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BUSI 0018 Hong Kong Taxation

Tutorial Questions
Unit 1 Hong Kong Tax System and Administration

Answer 1
This is an open ended question. Main points for discussion include:
Some requirements of a Tax System
Generate sufficient recurrent revenue
Neutral
Consistent with changing commercial practices
Simple and easy
Equitable
Non-fiscal objectives
Legal aspect
Article 18 laws in force in the HK SAR shall be this Law, the laws previously in force in
HK as provided for in Article 8 of this Law, and the laws enacted by the legislature of the
Region.
Article 106 HK SAR shall have independent finances, shall use its financial revenues
exclusively for its own purposes, and they shall not be handed over to the Central
Peoples Government, and Central Peoples Government shall not levy taxes in the HK
SAR.
Article 108 HK SAR shall practice an independent taxation system, shall, taking the low
tax policy previously pursued in HK as reference, enact laws on its own concerning types
of taxes, tax rates, tax reductions, allowances and exemptions and other matters of
taxation.
Students are also expected to have a discussion about the possibility of introducing
Goods and Services Tax (GST), including its advantages and disadvantages.

Answer 2
Mr. Wong should observe the following obligations (S.51):
(a)

To notify the Inland Revenue Department that he is liable to pay Salaries Tax, within
4 months after the end of the year of assessment in which he commenced his
employment unless he is required to submit a Salaries Tax Return before that date
[S.51(2)]. In this case, the due date is 31 July 2009 and the relevant year of
assessment is 2008/09.

(b)

To notify the Inland Revenue Department that he has ceased to derive income liable
to Salaries Tax within one month after the date on which the employment was ceased;
i.e. before 31.3.2010. [S.51(6)] (see (c) below)

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(c)

To notify the Inland Revenue Department of his intended departure, not less than one
month before his date of departure i.e. before 15.3.2010 [S.51(7)]. In this case, it is a
practice that Mr. Wong should file a notification of cessation of income and departure
from HK on or before 15.3.2010.

(d)

To file any tax returns for the years of assessment 2008/09 and 2009/10 upon receipt
from the Inland Revenue Department, within the time limit so specified [S.51(1)]. In
a departure case like Mr. Wongs, normally time allowed for filing the tax return(s)
urgently issued upon the receipt of departure notification is less than 1 month, in order
to make sure that relevant assessments will be issued and all outstanding tax will be
settled before the departure date.

Mr. Wongs employer company should observe the following obligations (S.52):
(a)

To notify the Inland Revenue Department of the commencement of Mr. Wongs


employment within 3 months after the date of commencement i.e. before 1.6.2009.
[S.52(4)]

(b)

To furnish the annual Employers Return for Mr. Wong for the years of assessment
2008/09 and 2009/10 [S.52(2)]. Normally, the return will be issued to the company
annually in April or May.

(c)

To notify Mr. Wongs cessation of employment not later than one month before
cessation, i.e. not later than 31.1.2010. [S.52(5)]

(d)

To notify Mr. Wongs departure not less than one month before the date of departure
of 15.4.2010, i.e. before 15.3.2010. [S.52(6)]

(e)

To retain money due to Mr. Wong for a period of one month from the date on which
the departure notification is filed [S.52(7)]. In this case, assuming that the notification
is filed on 31.1.2010, the company will retain any money due to Mr. Wong for the
period from 31.1.2010 to 28.2.2010, or until a letter of release is received from the
Inland Revenue Department that all outstanding tax of Mr. Wong has been settled, if
earlier.

The trips to Shenzhen are regarded as regular business trips and would not fall within the
requirements under S.52(7) for notification purposes.

Answer 3
(a)

To be a valid objection, it must be made in writing with grounds for objection and be
received by the CIR within 1 month after the date of the notice of assessment. (S.64(1))
Late objection can be allowed by the CIR if the taxpayer has reasonable excuse such as
sickness, absence from Hong Kong, etc. (S.64(1) proviso (a))

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A taxpayer cannot re-open an assessment which has become final and conclusive which
occurs when (S.70):
(i) no valid objection or appeal has been lodged;
(ii) an objection or appeal has been withdrawn or an appeal has been dismissed;
(iii) an assessment under objection has been agreed; or
(iv) an assessment is determined upon objection or appeal and no appeal or higher
appeal is given.
In Miss Wongs case, as the notice of assessment was received 3 months ago, the
assessment could have been regarded as final and conclusive. Unfortunately, she does
not seem to have reasonable excuse for late objection because busy or ignorance is not
accepted as reasonable excuse for this purpose.

(b)

Although a taxpayer cannot re-open an assessment which has become final and
conclusive, S.70A does provide that if it can be established to the satisfaction of an
assessor that the assessment is excessive by reason of:
(i) an error or omission in a return or statement submitted; or
(ii) an arithmetical error or omission in the calculation of the amount of assessable
income or the tax charged
within 6 years after the end of the year of assessment or within 6 months after the
service of the notice of assessment, whichever is the later, the assessor shall correct such
assessment.
However, the assessment cannot be re-opened for an error or omission in a return or
statement where that return or statement was made on the basis of prevailing practice.
Travelling expenses claim
Miss Wong has made her claim in the tax return by stating the facts and grounds.
Obviously, the assessor has considered the facts related to the expenses before he issued
the assessment. The expenses can only be claimed through a valid objection. She
cannot rely on S.70A and argue that the assessor omitted the deduction in the calculation
of assessable income.
Moreover, travelling expenses from home to office is not deductible as it is not incurred
in the production of assessable income. (CIR v Humphrey)

Dependent parent allowance claim


Since Miss Wong has omitted relevant information in her tax return for the purposes of
claiming the allowance in respect of her mother, who is aged 64 and residing with her,
she can invoke S.70A to re-open the case and correct the assessment accordingly.
She has to lodge a S.70A correction claim in writing to the assessor and supply the
particulars of her mother and the fact that she lived with her during the year of
assessment 2009/10 within 6 years after the end of 2009/10 (i.e. before 31.3.2016).

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