ANSWER 6: SALARIES TAX - ASSESSABLE INCOME, RELATING BACK OF LUMP SUMS AND

INCOME FROM OFFICE OR EMPLOYMENT

1.
a.
Mr Brown
Computation of contract gratuity related back
No. of Amount of
Year of assessment Period of service months Gratuity
$
2018/19 1.1.2019 – 31.3.2019 3 45,000
2019/20 1.4.2019 – 31.3.2020 12 180,000
2020/21 1.4.2020 – 31.12.2020 9 135,000
24 360,000

Mr Brown
Salaries tax
Years of assessment 2019/20 and 2020/21
2019/20 2020/21
$ $ $ $
Salary 720,000 750,000
Bonus 60,000 60,000
Travelling allowance 24,000 30,000
Passage allowance 50,000 80,000
Share option (working 1) - 190,000
Contract gratuity 180,000 135,000
1,034,000 1,245,000
Rental value (working 2) 87,890 105,500
Less: Rent suffered (18,000) 69,890 (24,000) 81,500
1,103,890 1,326,500
Workings: $ $
(1) Share option
Market value at the time the option was exercised
(100,000 x $3) 300,000
Less: Cost of option 10,000
Cost of shares (100,000 x $1) 100,000 (110,000)
Assessable amount 190,000

This study source was downloaded by 100000832538485 from CourseHero.com on 01-11-2023 10:12:38 GMT -06:00

https://www.coursehero.com/file/86267774/ACCT3006-T06Apdf/
 (2) Rental value
Year of assessment 2019/20
$1,034,000 x 3/12 x 4% 10,340
$1,034,000 x 9/12 x 10% 77,550
87,890
Rent suffered = $22,000 x 9 - $180,000 18,000

Year of assessment 2020/21

$(1,245,000 – 190,000) x 10% 105,500
Rent suffered = $22,000 x 12 - $240,000 24,000

Note (Not required by question)

Contract gratuity would not be excluded from the computation of rental value for
communication of employment.

b.

(i) Under S11D of the Inland Revenue Ordinance, the following income can be
related back:

- a lump sum payment or gratuity paid upon the termination of:

· an office,

· employment, or

· any contract of employment; or

- a lump sum payment of deferred pay or arrears of pay.

(ii) Application for relating back of lump sum income must be made in writing
within 2 years after the end of the year of assessment in which the
payment is made.

This study source was downloaded by 100000832538485 from CourseHero.com on 01-11-2023 10:12:38 GMT -06:00

https://www.coursehero.com/file/86267774/ACCT3006-T06Apdf/
 2.

a.
Mr Laird
Computation of gain on share option
Year of assessment 2019/20
$ $
Proceeds of option 50,000
Less: Cost of option ($10,000 x 1/2) (5,000)
Total gain 45,000
Gain attributable to Hong Kong services ($45,000 x 245/365) 30,205

Year of assessment 2020/21

Market value of shares at date of exercise (50,000 x $8) 400,000
Less: Cost of shares (50,000 x $2) 100,000
Cost of option ($10,000 x 1/2) 5,000 (105,000)
Total gain 295,000
Gain attributable to Hong Kong services ($295,000 x
245/365) 198,013

b.
Mr Laird
Salaries Tax
Year of assessment 2019/20
$ $
Salary 960,000
Bonus 80,000
Passage allowance 18,000
1,058,000
Income attributable to Hong Kong services ($1,058,000 x 710,164
245/365)
Add: Allowance for stay in Hong Kong 7,350
717,514
Rental value ($717,514 x 10%) 71,751
Less: Rent suffered ($1,000 x 12) (12,000) 59,751
777,265
Gain on share option 30,205
Net assessable income before concessionary deductions 807,470

This study source was downloaded by 100000832538485 from CourseHero.com on 01-11-2023 10:12:38 GMT -06:00

https://www.coursehero.com/file/86267774/ACCT3006-T06Apdf/
 c.
Year of assessment 2020/21
$ $
Salary 996,000
Bonus 85,000
Passage allowance 24,000
1,105,000
Income attributable to Hong Kong services
$1,105,000 x (210 + 30 x 210/335) / 365 692,686
Allowance for stay in Hong Kong 6,300
Director’s fee 120,000
818,986
Rental value ($818,986 x 10%) 81,898
Less: Rent suffered ($1,000 x 12) (12,000) 69,898
888,884
Gain on share option 198,013
1,086,897
Less: Elderly residential care expense (54,000)
1,032,897
Less: Married person’s allowance 264,000
Child allowance 120,000 (384,000)
Net chargeable income 648,897
Tax at progressive rate $(648,897 – 200,000) x 17% + 92,312
$16,000
Limitation test: $1,032,897 x 15% 154,934
Salaries tax payable 92,312

This study source was downloaded by 100000832538485 from CourseHero.com on 01-11-2023 10:12:38 GMT -06:00

https://www.coursehero.com/file/86267774/ACCT3006-T06Apdf/
Powered by TCPDF (www.tcpdf.org)