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 - 1st to 9th (each) For each child born during the year, the Child Allowance will be increased by $ 120,000 240,000 70,000 70,000 $ 120,000 240,000 70,000 70,000 $ 120,000 240,000 100,000 100,000 $ 132,000 264,000 100,000 100,000 $ 132,000 264,000 100,000 100,000 $ 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 (each aged 55-59) 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) 66,000 66,000 66,000 66,000 75,000 75,000 Deductions $ 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% 4% 4% 4% 4% 4% 4% SUPER SPACE Ltd (SS) is a company carrying on trading business in Hong Kong. SS also owns properties for both resale and rental purposes. The income statement for the year ended 31 December 2017 is shown below: SS Ltd Income Statement for the year ended 31 December 2017 Notes Trading profits Profit from sale of properties Rental income Compensation Interest income 2,420,000 400,000 380,000 200,000 57.000 1 2 and 3 1 4 5 3,457,000 6 Less: Directors' fees Staff salaries Bank interest expense Other interest expense Legal fees Rent and rates Taxation expenses Retirement contribution Depreciation Sundries (all allowable) Insurance Net profit 120,000 300,000 265,000 370,000 140,000 81,000 100,000 130,000 48,000 34,000 22,000 9 10 (1,610,000) 1,847,000 The supplementary information in support of the income statement is as follows: (1) All SS's trading profits and rental income arise in Hong Kong. (2) Profits arising from the sale of properties held for resale are taxable for Hong Kong profits tax purposes. (3) During the year, SS sold two properties A and B (which were acquired in 2014) to third parties. Property A was in Hong Kong and was classified as 'Property held for resale', where as Property B was in UK and was classified as property for rental (fixed asset) in SS's statement of financial position as at 31 December 2016. Cost $ 3,400,000 2,000,000 Sale Proceeds $ 3,500,000 2,300,000 Profit $ 100,000 300,000 Property A Property B (4) During the year, SS received compensation of $200,000 from a Hong Kong customer who terminated a sales contract without reasonable cause. The payment was agreed by both parties as being in settlement of any further dispute. (5) Details of interest income received during the year are: $ HK$ fixed deposit with Chartered Bank, Hong Kong 20,000 US$ fixed deposit with Bank of America, US 35,000 Trade customer in Hong Kong for debt overdue 2,000 57,000 (6) The bank interest expense was incurred on the current account balance overdrawn and used solely for the trading operations. (7) Other interest expense related to two loans borrowed from a lender company carrying on business in Mainland China. The loans were specifically used to finance the acquisitions of the following two properties in Hong Kong: Classified as Loan interest Property C Property D Property for rental (fixed asset) Property for resale $150,000 $220,000 The lender company is not associated with SS and the properties are used as security against the respective loans. (8) Legal fees were incurred for a prosecution brought against one of SS's directors for an offence under the Prevention of Bribery Ordinance. The litigation is still under appeal. (9) Taxation expenses were made up of: Property tax paid by SS Salaries tax of a director, paid and bome by SS $ 60,000 40,000 100,000 (10) Contributions to the exempted registered retirement scheme are made up of: $ Provision for annual contribution (20% of each member of 60,000 staff's salary) Provision for a special contribution to the same scheme 70,000 (to be paid in the next accounting year) 130,000 SS also made a special contribution of $30,000 to the above scheme during the accounting year ended 31 December 2014. (11) SS's tax written down values as at 31 December 2016 for plant and machinery and the qualifying cost for commercial building allowance were: 20% pool 30% pool Commercial Building Allowance There was no movement in qualifying assets during the year. $20,000 $30,000 $2,000,000 Required: Prepare a Profits Tax Computation to calculate Hong Kong profits tax liability of SS Ltd in respect of the year ended 31 December 2017. State clearly the year of assessment and relevant basis period, and show all your workings. Ignore provisional profits tax and tax rebate or reduction, if any. No detailed explanations are required in this question. (15 marks) Question 19 (10 marks) Part I (5 marks) The Board of Review exists for the administration of Hong Kong tax law. Required: State the composition and functions of the Board of Review. Part II (5 marks) Tina forgot to complete and submit the salaries tax retum and received an estimated assessment from the IRD. She would like to object against her estimated assessment on Hong Kong salaries tax. Required: State the conditions that must be satisfied before an objection against the estimated assessment on Hong Kong salaries tax can be lodged. 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 - 1st to 9th (each) For each child born during the year, the Child Allowance will be increased by $ 120,000 240,000 70,000 70,000 $ 120,000 240,000 70,000 70,000 $ 120,000 240,000 100,000 100,000 $ 132,000 264,000 100,000 100,000 $ 132,000 264,000 100,000 100,000 $ 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 (each aged 55-59) 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) 66,000 66,000 66,000 66,000 75,000 75,000 Deductions $ 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% 4% 4% 4% 4% 4% 4% SUPER SPACE Ltd (SS) is a company carrying on trading business in Hong Kong. SS also owns properties for both resale and rental purposes. The income statement for the year ended 31 December 2017 is shown below: SS Ltd Income Statement for the year ended 31 December 2017 Notes Trading profits Profit from sale of properties Rental income Compensation Interest income 2,420,000 400,000 380,000 200,000 57.000 1 2 and 3 1 4 5 3,457,000 6 Less: Directors' fees Staff salaries Bank interest expense Other interest expense Legal fees Rent and rates Taxation expenses Retirement contribution Depreciation Sundries (all allowable) Insurance Net profit 120,000 300,000 265,000 370,000 140,000 81,000 100,000 130,000 48,000 34,000 22,000 9 10 (1,610,000) 1,847,000 The supplementary information in support of the income statement is as follows: (1) All SS's trading profits and rental income arise in Hong Kong. (2) Profits arising from the sale of properties held for resale are taxable for Hong Kong profits tax purposes. (3) During the year, SS sold two properties A and B (which were acquired in 2014) to third parties. Property A was in Hong Kong and was classified as 'Property held for resale', where as Property B was in UK and was classified as property for rental (fixed asset) in SS's statement of financial position as at 31 December 2016. Cost $ 3,400,000 2,000,000 Sale Proceeds $ 3,500,000 2,300,000 Profit $ 100,000 300,000 Property A Property B (4) During the year, SS received compensation of $200,000 from a Hong Kong customer who terminated a sales contract without reasonable cause. The payment was agreed by both parties as being in settlement of any further dispute. (5) Details of interest income received during the year are: $ HK$ fixed deposit with Chartered Bank, Hong Kong 20,000 US$ fixed deposit with Bank of America, US 35,000 Trade customer in Hong Kong for debt overdue 2,000 57,000 (6) The bank interest expense was incurred on the current account balance overdrawn and used solely for the trading operations. (7) Other interest expense related to two loans borrowed from a lender company carrying on business in Mainland China. The loans were specifically used to finance the acquisitions of the following two properties in Hong Kong: Classified as Loan interest Property C Property D Property for rental (fixed asset) Property for resale $150,000 $220,000 The lender company is not associated with SS and the properties are used as security against the respective loans. (8) Legal fees were incurred for a prosecution brought against one of SS's directors for an offence under the Prevention of Bribery Ordinance. The litigation is still under appeal. (9) Taxation expenses were made up of: Property tax paid by SS Salaries tax of a director, paid and bome by SS $ 60,000 40,000 100,000 (10) Contributions to the exempted registered retirement scheme are made up of: $ Provision for annual contribution (20% of each member of 60,000 staff's salary) Provision for a special contribution to the same scheme 70,000 (to be paid in the next accounting year) 130,000 SS also made a special contribution of $30,000 to the above scheme during the accounting year ended 31 December 2014. (11) SS's tax written down values as at 31 December 2016 for plant and machinery and the qualifying cost for commercial building allowance were: 20% pool 30% pool Commercial Building Allowance There was no movement in qualifying assets during the year. $20,000 $30,000 $2,000,000 Required: Prepare a Profits Tax Computation to calculate Hong Kong profits tax liability of SS Ltd in respect of the year ended 31 December 2017. State clearly the year of assessment and relevant basis period, and show all your workings. Ignore provisional profits tax and tax rebate or reduction, if any. No detailed explanations are required in this question. (15 marks) Question 19 (10 marks) Part I (5 marks) The Board of Review exists for the administration of Hong Kong tax law. Required: State the composition and functions of the Board of Review. Part II (5 marks) Tina forgot to complete and submit the salaries tax retum and received an estimated assessment from the IRD. She would like to object against her estimated assessment on Hong Kong salaries tax. Required: State the conditions that must be satisfied before an objection against the estimated assessment on Hong Kong salaries tax can be lodged