THE UNIVERSITY OF HONG KONG

FACULTY OF BUSINESS AND ECONOMICS

ACCT3107 – Hong Kong Taxation

Tutorial Questions
Unit 5 – Salaries Tax (3)

Question 12

During the year ended 31 March 2016, Mr. Chan was employed as a medical officer by a
private hospital. He received a monthly salary of $60,000 and was provided with quarter
free of rent.

In May 2015, he was elected to be a Council member of the Tsuen Wan District Council.
He received a monthly honorarium of $20,000.

In his salaries tax return for the year of assessment 2015/16, Mr. Chan claimed for tax
deductions the following expenses:

1. $1,800: annual membership subscription to the medical professional association in

HK.

2. $1,500: annual membership subscription to the medical professional association in

UK.

3. $8,000: removal cost from his previous residence to hospital quarter.

4. $12,400: cost of petrol consumed on travelling in his private car between his quarter
and the hospital.

5. $60,000: one month's salary paid on 31 March 2016 to the hospital in lieu of an
adequate notice of resignation. He left the hospital with effect from 1 April 2016
and started his private practice in May 2016.

6. Expenses in relation to the District Council (not reimbursed by the Government):

$60,000: rent for the office used for handling District Council's affairs, and
$24,000: salaries for his part-time secretary working in his office.

Required:

(a) Explain the rules governing the deduction of outgoings and expenses for salaries
tax purposes.

(b) Comment with reasons whether or not Mr. Chan would succeed in his claim for
deductions.

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Question 13

Mr. Man has been working for a trading company as a sales manager for many years. His
current monthly salary is $20,000. With effect from 1 April 2014, his employer provided
him with a flat, for which he has to pay a nominal rent of $1,000 per month to the
company.

On 1 April 2014, Mr. Man was married with Miss Poon. He received a red packet of
$2,000 cash from his employer together with a voucher of honeymoon tour to Phuket at a
value of $10,000. During the honeymoon trip, Mr. Man spent $8,000 for souvenirs and
extra meals. He did not recover this from his employer.

Mr. Man bought a car on 1 April 2014 and used it for both his private and employment
purposes. He incurred the following running expenses for his car:
Period Amount incurred
1.4.14 to 31.3.15 $24,000
1.4.15 to 30.6.15 $ 7,000

The assessor agreed with Mr. Man that the extent of private use of his car was 25%.
Depreciation allowance for the car in respect of the year of assessment 2014/15 as agreed
with Inland Revenue Department was $28,800.

On 30 June 2015, Mr. Man's employment was terminated without prior notice by his
employer and he received the following income:

1. $100,000 from the company's provident fund which was not a recognized
occupational retirement scheme. Mr. Man and his employer each contributed
equal amount to the fund.
2. $60,000 for three months' salary in lieu of notice.
3. $15,000 of three months' housing allowance up to 30 September 2015. Mr. Man
has moved out of the flat on 1 July 2015.
4. $9,333 in lieu of his two week's annual leave.

In July 2015, he sold his car for $24,600 and the balancing charge on his car as agreed
with the Inland Revenue was $13,400.

With effect from 1 September 2015, Mr. Man took up a new employment with another
Hong Kong company, AB Ltd, at a monthly salary of $24,000. Under this employment,
he was required to work both in Hong Kong and Singapore. During the period 1
September 2015 to 31 March 2016, Mr. Man returned to Hong Kong for a total of 70 days,
being 7 days on holiday and 63 days on business for his employer. AB Ltd provided him
with a flat in Hong Kong and one room in a hotel in Singapore. Mrs. Man remained in
Hong Kong and lived in the flat provided by Mr. Man's employer since 1 September 2015.

Required:
(a) Compute the net assessable income for the years of assessment 2014/15 and
2015/16 for Mr. Man.
(b) Explain the basis of your computation.
Check Figures:
Net assessable income: Y/A 2014/15: $219,440; Y/A 2015/16: $311,408

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Question 14

Mr. Ching was a PRC resident and was employed as a sales manager by Wang
Laboratories Limited in Hong Kong. He gave you the following information for the year
ended 31 March 2016:

1. He received an annual salary of $240,000.

2. He was provided with 2 rooms in a Hong Kong hotel for the period from 1.4.2015
to 30.6.2015. From 1.7.2015 to 31.12.2015, he moved into a flat for which he paid
rent, rates and management fee for a total of $21,500 per month. He received a
reimbursement from Wang Lab. Ltd. of $20,000 per month. From 1.1.2016
onwards, he moved into another flat which he acquired under joint names with his
wife. He continued to receive $20,000 per month from his employer as a housing
subsidy.

3. During the period he lived in the hotel, he was given a meal allowance of $1,000
per month. When he moved into the leased flat, his employer reimbursed him the
gas and electricity bills totalling $3,000 for the whole period. The employer also
made a contract with a domestic helper who costs $4,000 per month.

4. Due to his outstanding performance in sales negotiations, he won an award of

$5,000 under the company's incentive scheme.

5. He purchased a second-hand car at a cost of $30,000 for the purpose of meeting

clients. He paid insurance and licence fees totalling $10,000 for the whole year.
It was agreed with the Assessor that the private use of the car was 40%. A
depreciation allowance on the car was calculated to be $21,600.

6. He was asked by his employer to join the Hong Kong Country Club and he paid
annual subscription of $3,000 to the Club, one half of which was refunded by his
employer.

7. On 1 December 2014, he was granted a share option at a cost of $100 to purchase

1,000 shares in Wang Lab. Ltd. at $2 each. He sold the option to take up 400
shares on 12 January 2015 for $3,000. He subsequently exercised the option to
take up the remaining 600 shares on 4 April 2015. The 600 shares were sold for
$5,000 on 30 April 2015. Details of market value were as follows:
1 December 2014 $3.5
12 January 2015 $3.2
4 April 2015 $5.0
30 April 2015 $8.3

8. His wife has no income during the year of assessment 2015/16. His son, Alex,
aged 19, was studying in Canada and living with Mr. Ching's sister, Mrs. Kwan.
Because Mrs. Kwan had no children, she paid the school fees for Alex and wholly
supported his living.

9. Mr. Ching has a mother, aged 65, who is living together with the family. His
father, aged 67, is currently living in the PRC but fully maintained by Mr. Ching.

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10. Mrs. Ching’s mother, aged 53, has broken her legs in an accident in October 2015.
She is eligible for the Government’s Disability Allowance and has lodged the
claim in February 2016. Approval was received from the Social Welfare
Department in May 2016. She is now staying in a registered Nursing Home. Mrs.
Ching’s father, aged 60, is also living in a registered Nursing Home together with
Mrs. Ching’s mother. Their residential care expenses totaling $200,000 is paid by
Mr. Ching.

11. During the year, Mr. Ching made a cash donation of $110,000 to Po Leung Kuk.

12. During the year, Mr. Ching has made a mandatory contribution of $12,000 to the
MPF scheme.

Required:

(a) Calculate the net assessable income of Mr. Ching for the year of assessment
2015/16. Give explanations for the tax treatments of items stated in the question.

(b) Calculate the salaries tax liability of Mr. Ching for the year of assessment 2015/16
(ignore provisional tax).

Check Figures:
Net assessable income for the whole Y/A 15/16: $302,747
Net chargeable income: ($361,214)
Salaries tax payable: nil

Additional Revision Exercises:

Self Test Question on Salaries Tax Computation

Self Test Multiple Choice Questions

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