Question 3

Mr. and Mrs. Fong supply you with the following information relating to the year ended 31 March 2019:

1. Mr. Fong was employed as a senior engineer of Peak Construction Ltd in Hong Kong. His basic salary was $70,000 per month.
2. On 3 April 2019, he received leave pay of $23,000 for not taking the balance of his leave entitlement for the year ended 31 March 2019. According to the terms of his employment contract, he became entitled to claim the leave pay for the year ended 31 March 2019 in April 2019.
3. During the year, Mr. Fong spent time working in China to review various agreements for a new project. $210,000 of Mr. Fongs salary for the year was attributable to services rendered in China on which he had paid $39,000 income tax in China (same nature as Hong Kong salaries tax).
4. On 20 June 2018, Mr. Fong acquired a new flat in Mongkok. His family moved into the new flat by the end of July 2018. The property cost was $4,150,000 and was financed by a low interest mortgage loan offered by Peak Construction Ltd. Mr. Fong paid $108,000 to Peak Construction Ltd as interest for the loan during the year ended 31 March 2019. The market interest for the loan was

$250,000 for the year.

5. Mr. Fong was entitled to participate in a share option plan established by Peak Construction Ltd. He was granted 8,000 options at $6 each on 1 September 2018 (market value $15 per share). The cost of option was $2 per share. He exercised all the options on 28 December 2018 (market value

$16 per share) and sold them on 31 December 2018 (market value $17 per share).

6. Peak Construction Ltd operated a medical insurance scheme for all its employees through CARE, an insurance company based in Hong Kong. Under this scheme, Peak Construction Ltd. arranged with CARE to insure each employee against illness and accident. Peak Construction Ltd paid an annual premium of $4,200 per employee to CARE. During the year, Mr. Fong was injured in a traffic accident. He incurred medical expenses of $26,500, of which $21,000 was reimbursed by CARE.
7. In February 2019, Peak Construction Ltd provided Mr. Fong with a new car (cost $330,000) which he could, and did, use for private (40%) as well as business (60%) purposes. Mr. Fong incurred

$16,000 petrol and running costs for the period. Although the 60% business use of the car was essential for performing his employment duties, Peak Construction Ltd did not reimburse any costs to Mr. Fong. (Hint: The company provided Mr. Fong the right to use the car, which is not convertible to cash.)

8. During the year, Mr. Fong paid annual membership subscriptions of $4,000 to the Association of Consulting Engineers of Hong Kong. Being a member of this association is a prerequisite of his employment.
9. Mr. Fong realised that many clients like golf. To equipment himself with the basic knowledge of golf, he joined a training course organised by the sport centre of the University of Hong Kong and paid tuition fee of $1,800.
10. In order to practise his golf skills and to develop a closer relationship with clients, Mr. Fong joined the Golf Club and paid annual membership fee of $28,000 on 1 March 2019. Peak Construction Ltd reimbursed the full amount to Mr. Fong on 30 March 2019.
11. Mrs. Fong received salary of $88,000 for undertaking a translation job during the year.
12. During the year, Mr. Fong made a mandatory contribution of $1,000 per month and a voluntary contribution of $3,000 per month to a Mandatory Provident Fund Scheme operated by Peak Construction Ltd. Mrs. Fong made mandatory contributions of $4,400 to the Mandatory Provident

Fund Scheme operated by her employer during the year. Hint: In the year of assessment 2018/19, only mandatory contributions to recognized retirement schemes are deductible, voluntary contributions are not deductible.)

13. Mr. and Mrs. Fong each made a donation to an approved charitable institution, in the amount of

$50,000 and $26,000 respectively. In addition, Mr. Fong donated a computer (cost $9,000) to an approved charitable institution.

14. At all times during the year, they maintained three children. The eldest child (aged 26) was taking a full-time master course at the Chinese University of Hong Kong. The second child (aged 22) was taking a full-time associated degree course at the Polytechnic University. The third child (aged 19) worked as a kindergarten teacher.
15. Mr. Fong maintained and lived with his brother (aged 39), who suffers from a disability since birth and is eligible to claim an allowance under the Governments Disability Allowance Scheme.
16. Mrs. Fong fully supported her mother, aged 70, who lived in an elderly residential care home in Sha Tin. Mrs. Fong paid $75,000 to the home for residential care expenses. The home was licensed under the Residential Care Homes (Elderly Care) Ordinance.

Required

1. Compute Mr. and Mrs. Fongs net chargeable income under joint assessment for the year of assessment 2018/19. (Ignore provisional salaries tax).

Salaries tax liabilities of Mr. and Mrs. Fong for the year of assessment 2018/19

	Note	Mr. Fong	Mrs. Fong	Joint
		$	$	$