4th HW ans - QWE PDF

Title 4th HW ans - QWE
Author 锦灏 吴
Course Taxation
Institution 香港科技大學
Pages 3
File Size 116.2 KB
File Type PDF
Total Downloads 58
Total Views 138

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4th Homework Answer Question 1 Peter Pan was employed by Curry Ltd at a monthly salary of $20,000 up to 30 June 2019. In addition to his salary, the company also paid him a housing allowance of $5,000 per month, but he actually lived in his own property on Hong Kong Island. On 1 July 2019 Peter was promoted to manager with a revised monthly salary of $30,000. He moved into the company’s quarter at a rent of $3,200 per month payable to Curry Ltd. In December 2019, Peter was sent to London on a business trip for a month and resided in a London hotel. The company paid all the hotel accommodation expenses, which amounted to $24,000. During his stay in London, his family continued to reside in the company's quarter. On 1 August 2019, Peter was granted a share option to subscribe for 50,000 shares in the company at $5 each. He paid $5,000 for the option. On 1 September 2019, he exercised the option to buy 20,000 shares, of which 10,000 shares were subsequently disposed in the market on 28 October 2019. He assigned the remaining option right to his colleague for $30,000 on 3 December 2019. The fair market value per share on respective dates was as follows: 1 August 2019 1 September 2019 28 October 2019 3 December 2019

$9 $20 $25 $22

Compute the assessable income for the year of assessment 2019/20 for Peter Pan and explain your tax treatments where appropriate. Peter Pan - Salaries tax assessment for 2019/20 1.4.19 - 1.7.19 30.6.19 31.3.20 Total $ $ $ Salary 60,000 270,000 330,000 Housing allowance ($5,000 x 3) = Cash allowance 15,000 15,000 Rental value (9 months): $270,000 x 10% 27,000 Less: Rent paid ($3,200 x 9months) 28,800 0 Share option gain: On exercise [($20-$5) x 20,000shares – $2,000] 298,000 On assignment ($30,000 – $3,000) 27,000 Assessable income 670,000 Notes: 1. During the month when Peter Pan was sent to London on a business trip, the place of residence was still provided to and was used by Peter's family. Rental value is therefore calculated. The hotel accommodation expenses borne by the company is not chargeable to salaries tax since the payment is made by the company and the stay is for business purposes. The only principal place of residence is provided in Hong Kong. 2.

A reduction of rental value is available in respect of any rental borne or suffered by the employee for the provision of accommodation, i.e. 9 months at $3,200 per month.

3.

Rental value is calculated at 10% (4% or 8%) of that part of the assessable income for the period during which accommodation is provided.

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Answer 2(a) The rules governing the deduction of outgoings and expenses are contained in IRO S12(1)(a) which allows “all outgoings and expenses, other than expenses of a domestic or private nature and capital expenditure, wholly, exclusively and necessarily incurred in the production of the assessable income”. This means that to be deductible, the expenditure must satisfy each of the following tests in addition to not being expenditure of a domestic or private nature or expenditure of a capital nature. 1. 2. 3. 4.

it must have been ‘incurred’, ‘wholly, exclusively’ and ‘necessarily’ in the production of the income.

The ‘incurred’ test means that the expenditure must either be paid or have given rise to an established liability or a definite commitment arising in the year in which the deduction is claimed. If payment has not been made, it is allowed only when an actual and known liability or obligation of ascertainable amount existed on the last day of that year. The ‘wholly and exclusively’ test means that the entire amount must have been expended for the sole purpose of producing the income. But, in practice, expenditure incurred for more than one purpose would be apportioned and the part attributable to the employment will be allowed, provided the other tests are satisfied, e.g. depreciation allowance and petrol. The "necessarily" test means that the expenditure must be essential to the conduct of the employment, i.e. vital to the employment to the extent that it would not be possible for the taxpayer to perform the duties and to produce the income from the employment without incurring that expenditure. "In the production of income" is considered to be the same as the meaning of the phrase "in the performance of duties". Expenditure is not incurred in the production of income if it is only incurred to enable the duties to be performed e.g. travelling to and from the place of employment (CIR v Humphrey). Answer 2(b) Mr. Chan's claim must be considered under Section 12(1)(a) which allows deductions for expenses incurred wholly, exclusively and necessarily in the production of assessable income. However, expenses of a private, domestic or capital nature are not deductible. 1.

Membership subscription (item #1 & 2) 见 ppt 第十二页 Strictly speaking, the expense is not incurred in the production of assessable income and thus not deductible. However, the IRD's practice is to allow deduction of one professional membership subscription if the holding of a professional qualification is a pre-requisite of employment and the retention of membership and the keeping abreast of current developments in the particular profession are of regular use and benefit in the performance of the duties. This concession is applicable in Mr. Chan's case, but only limited to one professional association. In practice, it’s up to Mr. Chan to choose which one he makes the claim. In the absence of other specific information in the question, the one which incurred the higher cost will be claimed.

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2.

Removal cost (item #3) 见 ppt 第十一页 The cost of removing one’s properties from one place to the other is not regarded as incurred wholly, exclusively and necessarily in the production of assessable income. This is true even in the case where the move is initiated or requested by employer (see D11/88). Therefore, Mr. Chan cannot claim the deduction for the removal cost. In the question, it was not stated whether or not the removal cost was reimbursed by the employer. However, if this is the case, the reimbursement will remain as taxable while the removal cost is not deductible.

3.

Cost of petrol (item #4) 见 ppt 第八页 The cost of travelling between a person's residence and his place of work is a private and personal expense because every employee has the duty to travel to his place of work. Such travel is not the performance of his duties, but rather enables the person to be available in an environment to perform his duties. (see CIR v Humphrey HKTC 451). The cost of petrol is therefore not a deductible expense.

4.

Salary in lieu of notice of resignation (item #5) 见 ppt 第九页 This sum was paid in order to terminate his employment relationship with his employer. It was not incurred in the production of his assessable income and is therefore not a deductible expense. The fact that such payment would enable him to start his private practice at an earlier time (and thereby producing income) does not change the nature of the payment.

5.

Rent for the office and salaries for part-time secretary (item #6) 见 ppt 第七页 The income from the District Council is assessable as it is an income from office . Therefore, the expenses incurred necessarily in the production of that income are deductible.

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