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THE CHINESE UNIVERSITY OF HONG KONG School of Accountancy ACCT 3161 – Taxation (1 st Term, 2010-2011) Assignment 2 Due Date: November 1, 2010 (Monday) 4:00 p.m. Question 1 Mr Smith was until 31 March 2007, the Far East sales representative of a Canadian company, earning a monthly salary of $68,000. For the purpose of performing his duties Mr Smith travelled throughout the Far East region. During the year ended 31 March 2006 he visited Hong Kong for 150 days. On 1 April 2006 Mr Smith rented a residential flat in Wanchai because he planned to spend more time in Hong Kong. The monthly rent of the flat was $21,000. His employer contributed $18,000 per month towards his rental expenditure. During the year ended 31 March 2007, Mr Smith spent 300 days in Hong Kong. On 1 April 2007 Mr Smith resigned from the Canadian company and joined a Hong Kong company, A Ltd, as its sales manager at a monthly salary of $80,000. He was also appointed as a director of B Ltd, which is a wholly owned subsidiary of A Ltd. His annual director’s fee from B Ltd is $40,000, payable on 31 March. B Ltd also paid the full rent for his flat in Wanchai with effect from 1 April 2007. On 1 May 2007 Mr Smith married Miss Grady. She is an American teacher employed by the Hong Kong Polytechnic University on a two-year contract commencing from 1 July 2005. The contract provided for a monthly salary of $25,000 plus a contract-end gratuity equal to 25% of the total salary earned during the contract period. Mrs Smith did not renew her contract so that she could have more time to take care of their baby, who was born in June 2007. During the year ended 31 March 2008 Mr Smith, in performing his duties, incurred travelling expenses of $8,000 for visiting A Ltd’s customers. In February 2008 he donated $16,000 to the Hong Kong Community Chest. Mr and Mrs Smith have elected for joint assessment, if applicable, and Mrs Smith has elected for relating back her gratuity over the two-year employment period with the Hong Kong Polytechnic University. Required: (a) Compute Mr Smith’s salaries tax liability for each of the years of assessment 2005/06, 2006/07 and 2007/08, under the assumption that his employment was offshore for the years of assessment 2005/06 and 2006/07. Note: you should ignore provisional tax. (b) State the conditions under which an individual may be granted a child allowance for salaries tax and personal assessment purposes. (c) State the action that may be taken by the Commissioner of Inland Revenue if there is more than one claimant for the child allowance in respect of the same child for the same year of assessment. Data file: ch/ACCT3161ass2_1011_1st Page 1
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Question 2 Mr Chow, a Canadian, immediately after obtaining a work permit from the Immigration Department, was employed by a computer manufacturer in Hong Kong as its chief sales executive for the period from 1 May 2005 to 30 April 2007. The following information was disclosed by Mr Chow in his tax returns and in his
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