THE CHINESE UNIVERSITY OF HONG KONG
School of Accountancy
ACCT 3161 – Taxation
Due Date: November 1, 2010 (Monday) 4:00 p.m.
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.
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.
State the conditions under which an individual may be granted a child allowance for salaries tax and
personal assessment purposes.
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