SECTION A (21 marks) Answer ALL questions from this section. Question 1 (21 marks) Mr Pang is the financial controller of AA Ltd, a company incorporated and carrying on business in Hong Kong. He is also a shareholder BB Ltd, which is also a Hong Kong company and is a wholly owned subsidiary of AA Ltd. You have been supplied with the following information regarding the year of assessment 2015/16: (1) Annual Salary: $1,500,000 (2) Bonus: $300,000 (3) Dividend: $15,000 (4) Mr Pang took a 8-day business trip to London and Mrs Pang travelled with him. AA Ltd paid the following expenses in connection with the trip: Mr Pang Mrs Pang $12.000 $12,000 Flight by British Airways Hotel $22,000 No extra cost Meals $25,000 $25,000 Local tour in London Nil $3,000 (5) Mr Pang earned a gain on share options of $495,000. (6) Mr Pang rented a flat for his residence at a monthly rent of $22,000. His employer refunded $18,000 to him upon production of tenancy agreement and rental receipts. (7) At the annual dinner of AA Ltd on 30 September 2015, he won a cash coupon of $3,000 in the lucky draw. (8) Mr and Mrs Pang had paid the following expenses during the year: Mr Pang Mrs Pang $ 2,350 $5,000 Membership subscriptions to HKICPA, a professional accountancy $2,350 body in Hong Kong Cash donations to the Community Chest, an approved charitable $15,000 institution in Hong Kong School fees for an accountancy degree programme at The Open $40,000 University of Hong Kong Fees paid to a residential care home in Hong Kong for Mr Pang's $60,000 father who is aged 70 SO SO (9) Mrs Pang is a housewife. The couple have a child aged 12. They are living with Mrs Pang's father and mother who are aged 65 and 58 respectively. REQUIRED: (a) Advise Mr Pang about the conditions under which an individual is entitled to a married person's allowance and if he is entitled to such an allowance. (5 marks) (b) Compute Mr Pang's salaries tax liability for the year of assessment 2015/2016. Ignore provisional salaries tax and tax rebates or reduction, if any. (11 marks) (c) Briefly explain the tax treatment of the following items under salaries tax: (i) Trip expenses paid by the company (item 4) (ii) Cash coupon (item 7) (5 marks) Summary of Deductions, Tax Rates and Personal Allowances Year of assessment 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 15% 15% 15% 15% 15% 15% Standard Rate (Salaries tax, property tax and personal assessment) 2% 2% 2% 2% Progressive Rates Upon the first $40,000 Upon the first $45,000 Upon the first $50,000 2% 2% 7% 7% 7% 7% Upon the next $40,000 Upon the next $45,000 Upon the next $50,000 7% 6% 12% 12% 12% 12% Upon the next $40,000 Upon the next $45,000 Upon the next $50,000 12% 10% Upon the next $50,000 14% Upon the remainder 17% 17% 17% 17% 17% 17% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% Profits tax- Corporation Year of assessment 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Personal Allowances Basic Married person's Child - 15 to 9" (each) For each child born during the year, the Child Allowance will be increased by s 120,000 240,000 70,000 70,000 $ 120.000 240.000 70,000 70.000 $ 120.000 240.000 100,000 100,000 S 132,000 264,000 100,000 100,000 $ 132,000 264.000 100,000 100,000 S 132,000 264,000 120,000 120,000 Dependent parent grandparent (each) Basic Additional 38,000 38.000 40,000 40.000 40.000 40.000 46,000 46,000 46,000 46,000 50,000 50.000 Dependent parent grandparent (cach aged 35-39) Basic Additional 19.000 19.000 20,000 20,000 20,000 20.000 23,000 23.000 23,000 23.000 25.000 25.000 33,000 33.000 33,000 33,000 37,500 37,500 Dependent brother sister (each) Disabled dependent (each) Deductions 66,000 66.000 66,000 66,000 75,000 75.000 s $ S S S s 76,000 80,000 80.000 92,000 92.000 100,000 80,000 80.000 80.000 80,000 100,000 100,000 100,000 100,000 100.000 100,000 100,000 100,000 Elderly residential care expenses (maximum) Self-education expenses (maximum) Home loan interest (maximum) Contributions to recognised retirement schemes (maximum) Approved charitable donations 15,000 17,500 18,000 18,000 18,000 18,000 35% 35% 35% 35% 35% 35% 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 60% 60% 60% 60% 60% 60% Year of assessment Depreciation Allowances Plant and Machinery - Initial Allowance Industrial Building - Initial Allowance Annual Allowance Commercial Building Allowance 20% 20% 20% 20% 20% 20% 4% 4% 4% 4% 4% 4% SECTION A (21 marks) Answer ALL questions from this section. Question 1 (21 marks) Mr Pang is the financial controller of AA Ltd, a company incorporated and carrying on business in Hong Kong. He is also a shareholder BB Ltd, which is also a Hong Kong company and is a wholly owned subsidiary of AA Ltd. You have been supplied with the following information regarding the year of assessment 2015/16: (1) Annual Salary: $1,500,000 (2) Bonus: $300,000 (3) Dividend: $15,000 (4) Mr Pang took a 8-day business trip to London and Mrs Pang travelled with him. AA Ltd paid the following expenses in connection with the trip: Mr Pang Mrs Pang $12.000 $12,000 Flight by British Airways Hotel $22,000 No extra cost Meals $25,000 $25,000 Local tour in London Nil $3,000 (5) Mr Pang earned a gain on share options of $495,000. (6) Mr Pang rented a flat for his residence at a monthly rent of $22,000. His employer refunded $18,000 to him upon production of tenancy agreement and rental receipts. (7) At the annual dinner of AA Ltd on 30 September 2015, he won a cash coupon of $3,000 in the lucky draw. (8) Mr and Mrs Pang had paid the following expenses during the year: Mr Pang Mrs Pang $ 2,350 $5,000 Membership subscriptions to HKICPA, a professional accountancy $2,350 body in Hong Kong Cash donations to the Community Chest, an approved charitable $15,000 institution in Hong Kong School fees for an accountancy degree programme at The Open $40,000 University of Hong Kong Fees paid to a residential care home in Hong Kong for Mr Pang's $60,000 father who is aged 70 SO SO (9) Mrs Pang is a housewife. The couple have a child aged 12. They are living with Mrs Pang's father and mother who are aged 65 and 58 respectively. REQUIRED: (a) Advise Mr Pang about the conditions under which an individual is entitled to a married person's allowance and if he is entitled to such an allowance. (5 marks) (b) Compute Mr Pang's salaries tax liability for the year of assessment 2015/2016. Ignore provisional salaries tax and tax rebates or reduction, if any. (11 marks) (c) Briefly explain the tax treatment of the following items under salaries tax: (i) Trip expenses paid by the company (item 4) (ii) Cash coupon (item 7) (5 marks) Summary of Deductions, Tax Rates and Personal Allowances Year of assessment 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 15% 15% 15% 15% 15% 15% Standard Rate (Salaries tax, property tax and personal assessment) 2% 2% 2% 2% Progressive Rates Upon the first $40,000 Upon the first $45,000 Upon the first $50,000 2% 2% 7% 7% 7% 7% Upon the next $40,000 Upon the next $45,000 Upon the next $50,000 7% 6% 12% 12% 12% 12% Upon the next $40,000 Upon the next $45,000 Upon the next $50,000 12% 10% Upon the next $50,000 14% Upon the remainder 17% 17% 17% 17% 17% 17% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% Profits tax- Corporation Year of assessment 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Personal Allowances Basic Married person's Child - 15 to 9" (each) For each child born during the year, the Child Allowance will be increased by s 120,000 240,000 70,000 70,000 $ 120.000 240.000 70,000 70.000 $ 120.000 240.000 100,000 100,000 S 132,000 264,000 100,000 100,000 $ 132,000 264.000 100,000 100,000 S 132,000 264,000 120,000 120,000 Dependent parent grandparent (each) Basic Additional 38,000 38.000 40,000 40.000 40.000 40.000 46,000 46,000 46,000 46,000 50,000 50.000 Dependent parent grandparent (cach aged 35-39) Basic Additional 19.000 19.000 20,000 20,000 20,000 20.000 23,000 23.000 23,000 23.000 25.000 25.000 33,000 33.000 33,000 33,000 37,500 37,500 Dependent brother sister (each) Disabled dependent (each) Deductions 66,000 66.000 66,000 66,000 75,000 75.000 s $ S S S s 76,000 80,000 80.000 92,000 92.000 100,000 80,000 80.000 80.000 80,000 100,000 100,000 100,000 100,000 100.000 100,000 100,000 100,000 Elderly residential care expenses (maximum) Self-education expenses (maximum) Home loan interest (maximum) Contributions to recognised retirement schemes (maximum) Approved charitable donations 15,000 17,500 18,000 18,000 18,000 18,000 35% 35% 35% 35% 35% 35% 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 60% 60% 60% 60% 60% 60% Year of assessment Depreciation Allowances Plant and Machinery - Initial Allowance Industrial Building - Initial Allowance Annual Allowance Commercial Building Allowance 20% 20% 20% 20% 20% 20% 4% 4% 4% 4% 4% 4%