Hk Tax

Edinburgh Napier University/SCOPE of City U Hong Kong task LECTURE 1 Salaries valuate and salaries task planning, Double revenueation g every organizening body with Mainland china Outline Salaries revenue - Scope of charge, format and chip ination of salaries valuateation revenue - Locality of role - valueability of fringe social welf bes Salaries evaluate planning - Remuneration circumstances and fringe authorizess Double measureation relief - agreement among Mainland China and the HKSAR Textbook Dora lee, Advanced value in Hong Kong, 15th edition, 2012, Pear give-and-take, Hong Kong, Chapters 2 to 5, 23 &038 24 LECTURE 1 Salaries task chthonic s8 of the Inland tax Ordinance, salaries tax is ae treadd on every somebody in abide by of his income arising in, or derived from Hong Kong from the adjacent sources 1) an chest 2) habit of goods and go 3) pension Source of Income from Office The source of income from an space is primed(p) by th e location of the office, which is at the score where the central foc development and control of the smart fare is turn up. nonem altogethery, this means the place where directors hold their meetings. Once it is determined that an office is situated in Hong Kong, the whole income from such(prenominal) office is indictable to salaries tax. no.question of apportioning arises. Source of Income from PensionThe source of income from pension is the place where the pension fund is man immemorial. Source of Income from Employment A tax ante uper having an affair located in Hong Kong (Hong Kong avocation) is guilty infra s8 above. Taxpayers whose commerce is non in event located in Hong Kong (Non-Hong Kong physical exercise) may still be likely to salaries tax if they render services in Hong Kong. The basic charge to salaries tax is specifically extended to include the income of everywhereseas employees cyphering in Hong Kong during visits exceeding 60 eld S8(1A). Hon g Kong Employment a) No sequence-apportionment b) All income included despite get off the ground of services rendered outback(a) Hong Kong c) Exceptions i) rendered ALL services outside Hong Kong i) visited Hong Kong for 60 days or less in a family of judging wealthy individual-to doe with d) Relief i) income excluded for income traceable to services rendered in that territory and foreign tax give ii) tax reference point under Double Tax Arrangement with Mainland China and opposite tax treaty countries According to DIPN10, the IRD accepts that physical exertion is located outside Hong Kong where all the sideline factors argon manifest a) the compress of conflict was negotiated, and entered into, and is enforceable outside Hong Kong b) the employer is resident outside Hong Kong c) the employees remuneration is stipendiary to him outside Hong Kong. In appropriate cases, the IRD may need to look elevate facts.Comparison of Hong Kong employment and non-Hong Kong emplo yment Hong Kong employment Non-Hong Kong employment All services rendered in Hong Kong Taxable in full Taxable in full function offendly rendered in Hong Kong Taxable in full metre apportionment All services rendered outside Hong Kong liberate Exempt Services rendered in Hong Kong for less than 60 days or less visits in Hong Kong Exempt Exempt Services rendered in Hong Kong for more than 60 days visits in Hong Kong Taxable in full Time apportionment Services rendered in Hong Kong for 60 days or less but presence in Hong Kong did non constitute visit to Hong Kong Taxable in full Time apportionment Services rendered outside Hong Kong with foreign tax take inful immaterial services income exempt non applicable If a taxpayer with Hong Kong employment is seconded to work overseas with a sweet non-Hong Kong employment, clear evidence must be shown such that the old employment has been terminated and that a distinctively new employment has commenced. F ormat of salaries tax computation Individual $ $ Section Income from headway employment A 9 little Allowable outgoings and expenses B 12(1)(a) depreciation adaptations C D 12(1)(b) E Add Rental appraise (10% on E) F 9 less(prenominal) Rent suffered G solve letting value H I Income from other employment J K less(prenominal) Loss brought forward L 12(1)(c) Self-education expenses M N 12(1)(e) NET ASSESSABLE INCOME O slight Concessionary deductions Approved charitable donations (limited to 35% of K) P 26C Elderly residential worry expenses Q 26D Home loan affaire R 26E Contributions to recognize retirement stratagem S T 26G mesh topology nonexempt income after concessionary deductions U Less Personal allowances V stir up V lolly chargeable income W Salaries tax due deject of (a) progressive rate on W or (b) standard rate on U Format of salaries tax under joint s ound judgement Husband Wife Joint $ $ $ web assessable income X1 X2 X == == Less Concessionary deductions Approved charitable donations (limited to 35% of X) P Elderly residential care expenses Q Home loan reside R Contributions to recognized retirement synopsis S T Net assessable income after concessionary deductions U Less Personal allowances ( matrimonial persons, and so on V Net chargeable income W Salaries tax payable by the nominated spouse or the spouse who would boast been liable to pay salaries tax under separate taxation. 100% of salaries tax go out be waived, overmatch matter to a ceiling of $8,000 (2008/09). 75% of salaries tax pull up stakes be waived, subject to a ceiling of $6,000 (2009/10 &038 2010/11) and $12,000 for 2011/12. strip law establishes that income from employment a) includes income for services rendered or to be rendered b) excludes voluntary good for personal reasons c) excludes compensation for loss of obedienceables Assessable income includes reward for services rendered, past, present and future. If the employer makes a requital to a third party for which the employer itself was solely and to begin with liable, then the benefiting employee is non chargeable to tax on such benefit, unless a) the benefit can be converted into money or b) the allowance was give for the education of a child of the employee. c) any amount paid in connector with a holiday journey.Considering whether an income is chargeable to salaries tax a) whether the payment is derived from an employment or office b) whether the payment is in recognition of services rendered in the past, present or future. In D19/92, The taxpayer was qualifyinged and accepted employment by a Hong Kong high society. The society paid him a lump add together at the number 1 of his employment as an inducement to join the smart set. The Board held that this payment was corporate into his subjugate of employm ent with the company. The source of the inducement payment was the employment of the taxpayer with the company. It was non a gift. Compensation for loss of employment Generally speaking, compensation for a loss of employment which does non represent a payment for past, present or future services is non chargeable to salaries tax.This is considered as a sum paid in consideration of the surrender by the employee of his/her rights in respect of the employment. Such payments should be distinguished from the exhalation gratuities which is usually extend to to services previously rendered by the employee and hence ratable. The taxable termination gratuities may be related fundament for a maximum full stop of 36 months. A sum specified in the centre of employment may be taxed even though it was set forth as compensation for termination of employment. In CIR v Yung Tze-kwong, the Court has apportioned 10% of the severance pay as the inducement to enter into employment and 90% of t he sum was attributable to restrictive covenants, which was not taxable.In Fuchs, Walter Alfred Heinz v CIR, the Taxpayer was authorize to termination payments according to his 3-year contract of employment. The contract of employment was terminated about dickens geezerhood. to a lower place a termination agreement, the Taxpayer received a compensation do up of append A equivalent to his pay under the remain point of his contract (12 months) Sum B two annual salaries and Sum C the bonny of his three previous annual bonuses IRD levied tax on Sum B and C on the basis that they were paid pursuant to his contract of employment and the Taxpayer was contractually entitled to receive them on premature termination.The Court of collecting held that Sum B and C were assessable because they were not paid in abrogation of the contract of employment but in accordance with the contract of employment. The Court of Final Appeal upheld the decision. Payment in lieu of honour Aft er the decision of Fuchs case, IRD is now of the view that payment made in lieu of notice is an incentive for joining an employment and the payment is made under the terms of employment contract, the amount is chargeable to salaries tax if it accrues to an employee on or after 1 April 2012. EMPLOYEE SHARE-BASED BENEFIT Share pickaxe pull ahead Time of mind At the time of exercise, sequesterment or grow of share preference. Taxable Gain Situations Assessable Amount Exercise of selection Market value at the time of taking up the shares over summate consideration Option designate/ uncoverd Consideration for assignment/release of election less total consideration Timing of exercise of share weft According to the DIPN 38, a taxpayer is generally considered to have exercised an pickaxe when he has interpreted whatever steps are necessary to convert the offer contained in the option agreement into a contract to purchase the pertinent shares Locality of share option benef its The gain is chargeable to Salaries Tax if it comes at heart the scope of s 8(1)(a), ie if it can correctly be described as income arising in or derived from Hong Kong. If a person had a Hong Kong employment at the time of grant of the right, the income is also regarded as having been derived from Hong Kong.If a right is allow to an employee on an savourless basis during a year of assessment in which the person renders all services in respect of his employment outside Hong Kong, any gain subsequently realized, even if realized whilst the person is working in Hong Kong will not be charged to Salaries Tax. No financial obligation to salaries tax arises where a right is apt(p) on an un patternal basis prior to a person rendering any services in Hong Kong, notwithstanding that the right may be exercised after the person commences to render such services. Where a person with a non-Hong Kong employment is granted the right subject to a vesting period during which services are rend ered some(prenominal) in and outside Hong Kong, the gain should to some extent be chargeable to Salaries Tax establish on the next formula Days worn-out(a) rendering services Gain calculated in accordanceIn Hong Kong during vesting periodX with s 9(1)(d) and s 9(4) aggregate number of days in vesting period Definition of vesting period Vesting period normally means the period from the date of grant of the option to the first available date that an employee is entitled to exercise the option. An option will generally be considered to have vested when all conditions for its exercise have been satisfied. E. g. an employee involve to work for a certain(p) period of time. Share Award do good Shares obtained through share-based remuneration purposes are taxable perquisites forming part of a taxpayers employment income. When does the perquisite accrue to the employee?Referring to section 11D(b), this means entitled to self-command of the shares. Generally, two wooes in assessing s uch stages, viz Upfront and Back End. epitome of the two broad approaches Upfront approach Back End approach Vesting period applies? No. Yes. Time of assessment Upfront, ie at the time of the grant. Back end, ie upon fulfillment of conditions. Valuation Market value at time of grant. Market value at time of fulfillment of conditions. reject in valuation? Yes.The discount is to be determined in the No light of the facts of individually particular case. Distributions Received during the restriction period Not Received during the vesting period Taxable, (eg dividends, bonus shares) taxable regarded as investment income since since employee is entitled to the shares exactly when employee is entitled to the shares at the timeat the end of the vesting period. of award Example (Extracted from DIPN 38, eg 11) The taxpayer had a non-Hong Kong employment. On 1 may 2005, he was granted 10,000 shares by his employer subject to a vesting period. Shares would wholly b e vested on condition that he remained an employee of his company on the vesting dates. 5,000 shares vested in him on 1 May 2007 and the remaining 5,000 on 1 May 2008. The number of days in Hong Kong and outside Hong Kong was ascertained as follows (A) (B) (C) % Year ended Days in Hong Kong Days outside Hong Kong Total days (A)/(C) 31. 3. 006 275 90 365 75 31. 3. 2007 260 cv 365 71 31. 3. 2008 250 116 366 68 31. 3. 2009 255 110 365 70 The assessor and taxpayer agreed that the back end approach is applicable to assess the vested shares. The share-award benefits are assessed as follows ) the value of the first 5,000 vested shares is to be included with the taxpayers other remuneration in the year of assessment 2007/08 and 250/366 of the value is to be subject to tax, while b) the remaining 5,000 vested shares is to be included in the year of assessment 2008/09 and 255/365 of their values is subject to tax. vacation journey benefits scratch line from 1 April 2003, holiday warra nt or allowance to purchase holiday warrant will be subject to salaries tax. Section 9(2A)(c) provides that any amount paid by an employer in connection with a holiday journey is taxable. The term holiday journey is define in section 9(6) as either a) a journey taken for holiday purposes, or b) where a journey is taken for holiday and other purposes, the part of the journey taken for holiday purposes. The amount to be assessed is based on the actual amount paid by the employer, i. e. the actual live that an employer pays. DIPN 41 Taxation of Holiday Journey BenefitsThe CIR issued DIPN 41 Taxation of Holiday Journey Benefits in lordly 2003 to lay down broad statements on the interpretation and practice to be adopted by the Inland Revenue Department in relation to the above amendments. (a) Business trip (including a holiday incidental to such business trip) will not be taxable. (b) If it could be established that a journey is not for holiday, such as for the relocation of an employ ee and his family i) in Hong Kong upon assumption of a new post or ii) out of Hong Kong upon termination of an existing post here, the payment made by the employer will not be taxable. For such trips, any stop over visits to another place en route to or from Hong Kong would be disregarded as a concession. c)If an employer was given a certain mileage for a business trip paid by his employer and he redeemed it for a free tatter to a territory for holiday, the value of the free ticket is not assessable as no payment was made by the employer in connection therewith. Rental turn back or Cash allowance It is necessary to decide whether a sum is a rental refund and a hard capital allowance paid by an employer to his employee. A silver allowance is fully taxable as an income from employment. In CIR v scalawag (2002), to qualify as a refund of rent, there is no exigency for sufficient control, the performance of tenancy agreement and/or rental know to the employer.However, the tax payer must prove that the intention of the employer is to refund the rent paid and not to pay an allowance that can be spent in whatever way the employee wishes. For computation of rental value, it is based on a certain percentage on net assessable income ( beforehand self-education expense) depending on the reputation of accommodation. (Refer to D91/04 regarding the definition of hostel, boarding house &038 hotel). Allowable outgoings and expenses include all outgoings and expenses (other than domestic, snobbish or capital expenditure), wholly, exclusively and necessarily incurred in the production of the assessable income. There is a distinction between expenses incurred in the production of the assessable income and expenses for the production of the assessable income.The expression in the production of assessable income exhaust the same meaning as incurred in the put to deathance of the duties of the office or employment and without such expenses the employee may not be able to work the income. CIR v Humphrey (1970) 1HKTC451 traveling expenses incurred by a taxpayer in getting to his place of employment were not allowed (when traveling to his place of work, the taxpayer was not on duty). It is the taxpayers responsibility to attend to the place of work. CIR v Robert P Burns (1980) 1HKTC1181 sound expenses incurred by a taxpayer in an appeal against disqualification was not allowed as the expenses were incurred in order to prevent the taxpayer from being precluded from earning income, not incurred in the production of the income. In D91/03, a solicitor was denied a deduction produce on master copy indemnity insurance.The Board held that the amount was incurred so as to put the taxpayer in a position to earn her income and so as to qualify the taxpayer to perform the duties of her office as a solicitor. In D35/04, the taxpayer was required to repay part of the commission to his employer, being bad debt of his client. The repayment was required becau se he failed to esteem the employers credit policy. The Board disallowed the sum as it was not incurred for the motion of duties but for deviation from his duties. Home loan interest deduction 1) owe loan to beget dwelling in Hong Kong 2) interest paid to recognized organization 3) prescribed amount 4) claim for ten years In D5/02, a taxpayer held to be entitled to claim deduction of 50% only of he mortgage loan interest paid in respect of the property held by her and her mother as joint tenant although all mortgage payments were financed by her. In D106/00, it was held that only the portion of interest payment for the second bank loan employ to repay the outstanding point on the first bank loan is allowable. In D2/01, interest paid for the bank loan for the payment of the premium paid to the Housing authorization is not deductible as the premium was not deferred consideration for the attainment of the dwelling house. In D108/02, it is considered that owner does not include beneficial owner. SALARIES revenue PLANNING Common areas of salaries tax planning are source of employment, using statutory exemption and fringe benefit. Territorial source EmploymentIf the following three factors are present, IRD will normally accept that employment is located outside Hong Kong 1. the contract of employment was negotiated and entered into, and is enforceable outside Hong Kong 2. the employer is resident outside Hong Kong 3. the employees remuneration is paid to him outside Hong Kong. a) ensure foreign employment only income attributable to Hong Kong services is taxable. Ensure all the above three factors are met. b) render all services outside Hong Kong or performed services during visits not exceeding 60 days in the year of assessment. c) dual employment one covering Hong Kong duties with HK employer and the other covering overseas services with overseas company.Ensure the nature of the employment duties is clearly differentiated. d) dual capacity as a directo r and an employee not taxable if no services rendered in respect of the employment. Benefits-in-kind or Fringe Benefits Arranged to provide the following fringe benefits which are not taxable 1. discharge of employers liability which is not guaranteed by any other person 2. benefits which are not convertible into cash 3. benefits which are not attributable to a particular employee Not convertible into cash The employer should not give an asset to an employee free or at a hurt below market value. Assets should be lent to the employee for use without transfer of ownership. Utilities of Employees HomeThe contracts should be made between the employer and the utilities suppliers for the supply of facilities to the employees family. Domestic Servant/driver The servant or driver should be employed by the employer to serve the employee. Low Interest loan or Interest free loan Such a loan provided by the employer is not taxable provided that no other person provides surety to the loan. T he benefit must not be convertible into cash by the employee. fiat The employer should become a member and allow its employee to enjoy the clubs facilities. Medical and Dental benefits 1. engage a doctor/dentist by the employer 2. join a group medical/dental insurance scheme Quarters 1. reimbursement of rent 2. provision of place of residenceShare option Only gain realized by the exercise of share options is taxable. So do not exercise the right unless you derive very little income from that transaction at that time. Comprehensive Double Taxation Arrangement On 21 August 2006, the Hong Kong Special Administrative Region (Hong Kong) and the Mainland of China (Mainland China) entered into a worldwide double taxation establishment known as The Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the Arrangement). Salaries Tax ImplicationsGen erally speaking, income from employment by a Mainland resident shall be taxable only in Mainland China unless the employment is exercised in Hong Kong. If the employment is exercised in Hong Kong, such remuneration as is derived from Hong Kong may be chargeable to salaries tax in Hong Kong. A Mainland resident in respect of an employment exercised in Hong Kong will not be chargeable to salaries tax in Hong Kong if all the following three conditions are satisfied 9 the recipient is present in Hong Kong for a period or periods not exceeding in the inwardness 183 days in any 12-month period commencing or ending in the taxable period concerned 10 the remuneration is paid by, or on behalf of, an employer who is not a Hong Kong resident c)the remuneration is not borne by a permanent establishment which the employer has in Hong Kong. If a Mainland resident renders employment services in Hong Kong but his remuneration is paid by a Hong Kong employer, he will still be exempt from tax under the IRO if his visit to Hong Kong in a year of assessment concerned does not exceed a total of 60 days according to the invidious treatment. Section 50 of the IRO provides the basis for the granting of a tax credit in relation to an item of income stipulated in the Comprehensive Arrangement and in respect of which tax has been paid in the Mainland. Example of calculation in the Arrangement is extracted as follows $ Total Hong Kong assessable income 200,000 Including gross income from the Mainland before tax 120,000 Tax paid in the Mainland 10,000 Tax rate in the Mainland 8. 33% Net income after tax from the Mainland 110,000 The effective tax rate in HK and the tax credit are computed as follows Total HK assessable income 200,000 Less Deductible items (12,000) Net assessable income 188,000 Less Personal allowance (100,000) Net chargeable income 88,000 Tax payable 6,340 The effective tax rate in HK Tax payable x 100% Net assessable income = 6,340 x 100% 188,000 = 3. 7% Net income from the Mainland after tax (grossed up at the effective rate in HK)( flyer) $110,000 x 100% 113,836 (100% 3. 37%) Less Net income from the Mainland after tax (110,000) Tax credit limit of tax paid in the Mainland 3,836 Under section 50, the actual tax payable in HK is computed as follows Assessable income (Hong Kong) 80,000 Assessable income (the Mainland) after deduction of tax 110,000 Add tax deducted in the Mainland 10,000 Gross income from the Mainland before tax 120,000 Total HK assessable income 200,000 Less amount not allowed as a tax credit (10,000-3,836) (6,164) 193,836 Less Deductible items (12,000) 181,836 Less Personal allowance (100,000) Net chargeable income 81,836 Tax thereon 5,538 Less tax credit allowed (3,836) Hong Kong tax payable 1,702 Note Under section 50(5), tax paid in the Mainland which is not allowed as a tax credit can be deducted f rom the income Amount not allowed as a ax credit $10,000 $3,836 = $6,164 Net income from the Mainland after tax $120,000 $6,164 = $113,836 Lecture 1 Tutorial Questions 1. Mr Lee supplies you the following information in relation to the year ended 31 demo 2012 ) He was recruited five years ago in capital of Singapore by Multinet Ltd, a company incorporated and carried on business in Hong Kong, as the companys regional autobus. He was paid an annual earnings of $800,000. During the year he only spent six months in Hong Kong as he was required to travel around Asia to carrying out his duties. By arrangement with his employer, his salary was paid directly into his bank account in Singapore from which he had money remitted periodically to Hong Kong. b) Multinet Ltd operates a medical insurance scheme for all its employees through an insurance company based in Hong Kong. Under this scheme Multinet, as insurer, arranges with the insurance company to insure distribu tively employee against malady and related hospital salutes.It pays an annual premium to the insurance company of $6,000 for each employee. Mr Lee paid visits to his own doctors and paid the doctors aeronaut first, which was later reimbursed by the insurance company. The insurance company reimbursed him the total personify of $7,500. c) He considered that it would be productive to have a personal laptop computer for use while traveling on business trips. He therefore purchased a computer for $12,000. He used it solely for his employment. d) forrader he was employed by Multinet, he was working with an international company incorporated in Singapore. All his services were rendered in Singapore. In frame 2005, he was granted an option to subscribe for 100,000 hares at a cost of $2 per share. At the time of the grant, the market price was $5 per share. In January 2012, he exercised the option and the market price was $4 per share. In show 2012, he sold the shares for $6. e) Mrs L ee is a housemarried woman and is living in Hong Kong. f) Multinet paid school fees amounting to $60,000 for the education of his younger son in Hong Kong. Under an arrangement entered between the school and Multinet, Mr Lee was not liable for the payment of the school fees. g) Mr Lee paid residential care expense of $60,000 to the residential care rest spot situated in Kowloon Tong in respect of his incur who is aged 64. He also paid $12,000 to his father. ) He has two children, aged 16 and 22. The younger son is the child as described in (f) above and the elder son is receiving full time education in Singapore. He has a part-time job for his daily expenses. i) Mr Lee lives in a flat owned by himself and his wife as joint tenants. During the year they paid mortgage loan interest to the bank of $130,000. undeniable a) Explain whether Mr Lee is liable to Hong Kong salaries tax. b) Assuming Mr Lees income is liable to Hong Kong tax, comment your tax treatment for items (b) to (i) above and c) Compute Mr Lees salaries tax liability for the year of assessment 2011/12. Ignore provisional salaries tax. Note to students distinguish between the HK employment and non-HK employment and apply the three factors to the case) 2. Mr brownish was employed by B Ltd as a sales manager for many years. B Ltd was incorporated and carrying on business in Singapore. Mr dark-brown used to live and perform duties in Singapore. In order to widen its market in China and South East Asia, he was assigned by B Ltd to work for two years from 1 April 2009 to 31 blemish 2011 to in charge of the sales activities of the company in that area, including Hong Kong, at an annual salary of $1,095,000. In consideration of his taking up the two years assignment, B Ltd would grant him a share option (Option 1) to purchase 100,000 shares in B Ltd at a price of $3 each upon completion of the assignment.On completion of the contract on 31 March 2011, B Ltd granted him the share option and he exerc ised the option on 30 June 2011. The share price per share of B Ltd was $5 and $8 as at 31 March 2011 and 30 June 2011 individually. On 1 April 2011, Mr chocolate-brown signed another contract with B Ltd for another two years with annual salary of $1,171,200. In consideration of the taking up of a new contract, B Ltd unconditionally granted Mr embrown another option (Option 2) to purchase 150,000 shares in B Ltd at a price of $3. 50 each when the price per share was $5. 50. Mr brownish paid $10,000 for purchasing the option. On 1 October 2011, Mr Brown assigned the share option (Option 2) to his colleague for $330,000 when the price per share was $6.Starting from 1 April 2011, B Ltd rented a flat in Hong Kong at a periodical rent of $35,000 for Mr Browns residence and Mr Brown was required to pay periodical nominal rent of $1,500 to B Ltd. In the year of assessment 2011/12, Mr Brown took a 5-day business trip to Thailand to be followed by 5 days vacation there. Mr Browns wife accompanied him to take the 10-day trip to Thailand. B Ltd paid $50,000 for each of them to a travel company for the entire trip including air ticket, accommodation, meals, transportation expenses, etc. The cost of the air ticket was estimated to be $5,000 each. During the following years of assessment, Mr Browns stay in Hong Kong is as follows Year of assessment No. of days in Hong Kong 2009/1055 2010/11280 011/12200 inevitable a) Explain to Mr Brown whether his income is subject to salaries tax for the year of assessment 2009/10. b) Compute the assessable income of Mr Brown for the years of assessment 2010/11 and 2011/12. 3(a)Mr Fong is a financial manager of A Ltd, a company incorporated in Hong Kong, since December 2006. In April 2011, he was posted to Macau to set up the financial system of a subsidiary of A Ltd. His salary is directly deposited in his bank account in Hong Kong. He returns to Hong Kong on a regular basis and stays with his friends, as he does not have a topog raphic point in Hong Kong. In the year of assessment 2011/12, he spent 58 days in Hong Kong.During the period, he carried some of the work with him from Macau and worked in the office of A Ltd for a total of 50 days. Required Comment on the salaries tax liability of Mr Fong for the year of assessment 2011/12. 3(b)Mr Kam was having a non-Hong Kong employment before 31 March 2010. On 10 April 2009, he was granted an option (Option A) unconditionally to purchase 80,000 shares of his employers holding company at a price of $2. 00 each when the price per share was $3. 50. During the year ended 31 March 2010, he visited Hong Kong for 160 days for performing his employment duties. Starting from 1 April 2010, he was employed by C Ltd, a company incorporated and carrying on business in Hong Kong.He supplied you the following information for the year ended 31 March 2011 (a)Salary $1,500,000 b) On 1 December 2010, he was granted an option to purchase 120,000 shares in C Ltd at a price of $1. 5 0 each when the price per share was $4. 25. He exercised the option on 20 March 2011 when the price per share was $5. 50. On 31 March 2011, he received dividend of $12,000 for the shares. c) Starting from 1 April 2010, he hired a flat at a monthly rent of $40,000 and C Ltd refunded monthly rent of $35,000 to him. d) Starting from 1 April 2010, C Ltd leased a motor car for the free use of Mr Kam. C Ltd paid monthly rental of $8,000 to the car leasing company. ) On 20 March 2011, he exercised Option A when the price per share was $3. 30. He sold the shares on 31 March 2011 when the price per share was $4. 80. f) He made cash donations to the Hong Kong blood-red Cross of $100,000. Mr Kam is married and his spouse is a housewife. They have a son aged 20 and is studying in a university in Singapore. Required i) Explain your tax treatment of items (c) and (d) above. ii) Compute Mr Kams salaries tax liability for the year of assessment 2010/11. Ignore provisional salaries tax. 4. Mr Pang is a fourth-year management of a company in Hong Kong. Due to the Board of managing directors decision, Mr Pangs employment was terminated immediately on 29 June 2012.When Mr Pang left the company, he received a total sum of $3,960,000 consisting of the following a) final months salary of $120,000 b) bonus of $100,000 c) payment in lieu of notice of $120,000 d) compensation for leave not taken of $60,000 e) lump sum payment of $1,000,000 agreeing for not participate with the companys business for two years f) a further sum of $2,560,000 being final settlement between the company and Mr Pang. According to the employment contract, the company is responsible for the traveling expenses for returning to Mr Pangs home country. In this regard, the company had incurred cost of air tickets of $80,000 for Mr Pangs return to his home country with his spouse.Required Advise the tax treatment of the above items. (Note to students you have to consider what additional information you may require to determine if the income is taxable or not) 5(a). Mr Chan owns Property A and Ms Lee owns Property B. Mr Chan married Ms Lee on 1 September 2010. Before their marriage, Mr Chan and Ms Lee lived at their own property. After marriage, Ms Lee locomote into Mr Chans property. Ms Lees property was still used by her parents as their residence. Mr Chan and Ms Lee paid the following home loan interest during the year ended 31 March 2011 1. 4. 2010 31. 8. 20101. 9. 2010 31. 3. 2011 Mr Chan$60,000$84,000Ms Lee$65,000$30,000 5(b). Mr and Mrs Ko lived together in their jointly owned residence up to 31 December 2010. On 1 January 2011, they separated and Mr Ko move out to a rental accommodation. Under the Deed of Separation, Mr Ko would assign the property to Mrs Ko at the date of divorce. The date of divorce was 1 July 2011 and the legal ownership of the property was assigned to Mrs Ko on that day. They paid the following home loan interest during the year ended 31 March 2011 1. 4. 2010 31. 12. 2010$90,000 1. 1. 2011 31. 3. 2011$30,000 Mrs Ko was responsible for the payment of loan interest during the period from 1. 1. 2011 31. 3. 2011. 5(c).On 1 March 2010, Mr Ma purchased Property D at cost of $4,000,000 with downpayment of $1,200,000 and the balance was paid with the finance of mortgage loan obtained from a local bank and secured by Property D. The downpayment was financed by a banks overdraft, which was secured by his personal guarantee. He used Property D as his residence starting from 1 April 2010. During the year ended 31 March 2011, he paid the following interest to the bank Bank overdraft interest $60,000 Mortgage loan interest$56,000 Required Compute the amount of home loan interest that each of the above person was entitled to claim for the year of assessment 2010/11.You are required to state the principles/reasons to support your calculation. Note to students refers to DIPN No. 35(Revised) 6. Mr Chung is going to renew a contract of employment with his employer. The companys director has provided him with the following proposed changes Current benefits Proposed benefits (a) 13 months salary per annum 12 months salary per annum plus discretionary bonus, depending on the companys profitability and the employees erformance (b) Company car (the car is owned by the company) A monthly sum of $12,000 will be paid to him for his transportation (c) Meal coupons from mobile canteen Cancelled, business meals to be reimbursed upon approval (d) Medical insurance (the company participated with a Cancelled, medical bills to be reimbursed upon scheme for the employees) approval, up to a maximum of 80% of the bill amount (e) Monthly housing allowance of $20,000 Cancelled, rental reimbursement of $15,000 upon production of rental receipts and tenancy agreement (f) Share option for employees to acquire shares in the employers listed holding company (g) Childrens education cash allowance, paid by the Cancelled , a one-off lump sum compensation payment to company directly to the school be made at the beginning of the new contract Required Advise Mr Chung on the Hong Kong salaries tax implications arising from the proposed changes to the respective benefit items. (Note to students comments on whether such changes will affect the tax liability)