TAX RATES AND ALLOWANCES The following tax rates and allowances for 2019/20 are to be used in answering the questions: 2019/20 Tax rates: Standard Rate 15% Progressive Rates First $50,000 Next $50,000 Next $50.000 Next $50.000 Remainder 2% 6% 10% 14% 17% Personal Allowances: HKS 132.000 264.000 120,000 120.000 50.000 25.000 Basic allowance Married person's allowance Child allowance - 15 to 9th child -new born child Dependent parent/grandparent allowance Aged 60 or above or subject to other criteria Ages 55 to 59 not eligible for disability allowance Additional dependent parent/grandparent allowance Aged 60 or above or subject to other criteria Ages 55 to 59 not eligible for disability allowance Dependent brother/sister allowance Disabled dependant allowance Personal Disability Allowance Single Parent allowance Deductions (Maximum): 50.000 25,000 37,500 75.000 75.000 132.000 HK$ Home loan interest Elderly residential care expenses Mandatory contribution to MPF/MPF-exempted retirement scheme Self-education expenses Health Insurance Premiums Qualifying Annuity Premiums/MPF voluntary contributions Approved charitable donations 100,000 100.000 18.000 100.000 8,000 60,000 35% 1 Questions 2 (50 marks) Mr. Ching works as a senior accountant in a Hong Kong Company. During the year of assessment 2019/20, he received a monthly salary of $70,000 and was provided with accommodation in a flat for which he was required to make a monthly contribution of $2,200. He was granted an option to purchase 4,000 shares on 1 May 2019 at a cost of $4,000. The exercise price was $12 per share. He exercised 3 the option on 1 September 2019 when the market value was $30 per share, and then sold all the shares for $40 per share on 8 November 2019. Mr. Ching had the following payments during the year of assessment 2019/20. $4,600 subscription to the HKICPA. $5,000 and $3,000 subscriptions to the Hong Kong Jockey Club and a health club respectively. Monthly contribution of $300 to the Community Chest. Monthly contribution of $1,500 to mandatory provident scheme. $90,000 qualifying annuity premiums to a qualifying deferred annuity policy (QDAP) of which he is the sole policy holder and his wife is the sole annuitant. $24,000 tax deductible voluntary contribution (TVC) to an account that he opened under the Mandatory Provident Fund Schemes Ordinance in June 2019. $9,000 qualifying premium to a Voluntary Health Insurance Scheme (VHIS) policy purchased by him as the policy holder for his father as the insured person. $4,000 qualifying premium to a VHIS policy for his mother-in-law as the insured person and he is the policy holder. Mrs. Ching is a housewife who purchased a flat in Taikooshing for rental purpose under mortgage loans which she incurred mortgage interest of $8,000 in the year of assessment 2019/20. On 1 July 2019 it was let out to Ms White for a period of four years with monthly rental of $30,000 and a premium of $120,000. The management fee is $2,000 per month while the rate is $3,500 per quarter during the year of 2019 but increased to $4,000 per quarter in 2020. The tenant is responsible for paying the rates and management fee during the lease period. She also operates a floral shop, but the business was not good for the past two years that she has agreed loss of $40,000 from the business for the year of assessment 2019/20. The following transactions were done by Mrs. Ching during the year of assessment 2019/20. - She opened a TVC account on 1 June 2019 and contributed $6,000. - Together with her sisters, she purchased a VHIS policy for her mother as the insured person. She and her sisters are the policy holders and they contributed $4,000 and $8,000, respectively. The following information is also relevant to both Mr. and Mrs. Ching during the year of assessment 2019/20 They are living together with Mr. Ching's father who reached 68 on 8 August 2019. They have two sons, one of them is 16 years old and the other is 20 years old, studying full-time in the University of Toronto. Mrs. Ching has agreed that her sister will claim the dependent parent allowance of their mother who is living together with her sister. Required: (a) Compute the property tax of Mrs. Ching for the year of assessment 2019/20. (7 marks) (b) Compute the salaries tax liability of Mr. Ching for the year of assessment 2019/20. (20 marks) (c) Assume that Mrs. Ching elects for personal assessment for the year of assessment 2019/20, (1) Compute the total tax liability of Mrs. Ching. (ii) Compute the salaries tax liability of Mr. Ching (a complete calculation is not required but revise your answer in (b) above with a brief calculation). (12 marks) (d) In respect of the calculations in (b) and (c) above, explain with support from relevant section(s) of IRO and/or DIPNs (i) the QDAP premiums paid by Mr. Ching, and the VHIS policy premium in respect of Mrs. Ching's mother paid by Mrs. Ching and her sister that you have included in the deduction from the assessable income. (6 marks) (e) Explain to Mr. and Mrs. Ching whether it is to their advantage for Mrs. Ching to elect personal assessment in the year of assessment 2019/20. (5 marks) (Please ignore provisional tax and one-off tax rebate). TAX RATES AND ALLOWANCES The following tax rates and allowances for 2019/20 are to be used in answering the questions: 2019/20 Tax rates: Standard Rate 15% Progressive Rates First $50,000 Next $50,000 Next $50.000 Next $50.000 Remainder 2% 6% 10% 14% 17% Personal Allowances: HKS 132.000 264.000 120,000 120.000 50.000 25.000 Basic allowance Married person's allowance Child allowance - 15 to 9th child -new born child Dependent parent/grandparent allowance Aged 60 or above or subject to other criteria Ages 55 to 59 not eligible for disability allowance Additional dependent parent/grandparent allowance Aged 60 or above or subject to other criteria Ages 55 to 59 not eligible for disability allowance Dependent brother/sister allowance Disabled dependant allowance Personal Disability Allowance Single Parent allowance Deductions (Maximum): 50.000 25,000 37,500 75.000 75.000 132.000 HK$ Home loan interest Elderly residential care expenses Mandatory contribution to MPF/MPF-exempted retirement scheme Self-education expenses Health Insurance Premiums Qualifying Annuity Premiums/MPF voluntary contributions Approved charitable donations 100,000 100.000 18.000 100.000 8,000 60,000 35% 1 Questions 2 (50 marks) Mr. Ching works as a senior accountant in a Hong Kong Company. During the year of assessment 2019/20, he received a monthly salary of $70,000 and was provided with accommodation in a flat for which he was required to make a monthly contribution of $2,200. He was granted an option to purchase 4,000 shares on 1 May 2019 at a cost of $4,000. The exercise price was $12 per share. He exercised 3 the option on 1 September 2019 when the market value was $30 per share, and then sold all the shares for $40 per share on 8 November 2019. Mr. Ching had the following payments during the year of assessment 2019/20. $4,600 subscription to the HKICPA. $5,000 and $3,000 subscriptions to the Hong Kong Jockey Club and a health club respectively. Monthly contribution of $300 to the Community Chest. Monthly contribution of $1,500 to mandatory provident scheme. $90,000 qualifying annuity premiums to a qualifying deferred annuity policy (QDAP) of which he is the sole policy holder and his wife is the sole annuitant. $24,000 tax deductible voluntary contribution (TVC) to an account that he opened under the Mandatory Provident Fund Schemes Ordinance in June 2019. $9,000 qualifying premium to a Voluntary Health Insurance Scheme (VHIS) policy purchased by him as the policy holder for his father as the insured person. $4,000 qualifying premium to a VHIS policy for his mother-in-law as the insured person and he is the policy holder. Mrs. Ching is a housewife who purchased a flat in Taikooshing for rental purpose under mortgage loans which she incurred mortgage interest of $8,000 in the year of assessment 2019/20. On 1 July 2019 it was let out to Ms White for a period of four years with monthly rental of $30,000 and a premium of $120,000. The management fee is $2,000 per month while the rate is $3,500 per quarter during the year of 2019 but increased to $4,000 per quarter in 2020. The tenant is responsible for paying the rates and management fee during the lease period. She also operates a floral shop, but the business was not good for the past two years that she has agreed loss of $40,000 from the business for the year of assessment 2019/20. The following transactions were done by Mrs. Ching during the year of assessment 2019/20. - She opened a TVC account on 1 June 2019 and contributed $6,000. - Together with her sisters, she purchased a VHIS policy for her mother as the insured person. She and her sisters are the policy holders and they contributed $4,000 and $8,000, respectively. The following information is also relevant to both Mr. and Mrs. Ching during the year of assessment 2019/20 They are living together with Mr. Ching's father who reached 68 on 8 August 2019. They have two sons, one of them is 16 years old and the other is 20 years old, studying full-time in the University of Toronto. Mrs. Ching has agreed that her sister will claim the dependent parent allowance of their mother who is living together with her sister. Required: (a) Compute the property tax of Mrs. Ching for the year of assessment 2019/20. (7 marks) (b) Compute the salaries tax liability of Mr. Ching for the year of assessment 2019/20. (20 marks) (c) Assume that Mrs. Ching elects for personal assessment for the year of assessment 2019/20, (1) Compute the total tax liability of Mrs. Ching. (ii) Compute the salaries tax liability of Mr. Ching (a complete calculation is not required but revise your answer in (b) above with a brief calculation). (12 marks) (d) In respect of the calculations in (b) and (c) above, explain with support from relevant section(s) of IRO and/or DIPNs (i) the QDAP premiums paid by Mr. Ching, and the VHIS policy premium in respect of Mrs. Ching's mother paid by Mrs. Ching and her sister that you have included in the deduction from the assessable income. (6 marks) (e) Explain to Mr. and Mrs. Ching whether it is to their advantage for Mrs. Ching to elect personal assessment in the year of assessment 2019/20. (5 marks) (Please ignore provisional tax and one-off tax rebate)