HK Taxation: Unit 5 - Salaries Tax

HK TAXATION
Unit 5 – Salaries Tax(3)

Question 14
Priscilla CHAN 2009054389

Carly CHUNG 2009532135
Kevin LI 2009277981
Sharon YAU 2009557800
Sindy YIU 2009149445
The Scenario
Mr Ching
a PRC Resident
Employed as a sales manager by
Wang Laboratories Ltd in HK
Y/A 2009/10
(1)
IRO
S8(1)(a)
HK-sourced employment
Service in HK
Not visiting or visiting > 60 days
Fully taxable
Key Issue (1)
Annual Salary of $240,000 from
Wang Laboratories Ltd in HK
Application of IRO
HK-sourced employment 
Service in HK 
Not visiting or visiting > 60 days 
Fully taxable 
Presentation
Salary $60,000 $120,000 $60,000

Meal Allowance $3,000
Reimbursement for gas & utilities $3,000
Housing Subsidy $60,000
Outstanding Performance Award $1,250 $2,500 $1,250
Refund on annual subscription $375 $750 $375
Rental Value: 8%($64,625-$10,000X12X60%-$21,600X(3/12)X60%) $4,790 - -
10%($126,250-$10,000(6/12)x60%) - $2,677 -
Share Option $435 $870 $435
Assessable Income $69,850 $129,797 $122,060
(2),(3)
IRO
S9(1)(b)
Place of residence provided by ER
ER paid all the rent
 rental value taxable
S9(2)(a)
place of residence be a hotel
2 rooms
 rental value be 8% x (AI – outgoing
and expense- DA)
IRO
S9(1)(a)
Income from employment includes
Wages, salaries, bonuses, leave pay,
fees, commissions, gratuities,
perquisites or allowance
 taxable
Key Issue (2&3)
1/4/09 – 30/6/09 [3months]
2 hotel rooms provided
Meal All’ce $1,000/month

Application of IRO
S9(1)(b)
Place of residence provided by ER 
ER paid all the rent 
 rental value taxable 
S9(2)
place of residence is hotel

2 rooms
 be 8% x (AI – outgoing and
 rental value
expense- DA) 
Application of IRO
S9(1)(a)
perquisites or allowance 
 taxable 
Presentation
Salary $60,000 $120,000 $60,000

10%($126,250-$10,000(6/12)x60%) - $2,677 -
IRO
S(9)(1)(c)
ER paid part of the rent
(rental value – rent borne by EE) taxable
S9(2)
Rental value = 10% x (AI – outgoing
expenses-DA)
IRO
S(9)(1)(a)
Expense Allowance
Discharge of ER’s own liability OR
Reimbursement of deductible expenses
 taxable
Key Issue (2&3)
1/7/09 – 31/12/09 [3months]
Flat
EE paid rent, rate, mgt fee totaling

$21,500/month
ER reimbursed $20,000/month
Application of IRO
S(9)(1)(c)
Place of residence provided by ER 
ER paid part of the rent 
 (rental value – rent borne by EE) taxable 
S9(2)
Rental value = 10% x (AI – outgoing
expenses-DA) 
Application of IRO
S(9)(1)(a)
fees, commissions, gratuities, perquisites
or allowance
Expense Allowance
Discharge of ER’s own liability OR
Reimbursement of deductible expenses 
taxable 
Presentation
Salary $60,000 $120,000 $60,000

10%($126,250-$10,000(6/12)x60%) - $2,677 -
IRO
S(9)(1)(c)
ER paid part of the rent
 (rental value – rent borne by EE) taxable
IRO
S(9)(1)(a)(iv)
Liability test
ER has sole & primary liability and
Not person was a surety
 Not assessable
Key Issue (2&3)
1/1/10 – 31/03/10 [3months]

EE acquire flat under joint name with wife
ER housing subsidy $20,000 per month
ER reimburse utility expenses $3,000 whole
period
ER contract with domestic helper $4,000/month
Application of IRO
S(9)(1)(c)
Place of residence provided by ER 
ER paid part of the rent 
 taxable 
Application of IRO
S(9)(1)(a)(iv)
Liability test
ER has sole & primary liability and 
Not person was a surety 
 Not assessable 
Presentation
Salary $60,000 $120,000 $60,000

10%($126,250-$10,000(6/12)x60%) - $2,677 -
(4)
IRO
S9(1)(a)
taxable
Key Issue (4)
EE receive an award $5000
outstanding job performance

Application of IRO
S9(1)(a)
perquisites or allowance 
taxable 
Presentation
Salary $60,000 $120,000 $60,000

10%($126,250-$10,000(6/12)x60%) - $2,677 -
(5)
IRO
S12(1)(a)
Outgoing and expense
Not domestic, private or capital
Wholly ,exclusively and necessarily Incurred in
the production of AI
For dual purpose and
Amount is separable and identifiable
Apportionment allowed
 deductable
IRO
S12(1)(a)
Depreciation allowance
Plant and machinery only
Essential for production of AI
Apportionment between business & private use
deductable
Key Issue (5)
EE purchased a car to meet clients
40% for private use (assessor agreed)
EE paid insurance and licensing fees
$10,000 per annum
DA is given as $21,600
Application of IRO
S12(1)(a)
Not domestic, private or capital 
Wholly ,exclusively
For dual purpose and

Amount is separable and identifiable 
Apportionment allowed

And necessarily Incurred
in the production of AI


 deductable 
Application of IRO
S12(1)(a)
Depreciation allowance
Plant and machinery only 
Essential for production of AI 
Apportionment between business & private use
(given)
deductable 
Presentation

Less: Insurance & licence fees $1,500 $3,000 $1,500
Depreciation Allowance $3,240 $6,480 $3,240
$4,740 $9,480 $4,740
Net Assessable Income $65,110 $120,317 $117,320
Total Net Assessable Income (NAI) $302,747
(6)
IRO
S12(1)(a)
Not domestic, private or capital
Wholly ,exclusively
and necessarily
incurred in the production of AI
Direct connection between expenditure and
production of income
Not sufficient if only enable the duty to perform
 deductable
Key Issue (6)
• EE paid $3000 annual subscription
to join the HK Country Club (asked
by ER)
• ER refunded $1500 to EE
Application of IRO
S12(1)(a)
Not domestic, private or capital 
Wholly ,exclusively 
and necessarily 
Essential to the conduct of employment 
Not sufficient if only related to and aid
production of income
Application of IRO
S12(1)(a)(continue)
incurred in the production of AI
Direct connection between expenditure and
production of income 
Not sufficient if only enable the duty to
perform
 deductable 
Presentation
Salary $60,000 $120,000 $60,000

10%($126,250-$10,000(6/12)x60%) - $2,677 -
(7)
IRO
S9(1)(d)
Share Option
Obtained as holder of an office/ employment
Gain realized on exercise or assignment or
release of share option
taxable
Key Issue (7)
1/12/08
ER granted EE a share option
cost of $100 to purchase 1,000 shares @ $2 each
12/1/09
EE sold the option
4/9/09
EE exercised 600 shares (Market price @ $5 each)
Application of IRO


Computation
Taxable gain = the excess of market value on
date of exercise over consideration given for
the shares and option
$5x 600 – ($100 x 600/1000 + $2 x600)
= $1740
Presentation
Salary $60,000 $120,000 $60,000

10%($126,250-$10,000(6/12)x60%) - $2,677 -
(8)
IRO
S29
Married person allowance
Married and
His/her spouse does not have AI
 Grant
IRO
S31
Child Allowance
maintain unmarried child at any time
during Y/A
One of age requirement:
Aged ≥18 but < 25 and receive full-time
education
 Grant
Key Issue (8)
EE’s wife no AI
EE’s son aged 19
Studies in Canada
EE’s sister paid EE’s son’s school

fee & wholly supported his living
Application of IRO
S29
Married person allowance
Married and 
His/her spouse does not have AI 
 Grant
Application of IRO
S31
Child Allowance
maintain unmarried child at any time
during Y/A 
One of age requirement:
Aged ≥18 but < 25 and receive full-time
education 
 Grant 
Presentation

Less: Concessionary Deductions under Part IVA
Approved Charitable Deductions (limit to 25%) $105,961.45
Elderly Residential Care Expense (Mrs. Ching's mother & father) $120,000
Contribution to Retirement Scheme $12,000
Net Assessable Income After Concessionary Deductions $64,785.55
Less: Personal Allowance under Part V
Married Person All'ce $216,000
Dependent Parent All'ce (DPA - Mr. Ching's Mother) $60,000
Disabled Dependent All'ce (Mrs. Ching's Mother) $60,000
Net Chargeable Income (NCI) ($271,214.45)
(9)
IRO
S30
Dependent Parent Allowance
the person or spouse not living apart
maintains his/her or spouse’s parent
Parent Ordinarily resident in HK and
Aged ≥60 or aged <60 but eligible to claim
the Gov’t’s disability allowance
 Grant
IRO
Additional Dependent parent
allowance
Taxpayer reside with parent
continuously throughout Y/A
grant
Key Issue (9)
EE’s mother aged 65

lives together with the EE’s family
EE’s father aged 67

fully maintained by the EE, but
Lives in the PRC

Application of IRO
S30
Dependent Parent Allowance
personor spouse not living apart
maintains his/spouse’s parent(M) (F)
Parent Ordinarily resident in HK and(M) (F)
Aged ≥60 or aged <60 but eligible to claim
the Gov’t’s disability allowance (M) (F)
 Grant (M) (F)
Application of IRO
Additional Dependent parent
allowance
Taxpayer reside with parent
continuously throughout Y/A (M
)
grant (M)
Presentation

(10)
IRO
S26(D)
Elderly residential Care expense
ERCE paid by the person or his/her spouse to a
residential care home in respect of the person’s
or his/her spouse’s parent or grandparent
Age ≥60 or <60 but eligible to claim the
Govn’t disability allowance
 Grant
Max $60,000 each elderly
IRO
S26(D) con’t
Elderly Residential Care expense
DDA can still be claimed if the same
elderly is eligible for the Govn’t
disability allowance
IRO
S31(A)
“dependent” eligible to claim the
Gov’t’s disability allowance
Dependent” includes Parent qualifying
for DPA/ERCE
 Grant
Key Issue (10)
EE’s mother-in-law aged 53
Oct 2009 Legs broken
Feb lodged claim on being eligible for Gov’t’s
2010, Disability All’ce
May received approval

2010,
EE’s father-in-law, aged 60
Both stay in a registered Nursing Home
EE paid ERCE totaling $150,000

Application of IRO
S26(D)
Elderly residential Care expense
ERCE paid by the person or his/her spouse to a
residential care home in respect of the person’s
or his/her spouse’s parent or grandparent
Age ≥60 or <60 but eligible to claim the Govn’t
(both)
disability allowance
 Grant (both) (both)
Application of IRO
S31(A)
“dependent” eligible to claim the
Gov’t’s disability allowance
Dependent” includes Parent qualifying
for DPA/ERCE  (mother-in-law)
 Grant (mother-in-law)
Presentation

(11)
IRO
S26C
Approved Charitable Donation
Aggregate of ACD made during the Y/A
by the person or his/her spouse
Cash
≧ $100 in aggregate
 Grant
Max : 35%x (AI-outgoing expenses- DA)
Key Issue (11)
Cash donation
$110,000
Po Leung Kuk
Application of IRO
S26C
Approved Charitable Donation
Aggregate of ACD made during the Y/A
by the person or his/her spouse
Cash 
≧ $100 in aggregate 
 Grant 
Max : 35%x (AI-outgoing expenses- DA)
Presentation

(12)
IRO
S26G
Contribution to Recognized retirement
Schemes
Recognized retirement scheme include MPF
Amount: lesser of Contribution paid by EE
or mandatory contribution to MPF
 Grant
Max : $12,000 in a Y/A
Key Issue (12)
EE made Mandatory contribution

$12,000 to MPF scheme
Application of IRO
S26G
Contribution to Recognized
retirement Schemes
RRS include MPF 
Amount: lesser of Contribution paid by
EE or mandatory contribution to MPF 
 Grant 
Max : $12,000 in a Y/A
Presentation

Final Computation
Salaries Tax of Mr Ching
Year of Assessment 2009/2010
1/4/09 - 30/6/09 1/7/09 - 31/12/09 1/1/10 - 31/3/10

Salary $60,000 $120,000 $60,000
10%($126,250-$10,000(6/12)x60%) - $2,677 -
Less: Insurance & licence fees $1,500 $3,000 $1,500
Depreciation Allowance $3,240 $6,480 $3,240
$4,740 $9,480 $4,740
Net Assessable Income $65,110 $120,317 $117,320
(NAI-Concessionary Deductions)X15% $9,717.83
Total Salaries Tax Liabitlity Nil
Thank You for Listening!

HK Taxation: Unit 5 - Salaries Tax

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HK TAXATION

Unit 5 – Salaries Tax(3)

Priscilla CHAN 2009054389

Salary $60,000 $120,000 $60,000

1/4/09 – 30/6/09 [3months]

2 hotel rooms provided

Meal All’ce $1,000/month

Salary $60,000 $120,000 $60,000

1/7/09 – 31/12/09 [3months]

EE paid rent, rate, mgt fee totaling

Salary $60,000 $120,000 $60,000

1/1/10 – 31/03/10 [3months]

Salary $60,000 $120,000 $60,000

EE receive an award $5000

outstanding job performance

Salary $60,000 $120,000 $60,000

Assessable Income $69,850 $129,797 $122,060

Salary $60,000 $120,000 $60,000

$5x 600 – ($100 x 600/1000 + $2 x600)

Salary $60,000 $120,000 $60,000

EE’s son aged 19

EE’s sister paid EE’s son’s school

Total Net Assessable Income (NAI) $302,747

EE’s mother aged 65

EE’s father aged 67

Lives in the PRC

Total Net Assessable Income (NAI) $302,747

May received approval

EE’s father-in-law, aged 60

Both stay in a registered Nursing Home

EE paid ERCE totaling $150,000

Total Net Assessable Income (NAI) $302,747

Total Net Assessable Income (NAI) $302,747

EE made Mandatory contribution

Total Net Assessable Income (NAI) $302,747

1/4/09 - 30/6/09 1/7/09 - 31/12/09 1/1/10 - 31/3/10

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