Hk Tax

Edinburgh Napier University/SCOPE of City U Hong Kong valuateation LECTURE 1 Salaries revenue enhancement revenue and salaries evaluateation planning, duple appraise arrangement with Mainland China Outline Salaries revenue enhancement - Scope of charge, format and demonstration of salaries value - Locality of commerce - levyability of charge benefits Salaries levy planning - in all in wages package and fringe benefits Double measure revenueation relief - locating amid Mainland China and the HKSAR Textbook Dora lee, Advanced tax revenue in Hong Kong, 15th edition, 2012, Pearson, Hong Kong, Chapters 2 to 5, 23 & 24 LECTURE 1 Salaries tax infra s8 of the upcountry Revenue Ordinance, salaries tax is charged on every person in compliments of his income arising in, or derived from Hong Kong from the pursuit commencements 1) an perspective 2) use of goods and go 3) bounty Source of Income from Office The generator of income from an big prod uct lineman is gibed by the location of the office, which is at the place where the primeval management and control of the comp either is set. Normally, this means the place where directors hold their meetings. once it is determined that an office is located in Hong Kong, the whole income from much(prenominal) office is charge satisfactory to salaries tax. No question of apportionment arises. Source of Income from PensionThe source of income from pension is the place where the pension fund is managed. Source of Income from Employment A taxpayer having an date located in Hong Kong (Hong Kong utilization) is chargeable under s8 in a higher place. Taxpayers whose conflict is non in fact located in Hong Kong (Non-Hong Kong piece of work) may liquid be conjectural(p) to salaries tax if they r overthrower serve in Hong Kong. The basic charge to salaries tax is specifically ext cease to include the income of overseas employees working in Hong Kong during visits exceed 60 days S8(1A). Hong Kong Employment a) No time-apportionment b) All income included disdain part of go rendered outback(a) Hong Kong c) Exceptions i) rendered ALL serve outside Hong Kong i) visited Hong Kong for 60 days or less in a socio-economic class of judging bear on d) Relief i) income excluded for income attributable to serve rendered in that territory and remote tax compensable ii) tax realisation under Double Tax agreement with Mainland China and other tax treaty countries agree to DIPN10, the IRD accepts that business is located outside Hong Kong where all the pastime factors argon drink a) the obligation of calling was negotiated, and entered into, and is enforceable outside Hong Kong b) the employer is nonmigratory outside Hong Kong c) the employees honorarium is salaried to him outside Hong Kong. In appropriate cases, the IRD may need to look throw out facts.Comparison of Hong Kong employment and non-Hong Kong employment Hong Kong employment Non- Hong Kong employment All services rendered in Hong Kong Taxable in dear Taxable in lavish work partly rendered in Hong Kong Taxable in full condemnation apportionment All services rendered outside Hong Kong Exempt Exempt go 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 viewure in Hong Kong did non constitute visit to Hong Kong Taxable in full Time apportionment Services rendered outside Hong Kong with foreign tax remunerative Foreign services income exempt not applicable If a taxpayer with Hong Kong employment is seconded to work overseas with a new non-Hong Kong employment, clear evidence mustiness be shown much(prenominal) that the old employment has been terminated and that a distinctively new employment has commenced. Format of salaries tax com layation Indivi double $ $ particle Income from principal employment A 9 Less Allowable outgoings and expenses B 12(1)(a) Depreciation valuation accounts C D 12(1)(b) E Add Rental time survey (10% on E) F 9 Less Rent suffered G basis countenanceing value H I Income from other employment J K Less Loss brought forward L 12(1)(c) Self- command expenses M N 12(1)(e) NET ASSESSABLE INCOME O Less Concessionary logical implications Approved emptyhearted donations ( localizeed to 35% of K) P 26C Elderly residential care expenses Q 26D Home contribute quest R 26E Contributions to recognized loneliness scheme S T 26G Net dutiable income later concessionary deductive reasonings U Less Personal allowances V Part V Net chargeable income W Salaries tax collectible Lower of (a) progressive wander on W or (b) trite point on U Format of salaries tax under union judgement Husband Wife Joint $ $ $ Net taxable income X1 X2 X == == Less Concessionary deductions Approved charitable donations (limited to 35% of X) P Elderly residential care expenses Q Home give cheer R Contributions to recognized retirement scheme S T Net nonexempt income after concessionary deductions U Less Personal allowances (married persons, etc) V Net chargeable income W Salaries tax payable by the nominated teammate or the spouse who would suck up been liable to pay salaries tax under separate taxation. coke% of salaries tax will be waived, win to a ceiling of $8,000 (2008/09). 75% of salaries tax will be waived, subject to a ceiling of $6,000 (2009/10 & 2010/11) and $12,000 for 2011/12. Case law establishes that income from employment a) includes income for services rendered or to be rendered b) excludes instinctive receipts for in the flesh(predicate) reasons c) excludes pay for loss of rights Assessable income includ es reward for services rendered, past, present and future. If the employer makes a pay to a third party for which the employer itself was only if and primarily liable, then the benefiting employee is not chargeable to tax on such benefit, unless a) the benefit can be switched into money or b) the fee was paying for the program line of a child of the employee. c) any do salaried in connection with a vacation tour.Considering whether an income is chargeable to salaries tax a) whether the defrayal is derived from an employment or office b) whether the hire is in recognition of services rendered in the past, present or future. In D19/92, The taxpayer was offered and accepted employment by a Hong Kong govern. The attach to gainful him a lump nerve centre at the beginning of his employment as an inducement to join the confederation. The mount up held that this payment was incorporated into his slew of employment with the company. The source of the inducement payment was the employment of the taxpayer with the company. It was not a gift. Compensation for loss of employment Generally speaking, allowance for a loss of employment which does not represent a payment for past, present or future services is not chargeable to salaries tax.This is considered as a sum stipendiary in regard of the surrender by the employee of his/her rights in observe of the employment. Such payments should be distinguished from the finale gratuities which is unremarkably relate to services previously rendered by the employee and hence taxable. The taxable termination gratuities may be related back for a utmost distributor point of 36 months. A sum specified in the contract of employment may be taxed even though it was expound as earnings for termination of employment. In CIR v Yung Tze-kwong, the courtyard has apportioned 10% of the intermission pay as the inducement to enter into employment and 90% of the sum was attributable to restrictive covenants, which was n ot taxable.In Fuchs, Walter Alfred Heinz v CIR, the Taxpayer was entitle to termination payments accord to his 3-year contract of employment. The contract of employment was terminated about cardinal old age. Under a termination agreement, the Taxpayer received a compensation make up of shopping centre A equiva bestow to his net under the remaining degree of his contract (12 months) Sum B twain yearbook salaries and Sum C the average of his terzetto previous annual bonuses IRD levied tax on Sum B and C on the basis that they were compensable pursuant to his contract of employment and the Taxpayer was contr really empower to receive them on premature termination.The Court of Appeal held that Sum B and C were assessable because they were not paid in abrogation of the contract of employment but in conformation with the contract of employment. The Court of Final Appeal upheld the decision. Payment in positioning of notice After the decision of Fuchs case, IRD is now of the view that payment make in lieu of notice is an incentive for joining an employment and the payment is do 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 natural selection Benefit Time of assessment At the time of figure, appellative or release of share election. Taxable Gain Situations Assessable Amount good example of excerpt Market value at the time of taking up the shares over fall consideration Option assigned/rehired Consideration for assignment/release of survival of the fittest less total consideration Timing of exercise of share preference According to the DIPN 38, a taxpayer is generally considered to have exercised an option when he has taken whatever steps are necessary to convert the offer contained in the option agreement into a contract to acquire the relevant shares Locality of share option benefits The gain is chargeable to Sa laries Tax if it comes within 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 unconditional basis during a year of assessment in which the person renders all services in respect of his employment outside Hong Kong, any gain subsequently realised, even if realized whilst the person is working in Hong Kong will not be charged to Salaries Tax. No liability to salaries tax arises where a right is granted on an unconditional 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 catamenia during which services are rendered both in and outside Hong Kong, th e gain should to some extent be chargeable to Salaries Tax based on the following formula geezerhood worn-out(a) rendering services Gain calculated in accordanceIn Hong Kong during vesting periodX with s 9(1)(d) and s 9(4) Total number of days in vesting period commentary 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 required to work for a certain period of time. Share deliver Benefit Shares obtained through share-based remuneration schemes 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 ownership of the shares. Generally, two approaches in assessing such awards, viz Upfront and Back reverse. Summary of the two unsubtle approaches Upfront approach Back wind up 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. Discount in valuation? Yes.The discount is to be determined in the No light of the facts of apiece particular case. Distributions Received during the restriction period Not Received during the vesting period Taxable, (eg dividends, bonus shares) taxable regarded as enthronement income since since employee is entitled to the shares only 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 only be vested on condition that he remained an employee of h is 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 terminate long time in Hong Kong Days outside Hong Kong Total days (A)/(C) 31. 3. 006 275 90 365 75 31. 3. 2007 260 105 365 71 31. 3. 2008 250 116 366 68 31. 3. 2009 255 110 365 70 The assessor and taxpayer concur 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 set is subject to tax. Holiday journey benefits Starting from 1 April 2003, holiday vouch or allowance to purchase holiday warrant will b e 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 defined 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 costs that an employer pays. DIPN 41 Taxation of Holiday Journey BenefitsThe CIR issued DIPN 41 Taxation of Holiday Journey Benefits in August 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 aerate (including a holiday incidental to such business depart) will not be taxable. (b) If it could be established that a journey is not for holiday, such as for the relocation of an employee and his family i) in Hong Kong upon assum ption 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 consonant over visits to another(prenominal) 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 redeem it for a free ticket 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 refund or property allowance It is necessary to decide whether a sum is a lease refund and a notes allowance paid by an employer to his employee. A cash allowance is fully taxable as an income from employment. In CIR v Page (2002), to throw out as a refund of rent, there is no requirement for sufficient control, the fruit of tenancy agreement and/or rental receipt to the employer.However, the taxpayer 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 (in the beginning self-education expense) dep terminal on the nature of accommodation. (Refer to D91/04 regarding the definition of hostel, boarding house & hotel). Allowable outgoings and expenses include all outgoings and expenses (other than domestic, private or capital expenditure), wholly, exclusively and necessarily incurred in the doing of the assessable income. There is a distinction between expenses incurred in the issue of the assessable income and expenses for the production of the assessable income.The expression in the production of assessable income bore the same meaning as incurred in the performance of the duties of the office or employment and without such expenses the employee may not be able to earn the income. CIR v Humphrey (1970) 1HKTC451 trave ling expenses incurred by a taxpayer in get 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 burn (1980) 1HKTC1181 legal 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 claim on professional indemnity indemnification.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 recompense part of the commission to his employer, being bad debt of his client. The repayment was required because he failed to observe the employers computer addr ess policy. The Board disallowed the sum as it was not incurred for the performance of duties but for deviation from his duties. Home lend wager deduction 1) mortgage loan to acquire dwelling in Hong Kong 2) interest paid to recognized organization 3) prescribed amount 4) claim for ten historic period 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 dwell although all mortgage payments were financed by her. In D106/00, it was held that only the portion of interest payment for the second depose loan used to repay the capital principal on the first border loan is allowable. In D2/01, interest paid for the bank loan for the payment of the premium paid to the trapping Authority is not deductible as the premium was not deferred consideration for the acquisition of the dwelling house. In D108/02, it is considered that owner does not include right owner. SALARIES TAX PLANNING Common areas of salaries tax planning are source of employment, using statutory exemption and fringe benefit. Territorial source EmploymentIf the following terzetto 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 director and an employee not taxa ble 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 similar 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 determine 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 interpret of facilities to the employees home. Domestic Servant/ number one wood 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 gage to the loan. The benefit must not be convertible into cash by the employee. Club The employer should become a member and allow its employee to enjoy the hunting lodges 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 homeShare option lone(prenominal) gain realized by the exercise of share options is taxable. So do not exercise the right unless you derive very little income from that action at that time. Comprehensive Double Taxation agreement On 21 August 2006, the Hong Kong Special Administrative Region (Hong Kong) and the Mainland of China (Mainland China) entered into a comprehensive double taxation arrangement 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 ImplicationsGener ally 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 aggregate 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 fit to the preferential 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 computation 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)(Note) $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 from the i ncome 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 leeward supplies you the following randomness in relation to the year ended 31 knock against 2012 ) He was recruited five geezerhood ago in capital of Singapore by Multinet Ltd, a company incorporated and carried on business in Hong Kong, as the companys regional manager. He was paid an annual salary 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 di stributively employee against illness and related hospital costs.It pays an annual premium to the insurance company of $6,000 for each employee. Mr lee(prenominal) paid visits to his own doctors and paid the doctors bill first, which was later reimbursed by the insurance company. The insurance company reimbursed him the total cost 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 simply for his employment. d) in advance he was employed by Multinet, he was working with an outside(a) company incorporated in Singapore. All his services were rendered in Singapore. In butt against 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 March 2012, he sold the shares for $6. e) Mrs downwind is a housewife and is biography 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 home situated in Kowloon Tong in respect of his father 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. Required 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 tentative salaries tax. Note to students distinguish between the HK employment and non-HK employment and apply the three factors to the case) 2. Mr Brown was employed by B Ltd as a gross sales manager for many years. B Ltd was incorporated and carrying on business in Singapore. Mr Brown used to live and perform duties in Singapore. In order to expand 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 March 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 exercise d 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 respectively. On 1 April 2011, Mr 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 Brown 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 Brown paid $10,000 for purchasing the option. On 1 October 2011, Mr Brown assigned the share option (Option 2) to his henchman 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 monthly rent of $35,000 for Mr Browns house and Mr Brown was required to pay monthly 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-d ay 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, dose 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 Required 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 celestial latitude 2006. In April 2011, he was stick on 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 regularly and stays with his friends, as he does not have a home in Hong Kong. In the year of assessment 2 011/12, 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 color 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. 50 each when the price per share was $4. 25. He exercise d 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 leased 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 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 senior management of a company in Hong Kong. Due to the Board of Directors decision, Mr Pangs employment was terminated outright 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 intrust not taken of $60,000 e) lump sum payment of $1,000,000 agreeing for not accede 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 station 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 moved 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 moved out to a rental accommodation. Under the Deed of Separation, Mr Ko would assign the property to Mrs Ko at the date of dissever. 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 situate 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 take for 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 propo sed changes Current benefits Proposed benefits (a) 13 months salary per annum 12 months salary per annum plus discretionary bonus, depending on the companys gainfulness 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 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 commencement 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)