacts.
(5) Golden provided Roger with a car and a driver. The car was leased from a car agency in the name of Golden,
at a monthly rental of $6,000. The driver was hired by Golden at $9,600 per month. The total petrol and
maintenance costs for the car for the year were $60,000, all of which were paid for by Roger and reimbursed
by Golden. Roger estimated that about 20% of the usage of the car did not relate to Golden’s business.
(6) Golden employed an amah for Roger at a cost of $4,500 per month and refunded Roger his utilities bills, which
were $38,000 for the year.
(7) Golden operates a medical insurance scheme for all of its employees through an insurance company, and pays
an annual premium of $5,500 per employee. During the year, Roger was hospitalised for two weeks. In order
that he could continue to carry out his employment duties whilst in hospital, he paid an extra $24,000 for a
private room. The basic hospital fees and public ward fees of $45,000 were reimbursed by the insurance
company, while two-thirds of the extra fees were reimbursed by Golden.
(8) During the year, Golden received and paid the following tax bills in respect of Roger:
Hong Kong salaries tax $63,000
PRC individual income tax $110,000
Other Asian countries’ income tax $50,000
(9) Roger contributed a total of $18,000 to the Mandatory Provident Fund.
(10) Roger is married with two children, aged 24 and 15. The elder child is studying full-time in Canada.

Required:
(a) Determine whether Roger is subject to salaries tax in Hong Kong in respect of the director’s fee as described
in (2) above. (3 marks)

(b) Calculate the Hong Kong salaries tax payable by Roger for the year of assessment 2015/16.
Note: You should ignore overseas tax. (12 marks)

(15 marks)

11 [P.T.O.
 Marks
4 Mr and Mrs Au

(a) Partnership allocation – Year of assessment 2015/16

1 January to 30 September 2015 [($600,000) + $480,000] x 9/12 = ($90,000) 0·5
Au Bao Chow Total
$ $ $ $
Salaries 180,000 180,000 – 360,000 0·5
Balance (1:1:2) (112,500) (112,500) (225,000) (450,000) 0·5
–––––––– –––––––– –––––––– ––––––––
Share of profit/(loss) 67,500 67,500 (225,000) (90,000)
Reallocation (67,500) (67,500) 135,000 – 1
–––––––– –––––––– –––––––– ––––––––
Net share of loss 0 0 (90,000) (90,000)
––––––––
–––––––– ––––––––
–––––––– ––––––––
–––––––– ––––––––
––––––––
1 October to 31 December 2015 [($600,000) + $480,000] x 3/12 = ($30,000) 0·5
Au Bao Total
$ $ $
Salaries 60,000 60,000 120,000 0·5
Balance (1:1) (75,000) (75,000) (150,000) 0·5
––––––– ––––––– ––––––––
Share of loss (15,000) (15,000) (30,000)
–––––––
––––––– –––––––
––––––– ––––––––
––––––––
Total allocation for 1 January to 31 December 2015
Au Bao Chow Total
$ $ $ $
Share of loss (15,000) (15,000) (90,000) (120,000) 0·5
Loss lapsed upon retirement – – 90,000 90,000 0·5
Loss transferred to personal assessment 15,000 – – 15,000 0·5
––––––– ––––––– ––––––– ––––––––
Loss carried forward 0 (15,000) 0 (15,000) 0·5
–––––––
––––––– –––––––
––––––– –––––––
––––––– ––––––––
–––––––– –––
6
–––

(b) Personal assessment computation for Mr and Mrs Au – Year of assessment 2015/16
Mr Au Mrs Au Total
$ $ $
Net assessable profits from distributorship business
after ACD [200,000 x (1 – 35%)] 130,000 1
Net assessable income from employment 750,000 0·5
–––––––– ––––––––
Total income 130,000 750,000
Less: Concessionary deductions
ACD – Mrs Au (30,000) 0·5
Unabsorbed ACD transferred from spouse
(80,000 – 70,000) (10,000) 1
MPF contributions (maximum) (18,000) 0·5
Share of partnership loss (15,000) 0·5
–––––––– ––––––––
Reduced total income 115,000 692,000 807,000
––––––––
–––––––– ––––––––
–––––––– ––––––––
–––––––– –––
4
–––
10
–––

5 Roger

(a) Salaries tax is charged on income from an employment, office and pension arising in, or derived from
Hong Kong (s.8(1)). In the case of income from an office, the source is the place where the office legally
exists. In McMillan v Guest (24 TC 190), it was held that the office of a director is located at the place where
the management and control of the corporation is exercised. 1
In the case of Silver Ltd, although the directors’ meetings are conducted in Hong Kong, all business decisions
are made by Golden Ltd and the directors of Silver Ltd in the US. Hence, Silver Ltd is managed and controlled
outside Hong Kong; and Roger’s director’s fees from Silver Ltd are sourced outside Hong Kong and not
taxable under s.8(1). 2
–––
3
–––

19
 Marks
(b) Hong Kong salaries tax – Year of assessment 2015/16
$
Salary 1,440,000 0·5
Reimbursement of clubhouse joining fee 6,000 0·5
Reimbursement of petrol, etc (60,000*20%) 12,000 0·5
Refund of utilities bills 38,000 0·5
Reimbursement of extra hospital bills (24,000*2/3) 16,000 1
––––––––––
1,512,000
––––––––––
––––––––––
Time-apportionment:
HK: 140 + 15 x 140/(365 – 15) = 146 days 2
Taxable: 1,512,000 x 146/365 604,800 0·5
HK salaries tax borne by employer 63,000 0·5
––––––––––
667,800
Rental value at 10% 66,780 1
––––––––––
Assessable income 734,580
Less: Part 4A concessionary deductions
Mandatory provident fund contributions (maximum) (18,000) 0·5
––––––––––
716,580
Less: Part 5 allowances
Married person’s allowance (240,000) 0·5
Child allowance (200,000) 0·5
––––––––––
Net chargeable income 276,580
––––––––––
––––––––––
Tax at progressive rates 35,018 0·5
––––––––––
––––––––––
Tax at standard rate ($716,580 x 15% = $107,487) is not applicable. 0·5
Non-taxable/non-deductible items for which marks are allocated:
1. Gain on exercise of share options (not taxable).
2. Cost of serviced apartment of $360,000 (not taxable).
3. Clubhouse joining fee of $12,000 (not deductible).
4. Car rental of $72,000 (not taxable).
5. Driver’s wages of $115,200 and amah’s wages of $54,000 (not taxable).
6. Annual insurance premium of $5,500 (not taxable).
7. Reimbursement of basic hospital fees and public ward fees of $45,000 (not taxable).
8. Payment of PRC and overseas tax ($110,000 and $50,000) (not taxable).
0·5 mark each, maximum 2·5
–––
12
–––
15
–––

20
5 George is a British citizen, whose permanent residence, together with his wife and 12-year-old son, is in the UK. On
1 April 2014, George was appointed as the Asian sales manager of Goodwell Ltd (Goodwell), a company carrying on
business in London, and became responsible for the sales promotion of Goodwell’s properties in the Asian region. His
employment contract was negotiated and concluded in London and his salary is paid directly into his bank account
in London.
George is remunerated by a fixed monthly salary of $80,000 and a fixed monthly travelling allowance of $5,000. He
is provided with a flat in Hong Kong by his employer, for which George pays Goodwell a monthly rent of $1,000.
The other benefits enjoyed by George from his employment with Goodwell in 2014/15 were as follows:
(1) On 1 April 2014, he was directed by Goodwell to move his home in the UK from Birmingham to London. He
incurred removal expenses of $12,000 which were reimbursed by Goodwell.
(2) In November 2014, he received a passage allowance of $20,000 of which $16,000 was spent by his wife and
son on holiday travel and the balance was kept by him.
(3) On 15 December 2014, he was granted an option to acquire 10,000 shares at $15 each in Staywell Ltd, an
associate of Goodwell. He paid $8,000 for this option. On 2 January 2015, he sold the option for 2,000 shares
for $9,000. On 3 February 2015, he exercised the option on the remaining 8,000 shares and sold the shares
on the next day. The market values per share of Staywell shares were as follows:
15 December 2014 $17
2 January 2015 $18
3 February 2015 $19
4 February 2015 $20
(4) On 25 March 2015, he was injured in an accident and hospitalised for two weeks. Medical expenses totalling
$38,000 were claimed against Goodwell’s insurance company, and $2,000 was paid and borne by George. The
annual premium per employee paid by Goodwell for the medical scheme was $5,000.
During the year ended 31 March 2015, George spent a total of 193 days (including his days of arrival and departure)
in Hong Kong as follows:
1 June 2014 to 9 September 2014 101 days
1 November 2014 to 31 January 2015 92 days (including 16 days annual leave)
––––––––
193 days
––––––––
––––––––
By virtue of his employment status, George and his employer are not required to make any contribution to the
mandatory provident fund in Hong Kong.

Required:
Calculate the Hong Kong salaries tax payable by George for the year of assessment 2014/15.
Note: Ignore any overseas tax.

(15 marks)

10
 Marks
5 George
Salaries tax assessment
Year of assessment 2014/15
$
Salary (80,000*12) 960,000 0·5
Travelling allowance (5,000*12) 60,000 0·5
Reimbursement of removal expenses 12,000 1
Passage allowance 20,000 0·5
––––––––––
1,052,000
––––––––––
––––––––––
Time apportionment:
HK: (100 + 91 – 16) days + 16*175/(365 – 16) days = 183 days 3
Taxable: 1,052,000*183/365 527,441 1
Rental value at 10% 52,744 0·5
Less: Rent paid (1,000 *12) (12,000) 40,744 1
––––––– ––––––––––
568,185
Gain on share option
– On sale (9,000 – 8,000*2/10) 7,400 1
– On exercise [8,000*(19 – 15) – 8,000*8/10] 25,600 1
–––––––
33,000
–––––––
–––––––
Apportioned on time basis (33,000*183/365) 16,545 1
––––––––––
Assessable income 584,730
Less: Part V allowances
Married person’s allowance (240,000) 0·5
Child allowance (70,000) 0·5
––––––––––
Net chargeable income 274,730
––––––––––
––––––––––
Tax at progressive rates 34,704 0·5
––––––––––
––––––––––
Tax at standard rate ($584,730*15%) 87,709 0·5
––––––––––
––––––––––
Tax payable 34,704 0·5
––––––––––
––––––––––
Correct treatment of items which require no adjustment: reimbursement of medical expenses of $38,000 from
insurance company, $2,000 paid and borne by George, and annual premium of $5,000 paid by Hopewell.
0·5 mark each 1·5
–––
15
–––

22
5 Simon Smith, a US resident, is working as a marketing manager for a US company (USCo). From 1 April 2014, he
started to travel around the region visiting USCo’s operations and meeting clients. During the year ended 31 March
2015, Simon spent a total of 230 days in Hong Kong as follows:
7 April 2014 to 1 May 2014 25
12 June 2014 to 9 September 2014 90 (including 20 days annual leave)
14 October 2014 to 5 February 2015 115
––––
230
––––
All his remuneration is paid into Simon’s bank account in the US. For the year ended 31 March 2015, Simon had
the following income and expenditure:
(1) A monthly salary of $96,000.
(2) An annual entertainment allowance of $48,000, of which only $40,000 was actually expended.
(3) Simon was provided with a hotel serviced apartment in Hong Kong with a a monthly rental of $12,000. The
total annual charges for this serviced apartment of $144,000 were paid directly to the hotel company by USCo;
and 5% of the total charges was deducted from Simon’s salary.
(4) Received a reimbursement of medical expenses in the sum of $45,000 from a medical insurance scheme. USCo
is contracted to pay an annual premium of $6,000 to the scheme for each of its staff.
(5) During the year, USCo paid $45,000 to a travel company to purchase a package tour to Canada to be taken by
Simon for holiday purposes. The package tour could be transferred to another person for $40,000. USCo also
paid $1,000 to take out a travel insurance policy for Simon.
(6) USCo provided Simon with a company car for his use. The market value of the car was $280,000 and the
second hand value as at 31 March 2015 was $210,000. USCo also provided Simon with a corporate credit card
which he used to pay for his petrol costs of $3,000 per month. The credit card balance was settled in full by
USCo. It has been agreed with the assessor that 75% of the usage of the car was for USCo’s business.
(7) For business purposes, Simon joined the International Golf Club for an annual membership fee of $35,000.
USCo agreed to reimburse half of the annual membership fee. Simon also paid an annual membership fee of
$2,600 to The Chartered Association of Marketing.
(8) During the year, Simon enrolled onto a Putonghua course offered by a local university and paid a tuition fee of
$15,000. The enrolment was fully supported by USCo, as it plans to expand its business in China. USCo
reimbursed Simon half of the tuition fee.
(9) On 1 April 2013, Simon was granted 5,000 shares by USCo subject to a vesting period. The shares vested in
him on 30 September 2014. The market value of the shares on 1 April 2013 and 30 September 2014 was
$55,000 and $66,000 respectively.
(10) On 1 October 2014, Simon was given an option to purchase 100,000 shares in Diamond Inc, a subsidiary of
USCo which is listed on the New York Stock Exchange, at a price equivalent to $15 per share. Simon paid
$2,000 for this option. The market price of Diamond Inc shares on 1 October 2014 was $16 per share. Simon
exercised the option to purchase 50,000 of the shares on 30 November 2014 when the market price of the
shares was $18 per share.

Required:
Calculate Simon Smith’s net assessable income, if any, for the year of assessment 2014/15.
Note: You are not required to calculate the tax payable.

(15 marks)

11 [P.T.O.
 Marks
5 Simon Smith

Salaries tax assessment for the year of assessment 2014/15

$ $
Salary (96,000*12) 1,152,000 0·5
Entertainment allowance 48,000 0·5
Holiday journey benefit (45,000 + 1,000) 46,000 1
Petrol cost (3,000*12*25%) 9,000 0·5
Reimbursement of club membership fee (35,000/2) 17,500 0·5
Share award benefit 66,000 1
––––––––––
1,338,500
––––––––––
Time-apportionment:
(24 + 69 + 114) + 20*207/(365 – 20) days = 219 days 2·5
Taxable: 1,338,500*219/365 803,100 0·5
Rental value: (803,100 – 2,600)*10% 80,050 1·5
Less: rent suffered (144,000*5%) (7,200) 72,850 0·5
––––––––
Share option benefit [(18 – 15)*50,000 – 1,000] = $149,000 2
Apportioned on the number of days: 149,000*219/365 89,400 1
––––––––
Assessable income 965,350
Less:Membership fee to Chartered Association of Marketing 2,600 0·5
Self-education expenses (15,000/2) 7,500 (10,100) 0·5
–––––––– ––––––––
Net assessable income 955,250
––––––––
––––––––

Correct treatment of items that require no adjustment: entertainment expenditure ($40,000), hotel charges
($144,000), reimbursement of medical expenses ($45,000) from, and annual premium ($6,000) to, the medical
insurance scheme, value of the car, membership fee to the International Golf Club ($35,000).
0·5 mark each 2
–––
15
–––

22
ACCT 4410 Taxation

Take home assignment # 5 (Topic: Salaries Tax Computation)

Instructions to Students:

1. Students should complete the assignment on his or her own, i.e., on

individual basis.
2. Each student should submit his or her own answers in bullet points form. Do
not write long paragraphs.
3. No cover page is necessary
4. Font type/Size: Times New Roman/11
5. 1.5 lines spacing
6. Save your file as .doc or .docx for submission purpose
7. Assessment criteria: approach to questions; articulation of arguments; clear
discussion; format and presentation of computation; report organization and
references (where appropriate)
8. The assignment accounts for 5% of total course assessment
9. Deadline for submission: 20th April 2022 – Submit the completed assignment
to the online course platform – canvas; by 5:00 p.m.

Course Instructor: Dr. MAK Kelvin P.

Lecture sessions: L2; L1 and L3 (per weekly class sequence)
Subject: Salaries Tax Computation
Date: 13th April 2022

1
Take home exercise #5: ACCT 4410 Taxation – 2022 Spring Semester
Deadline for submission: 20th April 2022, by 17:00 via Canvas submission
Mr. Chen is a Hong Kong resident and has been employed as the Business Manager by Manson Company
Ltd. (“MCL”), a listed company incorporated and carrying on business in Hong Kong. During the year
ended 31 March 2020, Mr. Chen has the following income and expenditure:

1. Monthly salary of $100,000

2. He received a bonus of $40,000 on 5 May 2019. The bonus was a discretionary bonus in
recognition of his excellent performance on business development in the financial year ended 31
March 2019. It was approved during a board of directors’ meeting held on 15 March 2019.

3. As part of his total compensation, Mr. Chen received housing allowance from MCL $15,000 per
month, and this amount was deposited to his bank account on pay dates.

4. Also, he obtained monthly reimbursement from MCL regarding the salary of his domestic helper
that he hired in 2019. Mr. Chen paid her $4,500 per month.

5. On 1 November 2019, Mr. Chen received a $12,000 travel coupon that was purchased by MCL
from his boss which would allow him to spend his Christmas holidays in Europe. However, it
turned out that he was not able to spare any time to travel during Christmas. On 1 December
2019, he sold the travel coupon to one of his friends at $10,000.

6. On 1 June 2019, Mr. Chen was granted an option to buy the shares of MCL’s parent company
which was incorporated in the United Kingdom. The shares were listed on the London Stock
Exchange. The option enabled Mr. Chen to buy 10,000 shares at a price of $5 per share and carried
an expiry date of 31 March 2020. On 1 September 2019, Mr. Chen exercised the option to buy
5,000 shares and sold the option to buy 2,000 shares to a colleague for $13,000. The 5,000 shares
were then sold on 1 October 2019. The remaining option expired on 31 March 2020. Details of
share market value were:

i. 1 April 2019 $22

ii. 1 June 2019 $25
iii. 1 September 2019 $29
iv. 1 October 2020 $31
v. 31 March 2020 $26

7. In order to equip himself with updated knowledge, Mr. Chen enrolled for an evening course on
Chinese Auditing with the City University of Hong Kong and paid a tuition fee of $45,000. The
enrollment is fully supported by MCL which planned to expand its business in the Chinese
Mainland. However, MCL did not approve any refund for the tuition fee.

2
 8. During the year, Mr. Chen made various charitable donations in an aggregate amount of $380,000
to the approved charitable organizations.

9. In the year of assessment 2019/20, he made employee mandatory contribution to the MPF of
$18,000. Also, he contributed $30,000 to his Tax-deductible Voluntary Contribution (TVC)
account.

10. During the same year, he paid qualifying annuity premiums of $40,000 to subscribe an annuity
plan for himself.

Required:

i. Compute the salaries tax liabilities of Mr. Chen for the year of assessment 2019/20 (ignored
provisional salaries tax and tax rebate). You must show all workings but no written explanation
is required. (20 marks)

ii. From the information given above, identify two areas and also discuss in each of these areas how
Mr. Chen’s compensation could be structured in a more tax efficient manner.
(10 marks)

It is not necessary to cite tax case names or section numbers of the Inland Revenue Ordinance.
However, the discussion of relevant tax principles is needed to support your argument. Also,
revised salaries tax computation of Mr. Chen is NOT needed.

3
 ACCT4410 Take Home Assignment No.5 Answer Key
2021/22 Spring Semester

Part i. Compute Salaries Tax Liabilities for Mr. Chen (20%)

Mr. Chen
Hong Kong Salaries Tax Computation
Year of Assessment 2019/20
Basis Period: for the period end 31 March 2020

Salary $(100,000 x 12) 1,200,000

Housing allowance (Cash) $(15,000 x 12) 180,000
Domestic help salary $(4,500 x 12) 54,000
Travel coupon (s.9(2A)(c)) 12,000
1,446,000

Share option benefit: exercised 120,000

assigned 13,000
133,000
Assessable income before self education
and concessionary deduction 1,579,000

Less:
Self education expenses 45,000
Approved charitable donation $(1,579,000 x 35%) 380,000
Contributions to MPF 18,000
Contribuitions to TVC account 30,000
Qualifying annuity premiums (limited to $60,000 with TVC combined) 30,000
503,000

Net Assessable Income 1,076,000

Less:
Basic allowance 132,000

Net Chargeable Income 944,000

Progressive tax rates:

First 50,000 2% 1,000

Second 50,000 6% 3,000
Third 50,000 10% 5,000
Fourth 50,000 14% 7,000
Remainder 744,000 17% 126,480
NCI through progressive rates: 142,480 (A)

NAI at Standard Rate: 161,400 (B)

Lower of the (A) and (B) under s.13(2) 142,480

Part ii. Two areas that Mr. Chen's compensation could be structured in a more tax
efficient manner (10%)

Area 1:
i) Housing allowance was paid in the form of cash allowance
ii) Since no control over the spending of the payee, fully taxable
iii) instead, accommodation benefit could be given in either rent free or rent
reimbursement arrangement with proper control
iv) in this manner, the actual benefit obtained (represented by market rental) would be
tax free
v) only a deemed percentage on rental value of residence will be added to Mr. Chen as
taxable

Area 2:
i) Domestic helper salary reimbursement
ii) The existing reimbursement of domestic helper salary reimbursement represented a
discharge of Mr. Chen's personal liabilities
iii) Mr. Chen was being the employer of the domestic helper, and he paid her the
monthly salary
iv) Alternatively, MCL could hire a domestic helper directly from agency and assigned
her to work at Mr. Chen's apartment
v) Since MCL is now the employer, there wasn't any contractual arrangement between
the domestic helper and Mr. Chen, the benefit of having domestic helper service was
directly obtained from MCL.
There wasn't any reimbursement of domestic helper salary. Therefore, it then
became a tax free fringe benefit.