2015 A HKTF T6 Salaries 4 PA ans PDF

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THE HONG KONG POLYTECHNIC UNIVERSITY HONG KONG TAX FRAMEWORK (AF3210) Tutorial 6 – Salaries Tax (4) and Personal Assessment Answer 15 Mr. and Mrs. Choi Salaries Tax Computation under Joint Assessment Year of Assessment 2014/15 Jacky $ $ Salary 480,000 Bonus 50,000 Holiday journey 17,000 Loyalty payment 100,000 Payment in lieu of leave Rental value (480,000 + 50,000 + 17,000 + 100,000 - 4,200) x 10% 64,280 Less:

Rent suffered (2,000 x 12)

(24,000)

Share option benefit On assignment [10,000 - (5,000 x 4,000/10,000)] On exercise [(13-5) x 6,000 - (5,000 x 6,000/10,000)] Assessable income Less: Subscription to CPA (Australia) Self-education expense Net assessable income Less:

3,000

40,280

8,000 45,000

53,000 740,280

63,000

(54,200) 686,080

63,000

(87,500) 598,580

(3,000) 60,000

(4,200) (50,000)

Concessionary deductions Approved charitable donation Elderly residential care expenses

(10,000) (60,000)

Contribution to retirement scheme

(17,500)

Joint total income Less: Personal allowances Married person’s allowance Child allowance (70,000 x 2)

Rosanna $ 60,000

658,580 (240,000) (140,000) (380,000)

Net chargeable income

278,580

Tax at progressive rates

35,358

Tax at standard rate (15%)

98,787

2015A HKTF_T6_Salaries_4_ PA_ans.doc

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Salaries tax payable at progressive rate Less:

35,358

One-off tax reduction (75%, capped at $20,000)

(20,000) 15,358

Answer 16 Part (a) Salaries Tax Liability under Separate Taxation Year of Assessment 2014/15

$ Salaries ($30,000 x 12) Commission ($4,000,000 x 1%) Rental Value ($400,000 x 10%) Less: Rent suffered ($1,000 x 12)

40,000 (12,000)

Share option [($10 - $3) x 10,000] Net assessable income Less: Concessionary deductions: MPF contribution Approved charitable donation Less: Basic allowance Child allowances (2) Net chargeable income Tax at progressive rates Less: Tax relief (75%, max: $20,000) Salaries tax payable

Mr. Mak $ 360,000 40,000 400,000

Mrs. Mak $ 50,000 Nil 50,000

28,000 428,000 70,000 498,000

Nil 50,000 Nil 50,000

(17,500) (5,000) 475,500 (120,000) (140,000) 215,500

Nil 50,000 (120,000) Nil Nil

24,635 (18,477) 6,158

Nil

Notes: 1. As the commission is derived from services rendered under an employment contract between Mr. Mak and Beta Ltd, it is subject to salaries tax rather than profits tax. 2.

The market value of the share at the date of acquisition under the share option scheme is taken in the calculation. The subsequent selling price is irrelevant.

3.

The share option benefit is not included in the calculation of rental value.

4.

Child allowances are given for both children as they are under the age of 18 and unmarried at any time during the year.

5.

It is obvious that Mr. Mak should be the one who claims both the charitable donation and child allowances in full.

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6.

Dependent grandparent allowance is not granted as Mr. Mak's grandmother is not ordinarily resident in Hong Kong.

7.

Since Mrs. Mak has unabsorbed allowances, the couple may elect for joint assessment under section 10(2)(a) in order to reduce the overall tax liability. The election must be jointly made by Mr. and Mrs. Mak in a specified form within the stipulated time under section 11(2).

Part (b) Salaries Tax Liability under Joint Assessment Year of Assessment 2014/15 Mr. Mak $ 498,000

Net assessable income Less: MPF contribution Charitable donation

Mrs. Mak $ 50,000

Aggregate $ 548,000 (17,500) (5,000) 525,500 (240,000) (140,000) 145,500

Less: Married person's allowance Child allowances Aggregate net chargeable income Tax at progressive rates Less: Tax relief (75%, max: $10,000) Salaries tax payable

12,735 9,552 3,183

By electing joint assessment, the couple saves

2,975

Under section 10(3), Mr. Mak should be the one who is required to pay the tax.

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Answer 17 Mr. and Mrs. Lau Personal Assessment Computation Year of assessment 2014/15 Mr. Lau 652,200 75,600 . 727,800 75,600 652,200 28,000 17,500 606,700

Net assessable income for salaries tax purpose Net assessable value of Kowloon Bay flat Assessable profits from wife’s business Total income Less: Interest paid Less: Charitable donations Contribution to retirement scheme Reduced total income

Mrs. Lau 30,000 30,000 . 30,000 . 30,000

Less: Allowances Net chargeable income

636,700 380,000 256,700

Tax thereon at progressive rates Less: Tax relief (75%, max: $20,000) PA tax payable

31,639 20,000 11,639

Assessable income of Mr. Lau calculated as follows: Salary Holiday journey Reimbursement of car rental Reimbursement of petrol costs Reimbursement of club subscription Rental value Less: Management charges

510,000 30,000 60,000 12,000 10,000 622,000 62,200 12,000

Less: Self-education expenses Net assessable income

Net assessable value calculated as follows: Rental income Less: Rates

50,200 672,200 20,000 652,200

102,000 7,500 94,500 18,900 75,600

Less: Statutory deduction Allowances calculated as follows: Married person’s allowance Child ($70,000 x 2)

2015A HKTF_T6_Salaries_4_ PA_ans.doc

Total

240,000 140,000 380,000 4

Notes: (3)

The salary received from the wife's business is exempt (section 8(2)(k)) as the amount is disallowed for deduction from the business profits.

(4)

Starting from 1 April 2003, the exemption of holiday warrant from tax has been removed and any amount paid by the employer in connection with a holiday journey of the employee cannot be excluded from income under section 9(2A)(c). This is the case even though it is the sole and primary liability of the employer to provide the benefit and it is not capable of being converted into money by the recipient.

(5) & (6) Reimbursement of an employee's private expenses (car rental, petrol costs, etc.) by the employer is taxable (CIR v Humphrey), and these expenses paid are not deductible as they were not necessarily incurred in the performance of Mr. Lau's duties (Brown v Bullock). (7)

The tuition fee paid by Mr. Lau should be qualified for deduction as "self-education expenses". However, any amount reimbursed by the employer is not allowable unless it has been/will be assessable. Since the employer subsidized half of the tuition fee in the sum of $20,000, Mr. Lau could claim the balance of $20,000 as deduction under “self-education expenses”.

(8)

Mandatory contribution to recognized retirement scheme is deductible under section 26G but is limited to $17,500 for the year 2014/15.

(10)

Rates paid by landlord are deductible in calculating the net assessable value, and the interest paid is deductible under personal assessment to the extent of the net assessable value included.

2015A HKTF_T6_Salaries_4_ PA_ans.doc

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