As the shares will only become vested in two years time he will not be taxed at

As the shares will only become vested in two years

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As the shares will only become vested in two years’ time, he will not be taxed at the time the shares are granted as he is not yet entitled to the ownership. After the shares become fully vested, the tax liability arises (the ‘back-end approach’), regardless of whether the shares are sold. The taxable value will be determined by reference to the shares’ market value at the time when the shares are fully vested. 1 During the vesting period, no tax liability will arise to Paul. If a dividend is distributed during the vesting period, Paul will not be taxed. However, when the shares are fully vested Paul will receive a lump sum payment equivalent to the amount of any dividends distributed during the vesting period, and this lump sum payment will then become part of Paul’s taxable income from the employment. Again, when the shares are subsequently sold at a gain, no tax liability arises. 1·5 ––– 3 ––– 10 ––– 3 Happy Club (a) A club is deemed not to be carrying on a business if not less than half of its gross receipts on revenue account (including entrance fees and subscriptions) are received from its voting members (s.24(1)). 1 Otherwise a club is deemed to be carrying on a business and the whole of its income including entrance fees (although they are capital in nature) and subscriptions are chargeable to profits tax after adjustments for allowable deductions. 1 ––– 2 ––– (b) 2015/16 2016/17 Year ended Year ended 31 March 2016 31 March 2017 $ $ Receipts from members Entrance fees 30,000 20,000 1 Members’ subscriptions 84,000 72,000 1 Fund-raising sales (50%) 36,000 41,000 1 Lounge café receipts (2/3rds) 26,000 58,000 1 –––––––– –––––––– 176,000 191,000 –––––––– –––––––– –––––––– –––––––– Total gross receipts 225,000 461,000 –––––––– –––––––– –––––––– –––––––– % of receipts from members 78·22% 41·43% 1 For the year ended 31 March 2016, Happy Club is deemed not to be carrying on a business, so not subject to profits tax. Since Happy Club is not deemed to be carrying on a business, the loss is not allowed to be carried forward. 1·5 For the year ended 31 March 2017, Happy Club is deemed to be carrying on a business and all its receipts are subject to profits tax, including entrance fees and the donation. 1
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21 Marks Profits tax payable = $291,000 x 15% = $43,650 0·5 ––– 8 ––– 10 ––– 4 Mr Mo – Property tax computation for the year of assessment 2016/17 Basis period: 1 April 2016 to 31 March 2017 $ Rental (48,000 x 6) 288,000 1 Premium (30,000 x 7/24) 8,750 1 Repair to keylock 500 0·5 –––––––– Assessable value 297,250 Less: Rates (3,000/3 x 7) (7,000) 0·5 –––––––– 290,250 Less: 20% statutory allowance (58,050) 0·5 –––––––– Net assessable value 232,200 –––––––– –––––––– Property tax at 15% 34,830 0·5 –––––––– –––––––– Correct treatment of the following items: rental deposit, management fee, agency fee, mortgage interest, renovation cost, no deduction of bad debt, water dripping repair cost, legal cost. (0·5 mark each, maximum) 3 Mr Mo – Property tax computation for the year of assessment 2017/18 Basis period: 1 April 2017 to 31 March 2018 $ Rental (48,000 x 3) 144,000 0·5 Premium (30,000 x 17/24) 21,250 1 –––––––– Assessable value 165,250 Less: Rates (3,000/3 x 3) (3,000) 0·5 –––––––– 162,250 Less: 20% statutory allowance (32,450) 0·5 –––––––– Net assessable value 129,800 –––––––– –––––––– Property tax at 15% 19,470
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