Albert Ho is the Sales Manager of Hurricane Ltd, a company carrying on business in Hong Kong. He provided you with the following information relating to the year ended 31 March 2020:

1. His salary was $750,000 for the year. He also received commission of $150,000.

2. He received a housing allowance of $20,000 per month. He rented a flat at a monthly rent of $15,000. He was required to provide the rental receipts to the employer on a quarterly basis for record to continuing receiving the allowance. However, he was allowed to keep the excess amount of allowance.

3. He used his own motor car for meeting clients. He incurred fuel and parking fees for a total of $60,000. The Inland Revenue Department agreed that 40% of the car was used for employment purpose. Depreciation allowance of the motor car is $30,000 for the year.

4. He joined a social club for the purpose of fostering business contacts. He paid subscriptions of $5,600 and received a full refund from Hurricane Ltd.

5. Albert attended a trade fair in New York in May 2019. Hurricane Ltd provided him with the air tickets and hotel accommodation for this business trip. Albert routed through San Francisco to visit his relatives before returning to Hong Kong. The cost of the air tickets and hotel charge were $13,000 and $5,000 respectively. Due to the stopover in San Francisco, the cost of the air tickets was $4,000 higher than the round trip tickets between Hong Kong and New York.

6. On 5 May 2019, he was granted a share option to subscribe for 70,000 shares in the company at $6 each. He paid $7,000 to acquire the option right. On 10 October 2019, he exercised the option to subscribe for 40,000 shares. These shares were sold on 15 December 2019. On 6 January 2020, he assigned the remaining option right to his colleague for $80,000.

The market values per share on respective dates were as follows:

5 May 2019 $10

10 October 2019 $11

15 December 2019 $12

6 January 2020 $9

7. Albert was enrolled in the employer's group medical insurance scheme. Hurricane Ltd paid a premium of $10,000 for his medical cover. During the year, he obtained a medical refund of $6,500 from the insurance company.

8. Albert studied a master's degree in marketing programme offered by a local university and paid tuition fee of $80,000 during the year. He also spent $2,000 to buy reference books.

9. Albert was enrolled in Hurricane Ltd's recognised occupational retirement scheme. He made contributions of $20,000 to the scheme during the year.

10. Albert purchased voluntary health insurance scheme policies for his son and his mother. He paid qualifying premiums of $5,000 and $10,000 respectively on 10 June 2019. He also purchased a qualifying deferred annuity policy with himself as sole holder and annuitant on 5 November 2019, and paid qualifying premium of $80,000.

11. During the year, Albert donated cash of $20,000 to the Red Cross.

12. Albert has a son, aged 24, who was pursuing full-time study at a university in United Kingdom. Albert's mother, aged 67, was residing with him during the year. Albert's father, aged 77 and certified to be physically disabled by a medical officer, was residing in a registered elderly caring home for which Albert has paid $120,000 for his residential fee.

Albert's wife, Loretta, works as a vice president in sales of a Hong Kong company. Recently, she was approached by a head-hunter to work for a group of companies. She would be appointed as a director and a brand manager of a company which is resident outside Hong Kong. Her remuneration will be $800,000 per year in total, which may be received in form of director's fee and salary. While she needs to travel outside Hong Kong regularly, she will also spend substantial time working in Hong Kong.

Required:

(a) Prepare the Hong Kong salaries tax computation for Albert Ho for the year of assessment 2019/20 under separate taxation. You may assume that he would claim all the deductions and allowances which he is eligible. Ignore provisional tax. Show all the workings. Explanatory writing is NOT required for this part of the question.

(b) Explain the salaries tax treatment of the followings :

(i) insurance premium and medical refund (note 7);

(ii) tuition fee (note 8); and

(iii) contributions to the retirement scheme (note 9).

(7 marks)

(c) Advise Loretta on how she may split her total remuneration from the new engagement in term of director's fee and salary in order to reduce her salaries tax liability in Hong Kong. You may ignore her tax liability outside Hong Kong.

Tax Rates

Standard rate 15%

Corporate profits tax rate

First $2,000,000 8.25%

Remainder 16.5%

Progressive rates

First $50,000 2%

Next $50,000 6%

Next $50,000 10%

Next $50,000 14%

Remainder 17%

Tax Reduction (where applicable)

Percentage of reduction 100%

Maximum per case $20,000

Personal Allowances $

Basic 132,000

Married person's 264,000

Child - 1st to 9th (each) 120,000

Additional (for year of birth, each) 120,000

Dependent parent / grandparent (each)

Basic 50,000

(aged 55 or above but below 60: $25,000)

Additional 50,000

(aged 55 or above but below 60: $25,000)

Dependent brother / sister (each) 37,500

Single parent 132,000

Personal disability 75,000

Disabled dependant (each) 75,000

Deductions (maximum)

Self-education expenses 100,000

Home loan interest 100,000

Elderly residential care expenses 100,000

Contributions to recognised retirement schemes 18,000

VHIS policy premiums (for each insured person) 8,000

Annuity premiums and tax deductible MPF voluntary contributions 60,000

Depreciation Allowance

Plant and machinery

Initial - 60%

Annual - Air-conditioning plant: 10%

Furniture and fixtures, office equipment, room air-conditioning units,

domestic appliances: 20%

Motor vehicles, electronic data processing equipment (computer),

electric cookers, production machines: 30%