Chapter 6 Salaries Tax: Computation
Answer – Exercise 1
Bases for the calculation of Mr Wong’s salaries tax liabilities:
1. Mr Wong’s employment is of HK source;
2. he is not entitled to 60-day rule of visit exemption;
3. the income taxed in Mainland China is excluded from chargeable income under
Section 8(1A)(c); and
4. holiday journey is taxable.
Mr Wong
Salaries tax computation
Year of assessment 2010/11
Basis period: year ended 31 March 2011
$
Salary
Holiday journey
$
1,000,000
62,000
Less: Income already taxed outside HK
1,062,000
(600,000)
462,000
Less: Contribution to mandatory provident fund
(12,000)
Net assessable income
Less: Married person’s allowance
Child allowance
450,000
216,000
120,000
Net chargeable income
(336,000)
114,000
Net chargeable income at progressive rates:
40,000 @ 2%
40,000 @ 7%
34,000 @ 12%
800
2,800
4,080
7,680
Net assessable income at standard rate:
$450,000 × 15%
67,500
Lower of standard rate and progressive rate
Less: Tax rebate (75%, limited to $12,000)
7,680
(5,760)
Salaries tax payable
1,920
P. 1
Answer – Exercise 2
Bases for the calculation of Mr Wong’s salaries tax liabilities:
1. Mr Wong’s employment is of non-Hong Kong employment and his income is
chargeable on time basis;
2. Mr Wong is a HK resident, and his is not entitled to the exemption of the
preferential tax treatment of 60-day rule of visit;
3. the income taxed in Mainland China is not relevant as Mr Wong is taxed on time
basis; and
4. holiday journey is taxable.
Mr Wong
Salaries tax computation
Year of assessment 2011/12
Basis period: year ended 31 March 2012
$
Salary
Holiday journey
$
1,000,000
62,000
1,062,000
Assessable income (1,062,000 × 50/365)
145,479
Less: Contribution to mandatory provident fund
(12,000)
133,479
Less: Married person’s allowance
Child allowance
216,000
120,000
Net chargeable income
(336,000)
Nil
Answer – Exercise 3
(a)
In DIPN 10, the Commissioner of Inland Revenue will accept that an employment is
located outside Hong Kong where the following three factors are present:
(i)
the contract of employment was negotiated, entered into, and is enforceable
outside HK; [1 mark]
(ii) the employer is resident outside HK; [1 mark] and
(iii) the employee’s remuneration is paid to him outside HK. [1 mark]
In the present case, although the negotiation and signing of the employment contract
were outside HK, Mr Lee is employed by a company incorporated and carrying on
business in HK, as a general manager, and the contract is likely to be enforceable in
P. 2
HK. Also, his remuneration is paid to him in HK. As such, Mr Lee has a HK
employment and his income is chargeable under section 8(1) of the Inland Revenue
Ordinance. [2 marks]
(b)
Mr Lee
Computation of share option gain
Market value of shares at the date of exercise (100,000 × $8)
Less: Cost of shares (100,000 × $3)
Share option gain
$
800,000
(300,000)
Marks
1
1
500,000
2
$
1,440,000
90,000
Marks
0.5
0.5
25,000
32,000
0.5
0.5
54,000
18,000
0.5
0.5
(c)
Mr Lee
Salaries tax computation
Year of assessment 2011/12
Basis period: year ended 31 March 2011
$
Salaries
Bonus
Holiday journey benefit
Electricity, gas and water bills
Entrance fee and membership fee of Recreation
club ($60,000 + $48,000)/2
Petrol allowance ($1,500 × 12)
1,659,000
Less: Allowance outgoings and expenses
Self education expense
2,500
10,000
(12,500)
0.5
0.5
1,646,500
Rental value
$(1,646,500 + 10,000) × 1/12 × 4%
$(1,646,500 + 10,000) × 11/12 × 10%
5,521
151,845
Less: Rent suffered $(25,000 – 24,000) × 11
157,366
(11,000)
1
1
146,366
1,792,866
500,000
Share option gain
Net assessable income
Less: Concessionary deductions
2,292,866
P. 3
1
Approved charitable donations
200,000
Contributions to MPF scheme
12,000
0.5
(212,000)
0.5
2,080,866
Less: Married person’s allowance
Child allowance
216,000
60,000
Net chargeable income
(276,000)
0.5
1
1,804,866
Tax at progressive rate
40,000 @ 2%
40,000 @ 7%
800
2,800
40,000 @ 12%
1,684,866 @ 17%
4,800
286,427
294,827
0.5
Net assessable income at standard rate:
$2,080,866 × 15%
312,129
0.5
Lower of standard rate and progressive rate
Less: Tax rebate
294,827
(12,000)
0.5
Salaries tax payable
282,827
11
P. 4
Answer – Exercise 4
(a)
Mr Chan
Salaries tax computation
Year of assessment 2011/12
Basis period: year ended 31 March 2012
Salaries ($40,000 × 12)
Bonus
Holiday passage allowance
Child education
$
480,000
40,000
50,000
150,000
Assessable income
Less: Travelling expenses
720,000
(20,000)
Net assessable income
700,000
Less: Concessionary deductions
Approved charitable donations
Contributions to MPF scheme
88,000
12,000
100,000
600,000
Less: Personal allowance
Basic allowance
108,000
Child allowance
60,000
Net chargeable income
(168,000)
432,000
Tax at progressive rate
40,000 @ 2%
40,000 @ 7%
40,000 @ 12%
312,000 @ 17%
800
2,800
4,800
53,040
61,440
Net assessable income at standard rate:
$600,000 × 15%
90,000
Lower of standard rate and progressive rate
Less: Tax rebate
Salaries tax payable
61,440
(12,000)
49,440
P. 5
Mrs Chan
Salaries tax computation
Year of assessment 2011/12
Basis period: year ended 31 March 2012
Salaries
Less: Basic allowance
$
360,000
108,000
Net chargeable income
252,000
Tax at progressive rate
40,000 @ 2%
800
40,000 @ 7%
40,000 @ 12%
132,000 @ 17%
2,800
4,800
22,440
30,840
Net assessable income at standard rate:
$360,000 × 15%
54,000
Lower of standard rate and progressive rate
Less: Tax rebate
30,840
(12,000)
Salaries tax payable
18,840
Mr and Mrs Chan
Salaries tax computation – joint assessment
Year of assessment 2011/12
Basis period: year ended 31 March 2012
$
Aggregate net assessable income (700,000 + 360,000)
Less: Concessionary deduction
Approved charitable donation
88,000
Contributions to MPF
12,000
$
1,060,000
100,000
960,000
Less: Personal allowance
Basic allowance
Child allowance
216,000
60,000
Net chargeable income
(276,000)
684,000
Tax at progressive rate
P. 6
40,000 @ 2%
800
40,000 @ 7%
40,000 @ 12%
564,000 @ 17%
2,800
4,800
95,880
104,280
Net assessable income at standard rate:
$960,000 × 15%
144,000
Lower of standard rate and progressive rate
Less: Tax rebate
104,280
(12,000)
Salaries tax payable
92,280
Conclusion: Mr and Mrs Chan should not elect joint assessment as it cannot reduce
their salaries tax liability.
P. 7