ACCT3161_ass2_1011_2nd_Answer

ACCT3161_ass2_1011_2nd_Answer - THE CHINESE UNIVERSITY OF...

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THE CHINESE UNIVERSITY OF HONG KONG School of Accountancy ACCT 3161 – Taxation (2 nd Term, 2010-2011) Assignment 2 Solution Question 1 Mr. Au's title is the Marketing Director of Park Inc.'s branch in Hong Kong. It is required to ascertain whether Mr. Au is an employee or a director of Park Inc. As the post of Marketing Director does not look like an office or a directorship created under the Companies Ordinance and there is no indication in the question that Mr. Au holds a separate post of director, it is reasonable to assume that Mr. Au is an employee, not a director, of Park Inc. According to the Inland Departmental Interpretation and Practice Note No. 10, an employment is regarded as outside Hong Kong if all of the following three conditions are satisfied. a. The employment contract is negotiated, concluded and enforceable outside Hong Kong. b. The employer is resident outside Hong Kong. c. The remuneration is paid outside Hong Kong. However, if anyone condition has not been fulfilled, then the employment is regarded as in Hong Kong. The consequence of a Hong Kong employment is that all the income from the employment is taxable in Hong Kong even though the employee performs most of the services outside Hong Kong. Mr. Au's employment contract is negotiated and concluded outside Hong Kong, and his employer is an American company. Thus, the first two conditions are fulfilled for the purpose of a non -Hong Kong employment. Mr. Au's remuneration was paid to a bank account in Hong Kong, and this showed that his salaries were paid in Hong Kong, so the third condition is not satisfied. However, the Commissioner usually takes less weight in this condition, so it is very likely that the Commissioner accepts that Mr. Au's employment is sourced in the USA, i.e. outside Hong Kong. According to Section 8(1A), Mr. Au's taxable income is his income derived from services rendered in Hong Kong This is based on the number of days that Mr. Au stayed in Hong Kong. Mr. Au is provided with a rent-free flat by his employer. The amount of rent paid by his employer to the landlord is not a cash allowance taxable in the name of Mr. Au, but the benefit is taxable in the form of rental value which is 10% of Mr. Au's assessable income. Mr. Au Computation of Assessable Income Year of Assessment 2008/09 $ Salaries ($700,000 x 90/335) 188,059 Rental value ($188,059 x 10%) 18,805 206,864 Data file: ch/ACCT3161_ass1_1011_2nd Page 1
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Mr.Ma Computation of Assessable Income Year of Assessment 2008/09 $ Salary $ 3,000,000 Less: Income already taxed outside Hong Kong 2,000,000 Assessable income in Hong Kong 1,000,000 Less: Personal allowance 216,000 Net chargeable income 784,000 Progressive tax $40,000 @ 2 % 800 $40,000 @ 7% 2,800 $40,000 @ 12 % 4,800 $664,000 @ 17% 112,800 Salaries tax payable (lower than standard rate tax of $150,000) 121,280 Alternative method Apart from exclusion of income under Section 8(lA)(c), the Double Tax Arrangement signed between the Mainland and Hong Kong Special Administrative Region allows income tax paid in the Mainland to be set
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ACCT3161_ass2_1011_2nd_Answer - THE CHINESE UNIVERSITY OF...

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