ACCT3161 - 14 edition Question 19-x Under certain...

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14 edition Question 19-x Under certain circumstances, election for personal assessment may have the effect of reducing the overall tax liability of the elector.' What are these circumstances? (7 marks) (Adapted from ACCA/HKSA 2.3H D86Q6(b)) Answer for Question 19-x The circumstances under which a personal assessment may reduce an elector's overall tax liability are as follows: (a) When a taxpayer has a loss for profits tax purposes which may be used to set-off against his income assessable under salaries tax and property tax. (b) When a taxpayer assessable under profits tax or property tax can enjoy the benefit of personal allowances and progressive tax rates (unless his income is so large that the standard rate is applicable). (c) When a taxpayer has incurred interest expenses for the purpose of producing income assessable under property tax. (d) When a taxpayer has made approved charitable donations which exceed 25 per cent of his income assessable under salaries tax or profits tax, he may elect for personal assessment so that the 'excessive' donations may be set-off under personal assessment. Question 19-1 Mr Kwok supplies you with the following information relating to the year ended 31 March year 0. (a) He was employed as an accountant by Jim Chase and Co (Jim Chase), a firm carrying on construction business in Hong Kong, and received an annual salary of $300,000. He contributed $12,000 to a MPF. (b) He was provided with a flat in Kowloon by the firm at a monthly rental of $1,000 . He also paid management service charges amounting to $2,000 per annum . (c) He received an annual salary of $60,000 from an unincorporated business operated by his wife. (d) He received a holiday allowance from Jim Chase for $20,000 which he spent as follows: air tickets to Singapore for himself and his wife ($5,000 X 2), accommodation in Singapore ($10,000). (e) It is a condition of his employment with Jim Chase that he joins the EA Club to help promote the firm’s business interests. Annual subscription for club members is $20,000, of which the firm refunded him $10,000. (f) Jim Chase provides him with a company credit card which he used to purchase petrol for private motoring for a total value of $5,000. (g) He received a cash scholarship of $3,000 from Jim Chase to study advanced accounting at an evening course run by the Baptist University. (h) He made a donation of $25,000 to the Community Chest. (i) He received interest of $10,000 paid by the administrator of his late father's estate for delayed payment of a legacy. (j) He owns a flat in Kowloon Bay which is leased for $4,000 per month. He paid rates on this flat of $3,000 for the year. He also took out a mortgage to purchase the flat and total interest payments amounted to $50,000. (k)
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This note was uploaded on 09/29/2011 for the course ACCT 3161 taught by Professor Kwong during the Spring '11 term at CUHK.

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ACCT3161 - 14 edition Question 19-x Under certain...

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