Hong Kong Taxation-Salary Tax Computation

Question 2

Dennis Dan and his wife, Debbie Dan who is a housewife, provided you with the following information relating to their financial affairs for the year ended 31 March 2020:

(i) On 1 April 2019 Dennis took up a position as Company Secretary with Dragonet Limited (Dragonet), a Hong Kong listed company. His annual salary and bonus amounted to $900,000 (excluding the rental allowance as mentioned in (ii) below).

(ii) For several years Dennis owned and lived in his flat in Causeway Bay. After he joined Dragonet, the accountant told Dennis that he could structure his remuneration package in whatever manner he wishes. Dennis took his advice and designated $40,000 of his monthly pay as rental allowance with effect from 1 April 2019. However there is no written tenancy agreement between Dragonet and Dennis.

(iii) Dragonet provides Dennis with a new car (cost $450,000) in the companys title, which he uses for private and business purposes on a 60:40 basis.

(iv) Dragonet also provides him with a petroleum card taken out in the companys name. Dennis charges all his petrol expenditure amounting $20,000 to this card.

(v) Dragonet paid for the annual membership fee of $48,000 for Dennis personal club membership with the Hong Kong Golf Club. Dennis regularly used the club facilities to entertain his own family members as well as Dragonets staff members.

(vi) Dragonet reimbursed Dennis $42,000 for his total entertainment expenditure at the club (see (v) above) upon production of receipts. This comprised of $17,000 private entertainment expenses, whereas the remaining $25,000 related to Dragonets staff entertainment.

(vii) Dennis contributed a total of $28,800 (comprises of mandatory contribution of $18,000 and voluntary contribution of $10,800) to the Mandatory Provident Fund Scheme during the year. Dragonet contributed another 8% of his total salary and bonus to the Scheme.

(viii)Dennis elderly mother (aged 62) was living together with him until she suddenly became ill in October 2019. Dennis was forced to put her in a nursing home for full-time medical care. The residential care expense of $80,000 was paid to the nursing home.

(ix) Dennis and Debbie have two children aged 28 and 23: The elder daughter is a full-time master student at Hong Kong Baptist University. She lived at the university during the year, and was employed as a part-time teaching assistant at a monthly salary of $12,000. The younger son was studying full time in the University of Sydney until he graduated in February 2020. He is now seeking for a job offer.

Required: (a) Compute Dennis and Debbies total tax liabilities for the year of assessment 2019/20. Ignore provisional tax and any one-off tax reduction for 2019/20. (11 marks) (b) Comment specifically upon the tax treatments you have accorded to the various issues raised in items (ii) to (viii). (14 marks)