Question 3

Mr Shiu has been transferred from an Australian parent company to work for a subsidiary in Hong Kong as the Asian Marketing Manager under a five-year contract commencing 1 January 2015. Whilst his employment contract was negotiated and concluded in Australia, his salary would be paid into his bank account in Hong Kong. Mr Shiu stayed the following places during the years of assessment 2018/19 and 2019/20:

2018/19 2019/20

$ $

Hong Kong 285 315

Mainland China 65 40

Japan (on vacation) 15 10

365 365

Below is information in respect of Mr Shiu for the year ended 31 March 2020:

1. (i)Salary and bonus amounted to $700,000 and $100,000 respectively.
2. (ii)The employer purchased a holiday package for $80,000 from a travel agency for Mr Shiu's family trip to Europe in the summer 2019. This holiday package can be resold to third party at $60,000.
3. (iii)Contract gratuity of $600,000 paid on 16 April 2020. Mr Shiu elected to relate back the contract gratuity.
4. (iv)The employer provided an accommodation to Mr Shiu free of charge. Mr Shiu was only required to pay a nominal rent of $3,000 per month to his employer.
5. (v)On 16 October 2018 Mr Shiu was granted a conditional option to purchase 50,000 shares of his employer with exercise price of $4 per share. He exercised the option on 1 June 2019 and sold the shares on 15 August 2019. The market value per share were as follow:

16 October 2018 $7

1 June 2019 $8

15 August 2019 $9

(vi) Mr Shiu incurred the following expenses during the year ended 31 March 2020:

- Self-education expenses: $90,000.

- Fees paid to a registered nursing home in Shatin for Mr Shiu's mother who was aged

65 in 2019: $76,000.

- Contribution to a recognized retirement scheme: $48,200.

(vii) Mrs Shiu was a part time clerk of a local accounting firm during the year ended 31 March 2020. She received salary totaled $120,000 and contributed $6,000 to a MPF scheme.

(viii)Mrs Shiu paid cash donations to an approved charitable institution for $80,000 during the year.

(ix) Mr and Mrs Shiu have been maintaining a child who was born on 3 November 2019.

Required:

a) Discuss how Mr Shiu would be chargeable to Hong Kong salaries tax.

b) Compute the Hong Kong salaries tax liabilities of Mr and Mrs Shiu for the year of assessment 2019/20 under joint assessment. Show all your workings and ignore any tax rebates and provisional tax. Advise whether it is advantageous for Mr and Mrs Shiu to elect for joint assessment in the year of assessment 2019/20.