ACCT3161mte2010_11ans(wo_mark) - ACCT3161 Mid-term Common...

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ACCT3161 Mid-term Common Examination (2010/2011) SCHOOL OF ACCOUNTANCY THE CHINESE UNIVERSITY OF HONG KONG ACCT 3161 Taxation 2 nd Term, 2010/2011 MID-TERM EXAMINATION TIME: 2 HOURS Solution Problem 1 (32%) Part A (6%) In Hong Kong, salaries tax is charged under s.8 of the IRO on income from an employment, office and pension arising in or derived from Hong Kong. In the case of employment income, the Board of Review adopts the 'totality-of-facts test' and looks at all the facts of the case. No single factor or particular factors can determine the issue . The court ruled in the Goepfert case that the correct approach is to look for the place where the income really comes to the employee, i.e. where the employment is located. As a consequence of this decision, the IRD issued DIPN 10 and accepts that employment is located outside Hong Kong (a foreign employment) where the following three factors are present: (1) the contract of employment was negotiated , entered into and is enforceable outside Hong Kong; (2) the employer is resident outside Hong Kong; and (3) the employee's remuneration is paid to him outside Hong Kong. If not all of the above factors are outside Hong Kong, it appears that the second factor is more important than the other factors, and the place of payment of remuneration is of least importance. If a person is recruited by an employer resident in Hong Kong, the employment is unlikely to be located outside Hong Kong, even though the contract is concluded outside Hong Kong and his remuneration is paid outside Hong Kong. The IRQ reserves the right to look beyond the three factors where in reality the employment is a Hong Kong employment but manipulation exists. John assigned to Hong Kong and having a position as a project manager of the Hong Kong branch, continued to be employed by Hi-tech, the UK company. Even though the terms of his employment were changed, the contract of employment was still made with the UK company. Irrespective of whether the contract of employment was a new contract or a mere variation of the existing one with the UK company, John's employment should still be a foreign one. However, as John performs some of his duties in Hong Kong, he is still subject to Hong Kong salaries tax under s.8(lA)(a) in respect of his income derived from services rendered in Hong Kong, including the leave pay attributable to such services. In ascertaining his taxable income, the time apportionment basis would be used, i.e. the employment income is apportioned according to the number of days that he is present in Hong Kong. File: KSK/ch FILE:/KSK/EXAM/ACCT3161mte2010_11 2/8/1202:09:45Page 1 of 4
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ACCT3161 Mid-term Common Examination (2010/2011) Part B (i) 15% John 's salaries tax computation for 2009/10 $ Salary 1,200,000 Cost of living allowance 5,000 Entertainment allowance 15,000 Reimbursement of school fees 50,000 Reimbursement of air ticket 8,000 Private expenses paid by corporate credit card 22,000 1,300,000 Time-apportionment: Hong Kong: 170 + 25*170/(365 -25) = 182.5 days
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ACCT3161mte2010_11ans(wo_mark) - ACCT3161 Mid-term Common...

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