BUSI 0018 Hong Kong Taxation

Tutorial Questions
Unit 6 Salaries Tax (4) and Personal Assessment
Question 15
Mr. Mak was employed by Beta Ltd as marketing manager since 1990. Beta Ltd paid Mr.
Mak a monthly salary of $50,000 during the year ended 31 March 2010. In addition, he was
provided with a flat which was leased by Beta Ltd at a monthly rent of $25,000. The
company only charged Mr. Mak $1,000 per month as a deduction from his salary. According
to Mr. Mak's employment contract, he was entitled to a commission of 1% on the sales
solicited by him during a year. The sales solicited by Mr. Mak during the year ended 31
March 2010 amounted to $4,000,000.
On 1 September 2009, Mr. Mak, pursuant to Beta Ltd's staff share option scheme, acquired
10,000 shares in Alpha Ltd at the price of $8 per share (market value on the same day being
$10 per share). The option was granted at no cost to Mr. Mak on 31 March 2008, the share
market value on that day being $8.5 per share. Alpha Ltd is the holding company of Beta Ltd
and is listed in the London Stock Exchange. The shares were all subsequently sold on 1
February 2010 at $12 per share.
Mr. Mak was married with two children. His son was 15 and his daughter was 17 on their
birthdays during the year of assessment 2009/10. His daughter was married on 20 February
2010 with a Mr. Wong. Mr. Mak had a grandmother living in London and he remitted
$2,000 each month to support her living. His grandmother was 60 on her last birthday.
Mr. Mak's wife had a part time job in a trading firm and received salary of $50,000 during the
year ended 31 March 2010.
During the year ended 31 March 2010, Mr. Mak has made a donation of $5,000 to the
Community Chest of Hong Kong.
Required:
(a)
Compute Mr. and Mrs. Mak's salaries tax liabilities under separate taxation for the
year of assessment 2009/10 (ignore provisional tax and ignore the salaries tax relief in
2009/10 of HK$6,000 or 75% of the tax chargeable in your calculations). Provide
brief explanations to your tax treatments of various items.
(b)

Advise Mr. and Mrs. Mak whether they can minimize their overall salaries tax
liability by electing joint assessment and compute the amount of tax saving, if any
(ignore provisional tax and ignore the salaries tax relief in 2009/10 of HK$6,000 or
75% of the tax chargeable in your calculations).

Check Figures:
Net assessable income:
Mr. Mak: $712,000
Mrs. Mak: $50,000
By electing joint assessment, the couple saves tax in the sum of $9,860 (ignoring the salaries
tax relief in 2009/10)
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Question 16
Mr. Chan has been working for a Hong Kong company for many years. His monthly salary
was $9,000 as from 1 January 2006 and $11,000 as from 1 January 2007. On 1 January
2008, he was promoted to manager with a monthly salary of $25,000 and was provided with
a free quarter.
After promotion, he was provided with a company car in order to facilitate his duties. The
car was acquired in the name of the employer company at a cost of $200,000 and its second
hand market value as of January 2008 was $120,000. However, the company did not pay for
his car running expenses. Mr. Chan successfully reached an agreement with the Inland
Revenue that 50% of the car usage was for his employment purpose. On average, he spent
$1,000 per month in running and operating his car.
Mr. Chan was granted a holiday warrant of $10,000 for the year ended 31 March 2009. He
used the warrant to redeem air-ticket and hotel accommodation for holiday taken with his
wife and children. The warrant was purchased by the employer from Wing On Travel
Agency and has a re-sale value of $7,000.
On 2 March 2008, in consideration of Mr. Chans good performance in a project, a resolution
was passed at the board of director's meeting to pay him a bonus of $20,000 before the end of
March 2008. Due to a mistake made by the Personnel Department, the bonus was not
received by Mr. Chan until 20 April 2008.
With effect from 1 September 2008, Mr. Chan's salary was increased to $30,000 per month.
Meanwhile, he was re-assessed by the Inland Revenue on the car usage, and agreed that the
percentage usage for employment purpose was to be revised to 40% as from 1 September
2008.
During a business trip to the USA in December 2008, Mr. Chan was approached by a US
corporation and entered into a new employment contract. Upon his return from the trip, he
submitted his resignation effective from 1 April 2009. On 15 April 2009, he received a
gratuity of $90,000 from the company.
Mr. Chan was covered by the companys medical insurance scheme with a local insurance
company. Any medical expenses incurred by him would be reimbursed by the insurance
company up to a certain limit. The company has paid an annual premium of $1,000 for each
employee.
During the years ended 31 March 2007, 2008 and 2009, he received as reimbursement in the
total of $4,000, $5,000 and $6,000 respectively from the insurance company.
Mr. Chans employer operated a MPF-exempted ORSO scheme and it contributed 10% of his
relevant salary to the retirement scheme for all relevant years of assessment. Mr. Chan has
opted not to make any contribution to the scheme.
Mrs. Chan was a housewife. Mr. and Mrs. Chan maintain two children: an adopted son,
John, born on 15 November 1988 and their own daughter, Ann, born on 16 December 2005.

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Required:
(a)

Calculate the salaries tax liabilities of Mr. Chan for the years of assessment 2006/07,
2007/08 and 2008/09 without relating back of his gratuity (ignore tax relief for all the
relevant years of assessment and ignore provisional tax in your calculations).

(b)

Advise whether or not it is advantageous for Mr. Chan to apply for relating back of
his gratuity.

Check Figures:
Net assessable income without / with relating back:
Y/A 2006/07: $114,000 / $144,000
Y/A 2007/08: $200,350 / $230,350
Y/A 2008/09: $463,670 / $403,670

Additional Revision Exercises:

Self Test Question on Salaries Tax Computation
Self Test Question on Personal Assessment
Self Test Multiple Choice Questions

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