ACCT3161 Mid-term Common Examination (2010/2011)
SCHOOL OF ACCOUNTANCY
THE CHINESE UNIVERSITY OF HONG KONG
ACCT 3161 Taxation
TIME: 2 HOURS
Please answer Problem 1 and Problem 2 on Book A
Problem 1 (32%)
John Chan has been employed by Hi-tech Ltd (Hi-tech) in the UK as a project manager since 2008.
On 1 April 2009, John was assigned to Hong Kong to handle a project for two years for the Hong Kong branch of Hi-
tech. The project required research and development in the PRC and Hong Kong. In consideration of his assignment to
Hong Kong, Hi-tech revised John's employment contract such that he enjoyed longer annual leave and the provision of
housing benefit in Hong Kong.
The organization chart of the Hong Kong branch listed him as a project manager.
However, during the two-year assignment, John is still required to report his work to his senior in the UK. During the
year ended 31 March 2010, John worked for 170 days in Hong Kong, 150 days in the PRC, and 45 days (including 25
days annual leave) in the UK.
The Inland Revenue Department in Hong Kong assessed John's income for the full year to Hong Kong salaries tax on
the ground that his income was sourced in Hong Kong, contending that he entered into a new employment contract
upon assignment to Hong Kong and that he formed part of the management team of the Hong Kong branch.
Explain whether, and if so to what extent, John 's income should be assessed to Hong Kong salaries tax for the year of
When answering this part you should assume that only John's income for his services rendered in Hong Kong is
chargeable to Hong Kong salaries tax for the year of assessment 2009/10 on a time basis.
The following additional information for the year ended 31 March 2010 is available in respect of John and his wife,
Mary.(assume all amounts are denominated in Hong Kong dollars) :
Annual salary: $1,200,000.
Hi-tech paid $90,000 to purchase air tickets for John, his wife and son to relocate them from the UK to Hong
John became entitled to a cost of living allowance of $5,000 as from 1 March 2010.
Hi-tech gave John an entertainment allowance of $15,000 for the year. He informed the Inland Revenue
Department that Hi-tech required him to socialize with clients. He spent $10,800 entertaining clients but he did
not keep any receipts or evidence of the entertainment. He kept the balance of $4,200 for himself.
John sent his son, who was 15, for study in the USA. Hi-tech reimbursed $50,000 to him for part of the school
fee incurred. Hi-tech also reimbursed the cost of his son's air ticket in the amount of $8,000.