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ACCT3107/BUSI0018 – Hong Kong Taxation

Self Test Question – Personal Assessment (Answers)
Mr. and Mrs. Lau
Total tax liability for the year of assessment 2013/14 under Personal Assessment

Mr. Lau Mrs. Lau Total

Net assessable income for salaries tax purpose 652,200
Net assessable value of Kowloon Bay flat 75,600
Assessable profits from wife’s business . 30,000
Total income 727,800 30,000
Less: Interest paid 75,600 .
652,200 30,000
Less: Charitable donations 28,000
Contribution to retirement scheme 15,000 .
Reduced total income 609,200 30,000 639,200

Less: Allowances 380,000

Net chargeable income 259,200

Tax thereon at progressive rates 32,064

Tax payable 2013/14:

Mr. Lau: 32,064 x (609,200/639,200) 30,559 1,505 32,064

Assessable income of Mr. Lau calculated as follows:

Salary 510,000
Holiday journey 30,000
Reimbursement of car rental 60,000
Reimbursement of petrol costs 12,000
Reimbursement of club subscription 10,000
Rental value 62,200
Less: Management charges 12,000 50,200
Less: Self-education expenses 20,000
Net assessable income 652,200

Net assessable value calculated as follows:

Rental income 102,000
Less: Rates 7,500
Less: Statutory deduction 18,900

Allowances calculated as follows:

Married person’s allowance 240,000
First child 70,000
Second child 70,000

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(3) The salary received from the wife's business is exempt (s.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 s.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 s.26G

but is limited to $15,000 per annum in 2013/14.

(10) Rates paid by landlord are deductible in calculating the Net Assessable Value and the
mortgage interest paid is deductible under personal assessment to the extent of
income included.

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