TAX RATES AND ALLOWANCES 2019/20 Tax rates: Standard Rate Corporate Rate 15.0% 16.5% Progressive Rates First $50,000 First $50,000 Next $50,000 Next $50,000 Remainder 2.0% 6.0% 10.0% 14.0% 17.0% Personal Allowances: HK$ 132,000 264,000 120,000 120,000 120,000 120,000 50,000 25,000 Basic allowance Married person's allowance Child allowance - 1st child - 2nd child - 3rd child - new born child Dependent parent/grandparent allowance Aged 60 or above or subject to other criteria Ages 55 to 59 not eligible for disability allowance Additional dependent parent/grandparent allowance Aged 60 or above or subject to other criteria Ages 55 to 59 not eligible for disability allowance Dependent brother/sister allowance Disabled dependant allowance Personal disability allowance Single Parent allowance Deductions (Maximum): 50,000 25,000 37,500 75,000 75,000 132,000 HK$ Home loan interest Elderly residential care expenses Contribution to MPF/MPF-exempted retirement scheme Self Education expenses Qualifying Annuity Premiums and Tax Deductible MPF Voluntary Contribution Qualifying Premiums Under Health Insurance Scheme Charitable Donation 100,000 100,000 18,000 100,000 60,000 8,000 35% Wilson is a US resident and works as the marketing manager of a US company. He is required to travel overseas to carry out his duties. On 1 July 2018, Wilson bought a property in North Point and leased it out for rental purpose. On acquisition of the property, Wilson obtained a loan of HK$5,000,000 from Bank of China and paid mortgage loan interest of HK$18,000 per month. Details of the terms of the two lease agreements are as follows: Tenancy 1 (Note 1) 1) Tenant: Lilian 2) Term of lease: Two years from 1 August 2018 3) Monthly rental: HK$24,000, payable in advance on the first day of each month 4) Rent-free period: Two months at the beginning of the lease 5) Rental deposit: HK$48,000, payable on 1 August 2018 6) Government rent: HK$2,000 per quarter, payable by Wilson 7) Rates: HK$4,000 per quarter, payable by tenant 8) Management fee: HK$2,500 per month, payable by the tenant directly to the management company. Note 1 Commencing 1 May 2019, Lilian was unable to pay the rent and disappeared on 1 October 2019. The assessor agreed that the rent outstanding on 1 October 2019 was bad and irrecoverable. Nil Tenancy 2 (Notes 2 and 3) 1) Tenant: Natalie 2) Term of lease: Four years from 1 January 2020 3) Monthly rental: HK$50,000, payable in advance on the first day of each month 4) Rent-free period: 5) Rental deposit: HK$100,000, payable on 1 January 2020 6) Initial premium: HK$180,000, payable on 1 January 2020 7) Rates: HK$4,000 per quarter, payable by Wilson 8) Management fee: HK$2,500 per month, payable by tenant through Wilson to the management company Note 2 On 1 January 2020, Wilson rented the property to a new tenant, Natalie. As requested by Natalie on 15 February 2020, Wilson purchased an air-conditioner of HK$11,000 to replace the old one. Depreciation allowance of the air-conditioner for the year of assessment 2019/20 was HK$2,300 Note 3 On 25 March 2020, a window was broken due to typhoon and Natalie paid HK$5,000 for repairing the broken window. However, Wilson did not pay her back. Required (a) Calculate the property tax liability of Wilson for the year of assessment 2019/20. (Show all workings and ignore provisional tax and tax rebate). (15 Marks) (b) Explain the tax treatments accorded to Notes (2) and (3) TAX RATES AND ALLOWANCES 2019/20 Tax rates: Standard Rate Corporate Rate 15.0% 16.5% Progressive Rates First $50,000 First $50,000 Next $50,000 Next $50,000 Remainder 2.0% 6.0% 10.0% 14.0% 17.0% Personal Allowances: HK$ 132,000 264,000 120,000 120,000 120,000 120,000 50,000 25,000 Basic allowance Married person's allowance Child allowance - 1st child - 2nd child - 3rd child - new born child Dependent parent/grandparent allowance Aged 60 or above or subject to other criteria Ages 55 to 59 not eligible for disability allowance Additional dependent parent/grandparent allowance Aged 60 or above or subject to other criteria Ages 55 to 59 not eligible for disability allowance Dependent brother/sister allowance Disabled dependant allowance Personal disability allowance Single Parent allowance Deductions (Maximum): 50,000 25,000 37,500 75,000 75,000 132,000 HK$ Home loan interest Elderly residential care expenses Contribution to MPF/MPF-exempted retirement scheme Self Education expenses Qualifying Annuity Premiums and Tax Deductible MPF Voluntary Contribution Qualifying Premiums Under Health Insurance Scheme Charitable Donation 100,000 100,000 18,000 100,000 60,000 8,000 35% Wilson is a US resident and works as the marketing manager of a US company. He is required to travel overseas to carry out his duties. On 1 July 2018, Wilson bought a property in North Point and leased it out for rental purpose. On acquisition of the property, Wilson obtained a loan of HK$5,000,000 from Bank of China and paid mortgage loan interest of HK$18,000 per month. Details of the terms of the two lease agreements are as follows: Tenancy 1 (Note 1) 1) Tenant: Lilian 2) Term of lease: Two years from 1 August 2018 3) Monthly rental: HK$24,000, payable in advance on the first day of each month 4) Rent-free period: Two months at the beginning of the lease 5) Rental deposit: HK$48,000, payable on 1 August 2018 6) Government rent: HK$2,000 per quarter, payable by Wilson 7) Rates: HK$4,000 per quarter, payable by tenant 8) Management fee: HK$2,500 per month, payable by the tenant directly to the management company. Note 1 Commencing 1 May 2019, Lilian was unable to pay the rent and disappeared on 1 October 2019. The assessor agreed that the rent outstanding on 1 October 2019 was bad and irrecoverable. Nil Tenancy 2 (Notes 2 and 3) 1) Tenant: Natalie 2) Term of lease: Four years from 1 January 2020 3) Monthly rental: HK$50,000, payable in advance on the first day of each month 4) Rent-free period: 5) Rental deposit: HK$100,000, payable on 1 January 2020 6) Initial premium: HK$180,000, payable on 1 January 2020 7) Rates: HK$4,000 per quarter, payable by Wilson 8) Management fee: HK$2,500 per month, payable by tenant through Wilson to the management company Note 2 On 1 January 2020, Wilson rented the property to a new tenant, Natalie. As requested by Natalie on 15 February 2020, Wilson purchased an air-conditioner of HK$11,000 to replace the old one. Depreciation allowance of the air-conditioner for the year of assessment 2019/20 was HK$2,300 Note 3 On 25 March 2020, a window was broken due to typhoon and Natalie paid HK$5,000 for repairing the broken window. However, Wilson did not pay her back. Required (a) Calculate the property tax liability of Wilson for the year of assessment 2019/20. (Show all workings and ignore provisional tax and tax rebate). (15 Marks) (b) Explain the tax treatments accorded to Notes (2) and (3)