Case Study 01 Mr. Lee is a retired Hong Kong resident and holds various properties in Hong Kong generating rental income to sustain his retired living. The details of the properties leased for the year ended 31 March 2017 are as follows: Property A (a shop at Shumshuipo) The property was let to a sole proprietor for a term of three years commencing from 1 January 2016 at a monthly rental of HKS45,000 (payable in advance on the first day of each month). Upon commencement of the lease, the tenant also paid a premium ("the Premium") of HKS162,000. The management fee of the property was payable by the tenant, whilst the Rates of HKS15,000 per quarter (after Rates deduction, if any) for the year ended 31 March 2017 were payable by Mr. Lee. Property B (a residential flat at North Point) a The property was let to a new individual tenant for a term of two years commencing from 1 April 2016 at a monthly rental of HKS26,000 (payable in advance on the first day of each month). The tenant has also paid HKS26,000 as deposit (refundable upon completion of the lease), whilst a rent-free period of half a month was granted to the tenant upon commencement of the lease. The management fee of HKS4.000 per month and the Rates of HKS6,500 per quarter (after Rates concession, if any) were all payable by Mr. Lee. In September 2016,the Inland Revenue Department has agreed with Mr. Lee that the outstanding rent of HKS360,000 (after setting off the deposit paid by the previous tenant) derived in prior years was irrecoverable and became bad debts under the relevant provisions of the Inland Revenue Ordinance for property tax purposes("the Bad Debts"). Properties C&D (two residential properties of the same gross floor area in a building on different floors in Chaiwan) The two properties were collectively leased to a company in Hong Kong as staff quarters for two years commencing from 1 December 2016 at a monthly rental of HKS47,000 in total, payable in advance on the first day of each month. Property management fee of HKS3,000 per month for each property and Rates of HK$5,100 per quarter (after Rates concession, if any) for each property during the year ended 31 March 2017 were all payable by Mr. Lee. Required: Ignore provisional tax and tax rebate a) Based on the information available above, calculate the property tax liabilities (separately) of Mr. Lee from the consideration for the year of assessment 2016/2017: (i) Property A (ii) Property B (ii) Property C&D b) Explain your tax treatment on the following items: i. the Premium ii. the Bad Debts Case Study 01 Mr. Lee is a retired Hong Kong resident and holds various properties in Hong Kong generating rental income to sustain his retired living. The details of the properties leased for the year ended 31 March 2017 are as follows: Property A (a shop at Shumshuipo) The property was let to a sole proprietor for a term of three years commencing from 1 January 2016 at a monthly rental of HKS45,000 (payable in advance on the first day of each month). Upon commencement of the lease, the tenant also paid a premium ("the Premium") of HKS162,000. The management fee of the property was payable by the tenant, whilst the Rates of HKS15,000 per quarter (after Rates deduction, if any) for the year ended 31 March 2017 were payable by Mr. Lee. Property B (a residential flat at North Point) a The property was let to a new individual tenant for a term of two years commencing from 1 April 2016 at a monthly rental of HKS26,000 (payable in advance on the first day of each month). The tenant has also paid HKS26,000 as deposit (refundable upon completion of the lease), whilst a rent-free period of half a month was granted to the tenant upon commencement of the lease. The management fee of HKS4.000 per month and the Rates of HKS6,500 per quarter (after Rates concession, if any) were all payable by Mr. Lee. In September 2016,the Inland Revenue Department has agreed with Mr. Lee that the outstanding rent of HKS360,000 (after setting off the deposit paid by the previous tenant) derived in prior years was irrecoverable and became bad debts under the relevant provisions of the Inland Revenue Ordinance for property tax purposes("the Bad Debts"). Properties C&D (two residential properties of the same gross floor area in a building on different floors in Chaiwan) The two properties were collectively leased to a company in Hong Kong as staff quarters for two years commencing from 1 December 2016 at a monthly rental of HKS47,000 in total, payable in advance on the first day of each month. Property management fee of HKS3,000 per month for each property and Rates of HK$5,100 per quarter (after Rates concession, if any) for each property during the year ended 31 March 2017 were all payable by Mr. Lee. Required: Ignore provisional tax and tax rebate a) Based on the information available above, calculate the property tax liabilities (separately) of Mr. Lee from the consideration for the year of assessment 2016/2017: (i) Property A (ii) Property B (ii) Property C&D b) Explain your tax treatment on the following items: i. the Premium ii. the Bad Debts