Profits tax is charged for each year of assessment on every person

carrying on a trade, profession or business in Hong Kong for that year

from such trade, profession or business, excluding profits arising from

the sale of capital assets.

Two criteria must be satisfied:

a) the profits must be from a trade, business or profession carried on

in Hong Kong, and

b) the profits must arise in or be derived from Hong Kong, ie the

profits must have a Hong Kong source.

What is a trade?
Trade includes ‘every trade and manufacture and every adventure
or concern in the nature of trade’.
See Cape Brandy Syndicate v.CIR (2TC358)
CIR v.Fraser (24TC498).
Edwards v.Bairstow & Harrison
(36TC207)
CIR v.Sincere Insurance & Investment
Co.Ltd.(HKTC602)

What is a business?
Business includes:
a) farming,
b) poultry,
c) pig rearing,
d) letting of any premises by a corporation,&
e) sub-letting by any other person.

What is a profession?
Profession involves the exercise of intellectual and/or manual
skill, controlled by intellectual
knowledge.eg.accountancy,journalism,etc.
Excluded Income.

a) Profits from the sale of capital assets,

b) a dividend from a corporation which is not chargeable to profits tax,

c) income already charged elsewhere to profits tax,

d) interest paid or payable on Tax Reserve Certificate,

e) interest paid or payable on a Government bond issued under the Loans

Ordinance,

f) any profit on the sale of such a Government bond as referred to in e)

above,

g) interest received and profits on the disposal of securities by trustees

under an authorized unit trust.

Example

A puzzled taxpayer wrote the following letter to the IRD. Draft a reply.

Dear Sirs,

My chief accountant tells me that I cannot claim as an expense for profits

tax purpose the fine I incurred for forgetting to license my car. The car is

used in the business and the fine was an expense I had to pay in the course

of running my business. If it wasn’t a business expense then what was it?

Without the car, I cannot deliver goods to my client and solicit sales at all.

Furthermore, it is not a private expense because the cash payment for the

fine came out of the business fund.

Yours faithfully

Mr. S. H. Kong
Badges of Trade

These are factors to be considered when deciding whether a particular

activity constitutes trading or not.

a) The nature of the asset realized.

b) The motive.

c) The length of period of ownership.

d) The frequency of the transaction.

e) Organization to secure sale.

f) Work done on the asset pending sale.

g) The manner of. acquisition of the property sold.

h) Existence of trading interests in the same field.

i) Method of financing the transaction.

j) Circumstances leading to the sale.

The list is not exhaustive. Other badges of trade may need to be considered.
The following points have to be noted when computing profits for tax

purpose:

a) The items brought into the computation of profits should conform to

ordinary commercial principles.

b) Capital items must be excluded.

c) The allowable expenses must be incurred in the production of profits of

the trade.
Case 1. Mr. Au inherited a piece of land in Tsuen Wan on the death of his father. He
immediately sold it to a property developer. He then bought some more land in the
Tsuen Wan area at a government auction, constructed roads and drainage, advertised
the land for sale and employed staff to deal with inquiries. He finally sold all the land
at a large profit.

Was Mr. Au trading in both instances? If he sold the second piece of land to the same.
Developer, was he still trading?

Case 2.Ms. Chan wanted to live near the place where she was working. She tried to buy
on flat in this area, but the vendor was only willing to sell if she purchased all six flats
which he had redeveloped. She therefore bought all six flats and immediately resold
four of them, kept one for her own use and leased one for rental purposes. She used the
money derived from the resale to finance the original purchase.

On 2 December 2020, the IRD found out the. Above details and assessed Ms. Chan.to
profits tax on the profits derived from the sales and the rental income received for the
flat which was leased out.

Write a letter to Ms. Chan advising her what course of action should she take and advise
her whether, or to what extent, the assessment was correctly raised.
Distinction between capital and revenue receipts:

a) Sale of fixed asset is a capital receipt. Sale of circulating asset is a

revenue or trading receipt.

b) Any-sum received for-permanent loss or destruction of a fixed asset is a

capital receipt.

c) Any sum received for temporary loss of use of capital asset or payment

for loss of profits is revenue receipt.

d) Any sum received for repairable damage to a fixed asset is a capital

receipt.

e) Any sum received for loss of trading stock is a trading receipt.

f) Any sum received for the cancellation of trading contract is a revenue

receipt.

g) Any sum received for the cancellation of one of a number of agency

contracts is revenue receipts.

h) Any compensation received for a cancellation which led to the

cancellation of a company’s whole business operation is a capital receipt.

Distinction between capital and revenue expenditures:

a) The cost of acquiring raw materials in their natural state is capital

expenditure.

b) The cost of acquiring or disposing of an agreement or lease which is part

of the fixed assets of a trade is capital expenditure.

e) The cost of replacing part of an asset is revenue expenditure.

d) The cost of replacement by an entirely new asset is capital expenditure.

e) If, instead of repairing the asset, an alternative or improved part is

constructed, then the expenditure incurred is capital expenditure and no

allowance is due for the hypothetical repairs which might have been carried

out.

f) As for repairs to newly acquired assets, if the repairs are reflected in the

cost price and the assets have to be repaired to be usable, the cost of these

repairs will be capital expenditure.

However, recurring repairs expenditures not reflected in the purchase price

and which does not prevent the immediate use of asset, would be deductible.

g). A lump sum payment to dispense with a continuing revenue expense is

revenue expenditure. Since it does not create any new intangible asset.
h) When an expenditure is made, not only once and for all, but with a view

to bringing into existence an asset or an advantage for the enduring benefit

of the trade, it is treated as capital expenditure.

i) A payment to get rid of an unsatisfactory director is normal revenue

expense which.is regarded as a part of the cost of engaging and dismissing

servants.

j) However, a payment to retiring directors for agreeing not to compete

with the company would increase the company’s goodwill by buying off

potential competitors and is therefore capital expenditure.

Allowable Deductions in Section 16(1)

Section 16(1) (a) Interest expense

allowable on how loan is used

Section 16(1) (b) Rent paid for the purpose of

producing profits deductible

Section 16(1) (c) Foreign tax paid

allowable

Section 16(1) (d) Bad debts

allowed on for specific

provisions

Section 16(1) (e) Repairs

allowable on premises,plant,

machinery,implement,utensil

or article

Section 16(1) (f) Replacement

allowable if no depreciation

allowance has been claimed

Section 16(1) (g) Registration fees

allowable on trademarks,

designs or patents
Other Deductible items

In addition to those specifically mentioned in Section 16(1)(a) to (g),the

IRO also gives rules on the treatment of the following items:

Section 16A Approved Retirement Scheme

Section 16B Scientific Research

Section 16C Technical Education

Section 16D Approved Charitable Donations

Section 16E Patent Rights

Section 16F Building Refurbishment Expense

Section 16G Capital Expenditure on Prescribed Fixed Assets

Section 16 Management Fees

Summary for Calculation of Assessable Profits

In order to familiarize yourself with the necessary adjustments to be made when ascertaining
assessable profits, the following computation pro forma is for your reference.

Hong Kong Profits Tax Computation Pro Forma

X Company Profits tax liability for the year of assessment 20X0/20X1

IRO Section
Profit/（loss）per account XXX
- Excluded income X
14 - Offshore income X
14 - Profits from sale of capital assets X
26(a) - Dividends X
26(b) - Share of profit from a partnership X
26A(1) -Interest from government bonds X (XXX)

+ Income assessable not vet credited in accounts X

15(2) + Released debts not credited in accounts X
19E(1) + Balancing charge X XXX

+ Expenditures not deductible X

17(1)(b) + Expenses incurred for producing offshore income X
17(1)(c) + Losses on sale of capital assets X
17(1)(c) + Depreciation of fixed assets X
17(1)(c) + Amortization of lease X
17(1)(d) + General provision for doubtful debts X
17(1)(b) + Traveling and entertainment not for producing assessable profits X
16D + Actual charitable donations made X XXX

- Deductible expenditures not included in accounts X

PartV1 - Depreciation-allowances. X
16(1)(f) - Cost of implements and utensils capitalized in accounts now X (XXX)
claimed on replacement basis
AAA
- Charitable donations. limited to 10% of AAA (assessable profit or (XXX)
adjusted loss)
19C(4) - Loss unrelieved brought forward (XXX)
et assessable profit (or adjusted loss） BBB

Profit tax is then charged at the standard rate on BBB (net assessable profit).
Expenditures not allowed

Below is a summary of certain items of expenditure which may appear in the financial accounts of
a business. These are not allowed to be taken into the calculation of profits tax and therefore have
to be either added back to the profit or deducted from the loss disclosed by the annual accounts in
order to arrive at the profit or loss for profits tax purpose.

a) Expenses not wholly and exclusively laid out for the purpose of the trade. profession, or business
b) Expenses for domestic and private purpose.
c) The cost of entertainment, other then for entertaining business customers and their agents.
d) The rent of property which is not used for business purposes.
e) Any capital sums used in or withdrawn from the business.
f) The cost of improvements to premises.
g) Debts, other then bad debts or those estimated to be doubtful.
h) Profit tax paid.
i) Depreciation (capital depreciation allowances are available instead)
j) Withdrawals by proprietors
k) Penalties for breaking the law and legal expenses in connection therewith.
l) Reserves (except for discounts or for specific doubtful debts)

Allowable expenditures

Any sums expended wholly and exclusively for the purpose of the business may usually be deducted
in the computation of profits tax unless the outlay was of à capital nature. The following list is not
intended to be comprehensive but is indicative of this type of expenditure which may be deducted
from business profit in order to arrive at the figure on which profits tax will be imposed.

a) Advertising expenses, but not the cost of permanent signs.

b) Bad and doubtful debts.
c) Interest incurred for business purposes.
d) Insurance for business purposes (does not include life insurance and recoveries under the policy
which must usually be included in assessable profit).
e) Legal expenses incurred for recovering debts and in connection with other non-capital business
matters.
f) Redundancy payments made to former employees.
g) Rent of business premises.
h) Reasonable payments for the hire of assets.
i) Repairs to premises, excluding improvements and alterations.
j) Subscriptions and donations to societies.
k) Wages, salaries, and pensions paid to employees and past employees or their dependent.
1) Insurance contributions ,such as workers' compensation, etc.
Examples of calculation of assessable profits

Illustration 1
This is an example of adjusting the annual accounts of a sole trader. A retail tradesman, using a van to deliver goods
and living over his shop premises, submits the following profit and loss account for the accounting period ended 31
March 2021.It should be noted that certain items appearing in the accounts are not allowable deductions for profits
tax purposes and have to be added back to arrive at the assessable profit. Adjustment has also to be made in respect
of the trader’s living accommodation.
Profit and loss account for the period ended 31 March 2021
Gross profit from trading $68,677
Dividends from local shares $3,560
$72,237
Less: Wages $24,600
Rent $5,800*
Rates $3,034*
Lighting and heating $1,850*
Repairs to premises $3,270*
Postage and telephone $1,230
Stationery and printing $845
General expenses $1,050
Electric name sign $3,740
Depreciation for van $5,240
Running cost of van $9,070
Erection of garage for van $8,800 ($68,519)
Net profit $3,718
it has been agreed with the IRD that depreciation allowances are $4,786 and one-third of the expenses marked * are
considered to be of private nature.
Adjustments for profits tax purpose for the year of assessment 2020/2021

Net profit as per profit and loss account $3,718

Less: Items not taxable,i. e. dividends ($3,560)
$158
Add: Items not allowed as deduction
Electric name sign (capital in nature) $3,740
Erection of garage for van (capital in nature) $8,800
Depreciation of van $5,240
Living accommodation (1/3 of living expenses)
Rent $1,933
Rates $1,008
Lighting and heating $617
Adjusted profit $22,586
Less: Depreciation allowance ($4,786)
Net assessable profit $17,800
Profits tax is then payable at 15% on net assessable profit of $17,800,i. e. $2,670.
Illustration 2.
Mr. Jansen opened a small engineering business on 1 April 2020 and his accounts up to 31
March 2021 were as follows:

Sales $21,600
Purchases $14,000
Workmen’s compensation $2,800
Wages to book-keeper (wife) $400
Wages to self $1,500
Rent and rates $780
Provisional profits tax paid $160
Bank charges (including $30 interest on overdraft) $62
Depreciation $200
Legal charges $160
Bad debt written off $20
Bad debt provision (5%of outstanding debts) $200
Repairs $800
General expenses $220
Net profit $21,402
$198

1.Legal charges consist of $80 for purchase of property, $40 for debt collection, and $40 for fine
under Factories Ordinance.
2.Repairs consist of $200 for machinery repairs and $600 for building an extension to the workshop.
3.General expenses were $150 for entertainment of mother-in-law. and a donation of $70 to the
Community Chest.
4.Depreciation allowance of $140 bas been allowed by the IRD.
Adjustments for profits tax purpose for the year of assessment 2020/2021

Net profit per account $198

Add: Items not allowable
General expenses: entertainment $150
Donations $70
Cost of building extension $600
Bad debt general provision $200
Legal charges: property purchase and fine. $120
Depreciation $200
Provisional profits tax paid $160
Wages to self and wife $1,900
Less: Depreciation allowance ($140)
Net assessable profit $3,458
Profits tax payable for the year of assessment 2020/2021＝$3.458×15%＝$519
Actual profits tax payable＝$519－$160 provisional tax paid＝$359
Profits Tax Calculation Problem

Mr. Wong is a retail merchant who makes up his accounts to 31 March each year. The following is
his profit and loss account for the year ended 31 March 2020.

Gross profit $254,460

Profit on sale of equipment $390
Bank interest $450
Compensation $1,000
Dividend $1,570
$257,870
Less: Salary for Mrs. Wong $16,000
Office salaries $41,520
Rates and insurance $16,000
Light and heat $10,000
Repairs $11,250
Motor car expense $15,000
Bank interest $500
Loan interest $11,200
Bad and doubtful debts $690
General expenses $19,070
Depreciation of equipment $4,000
Management salary for Mr. Wong $60,000 ($205,230)
Net profit $52,640

The following further information is available:

1.The bank interest of $450 was received on the savings deposit account held in the name of Mr.
Wong. It is the personal savings of Mr. Wong.
2.The dividends were derived from the shares held by Mr. Wong. The money came from business
funds.
3.In May 2020,the shop next door renovated the office. The renovation damaged Mr. Wong’s shop
and some of the merchandise. Compensation was received by Mr. Wong for the damaged
merchandise.
4.Mr. Wong’s wife carried out clerical work in the shop. Her salary was paid monthly at the rate of
$750.A further $7,000 bonus being paid in April 2020.
5.Mr. Wong’s father lives on the premises and it has been agreed with the IRD that one quarter of
the rates and insurance and of the lighting and heating bills are due to-usage by Mr. Wong’s father.
6.Repairs comprised of $6,250 for work on shop toilet and $5,000 for office conversion. The toilet
was usable although it was in bad state of repair when the shop was purchased in 2020.The office
conversion was a division of a large room into three private offices. Had the large room not been
converted into three private offices, the ceiling would have required repairs at a cost of $2,000.
7.General expenses comprised of:
Explanations:

1.Legal expenses incurred for the purchase of property are of a capital nature. and therefore not
allowed as deductible expenses. This applies also to the building extension cost of $600.
2.The fine is not an expense incurred for the production of assessable profit. General expenses in
respect of entertainment for mother-in-law is private expenditure not incurred for the production
of assessable profits.
3.Community Chest is a charitable institution approved under Section 88 of the IRO but no
deduction is allowed since the sum does not exceed $100.
4.Provisional profits tax paid is not an allowable deduction since it is an advance payment of the
profits tax liability under the IRO and will be adjusted to effect the final liability upon the
settlement of the profits tax return.
Profits Tax Calculation Problem

Avec Piano Limited, a manufacturing company, produced the following profit and loss account for the year ended 31 March 2021.

Expenditure $ Income $

Salaries and wages 199,100 Gross profit 602,070

Directors’ fees 42,600 Dividend received 6,000

Superannuation fund contributions 10,800 Bad debts recovered 1,000

(annual)

insurance 4,040 Transfer from provision for bad debts 1,230

Freight charges 39,560 Profit on sale of investment 3,000

Legal and audit fees 9,900 Profit on currency exchange in respect 2,200

of trade transactions

Subscriptions and donations 3,020

Repairs 3,890

Traveling and entertainment 13,000

General sundries 2,090

Advertising 1,970

Printing and stationery 2,341

Bank charges and interests 989

Bad debts 1,090

Amortization of lease 11,000

Depreciation 49,540

Net profit 220,570

Total 615,500

Notes:

1.The company's superannuation (pension) fund is an approved one.

2.Repairs include the cost of work done on repairing the property of a director of the company, estimated at $1,200

3.A breakdown of the legal and audit fees as follow:

Audit fee $2,000

Legal charges for debt collection $1,450

Customer agreements $380

Acquisition of patent rights $3,050

Registration of trademark $3,020

Total $9,900

4.Subscriptions and donations contain the following:

Subscriptions to trade journals $1,090

Donation to Community Chest $1,130

Details of balance unknown $800

Total $3,020

5.Traveling and entertainment include allowance and airfare to a director's wife in respect of a trip to Tokyo to attend a wedding reception

($5,150) and airfare for another director to the United Kingdom to open a local sales office ($6,000).

6.All the sundry expenses and advertising are allowable deductions.

7.The depreciation allowance agreed by the IRD is $47,080.

Calculate the profits tax payable by Avec Piano Limited for the year of assessment 2020/2021.Provide explanations to your adjustments.
 Printing and stationery $2,500
Legal costs for debt collection $250
Legal costs for negotiation of loan $580
Accountancy $3,550
Mr. Wong’s personal VISA card $150
Donation to Community Chest $450
Entertainment $11,590
Total $19,070

8.The bank interest of $500 was paid on overdraft of the business bank account.
9.Loan interest was paid oi a loan borrowed to finance the purchase of trading merchandise. The
loan was secured by the bank deposits of Mr. Wong.
10.Bad debt amount was derived after an increase in the general debtor reserve.
11.The motor car was used by Mr. Wong both for business and private purposes. It was agreed that
half of the motor car expense is due to business purpose
12.The depreciation allowance agreed by the IRD for the year was $11,000.

Calculate the profits tax payable by Mr. Wong for the year of assessment 2020/2021.
Provide explanations to your adjustments.
Profits Tax Calculation Problem

Powelectronic Company Limited has carried on an electronic manufacturing business Hong Kong.
Its profit and loss account for the year ended 31 March 2020 as follow:

Sales $6,277,180
Less: Cost of goods sold (S4,590,540)
Gross profit $1,686,640
Other income $66,300
$1,752,940
Less: Rent and rate: $245,000
Branch office expenses $300,000
Depreciation $63,800
Office salaries $505,800
Special contribution to approved retirement scheme $200,000
Repairs and renewals $16,320
Professional charges $21,700
Bad and doubtful debts $31,400
Bank interest $12,980
Sundry expenses $11,510 ($1,408,600)
Net profit: $344,340

Additional information:

1.Powelectronic Company Limited opened a factory in China in April 2019. Before that, all the
production was done in Hong Kong and the finished products were exported to Australia and
the United States. After the production line in China was established part of the assembly work
was transferred to China with the finishing work still being carried out by the factory in Hong
Kong. All the administrative work related to the sales was done in the Hong Kong office, It was
estimated that sales related to such operations amounted to $650,000. The expenditures related
to the operations in China were debited into the branch office expense account.
2.Other income comprises:
Commission income $50,000
Interest received from a local bank $4,300
Dividend from shares of local subsidiary
(the cost of the shares was $200,000) $12,000
Total $66,300
The company eared the commission by introducing a buyer to one of the China garment factories.
One of the directors was in Australia on business and by chance discovered that an Australian
company wanted to import garments from China. He took the representative of that Australian
company to China and introduced the representative to the Chinese manufacturer.
3.Bank interest was paid on bank overdraft and was secured by the property of the managing director.
4.Professional charges were:
Legal charges for debt collection $5,400
Legal charges for setting up a retirement scheme for staff
(the scheme was an approved one) $8,000
Accountancy fee for tax appeal $5,000
Audit and accountancy fees $3,300
Total $21,700
5.Bad debts were:
Amount written off $21,000
General provision increased $5,000
$26,400
Defalcation by staff $41,400
Less: Loan to staff previously written off now recovered ($10,000)
Total $31,400
6.Sundry expenses comprise:
Cost of sending staff on production management courses $4,000
Staff annual dinner $2,000
Donations to Tung Wah Group Hospitals $5,000
Miscellaneous allowable expenses $510
Total $11,510

7.The depreciation allowance for the year is $35,000.

Prepare the profits tax computation for the year of assessment 2019/2020 for Powelectronic
Company Limited and briefly explain your adjustments in the computations. With reference to
decisions from tax cases, discuss the taxability of the profit from the China operations and the
commission under Hong Kong Profits Tax.
Figure 23.1
Summary of Personal Assessment for an Individual

1.Net assessable value of property assessable 1o property tax A1

2.Net assessable income under salaries tax B1
3.Assessable profit (after deduction of loss set-off under profits tax)
under Part TV C1
D1
Less:
4.Interest expense (E1)
5.Approved charitable donations (F1)
6.Business loss (G1)
H1
7.Loss brought forward (I1)
(J1)
8.Personal allowances entitled (K1)
Reduced total income (L1)

Tax is then levied at progressive tax rates on L1 but limited to standard rate on J1.

Figure 23.2
Summary of Personal Assessment for husband and wife

Husband Wife Joint

1.Net assessable value of property assessable to

property tax A1 A2
2.Net assessable income under salaries tax B1 B2
3.Assessable profit (after deduction of loss set-off
under profits tax) under Part TV C1 C2
D1 D2
Less:
4.Interest expense (E1) (E2)
5.Approved charitable donations (F1) (F2)
6.Business loss (G1) (G1)
H1 H1
7.Loss brought forward or loss from other spouse (I1) (I2)
J1 ＋ J2 ＝ J3
8.Personal allowances entitled Reduced Total Income (K3)
L3
(a)Tax is then levied at progressive tax rates on L3 but limited to standard rate on J3
(b)Tax as computed under (a) above is apportioned in the ratio
J1 J2
: between husband and wife
J3 J3
Personal Assessment Example

Mr. P received the following income for the year of assessment 2020/21:

Salary from a Hong Kong employment $108,000

Dividends from Hong Kong shares $8,740
Rents received from a flat in Shatin $60,000
Interests from a fixed deposit with a local bank $8,200
Profits from his solely owned boutique $24,000

Mr. P incurred the following expenses during the year ended 31st March 2021:

Rates for the property in Shatin $8,000

Expenses allowable for salaries tax purposes $3,000
Depreciation allowance available for profits tax purpose $2,500

Mr. P. incurred the following interest expenses during the year of assessment 2020/21:

Mortgage paid in respect of the Shatin property $70,000

Mortgage interest paid in respect of his own residence $45,000

During the year of assessment 2020/21, Mr. P donated $20,000 to an approved charitable
organization $2,000 out of the $20,000 donations has been deducted from the profits of the boutique
under profits tax.

Mr. P is a partner in a partnership business. During the year of assessment 2020/21, his share of loss
from the partnership business was $20,000.

Mr. P is a married man with one child aged 7. For the year of assessment 2020/21,he has paid the
following taxes already:

Property tax $6,240

Profits tax $3,225
Husband and Wife Persona! Assessment Examples

Mr. and Mrs. M had the following income and outgoings in the year of assessment
2020/21:

Mr. M Mrs. M
Property income (net assessable value) $40,000 $20,000
Salaries income $50,000 $20,000
Business income (before approved charitable donations) $70,000 $30,000
Total approved charitable donations $14,000 $6,000
Share of a partnership business loss $20,000

They have two children aged 8 and 10 respectively. They also live with Mr. M’s father who is aged
70 during the year of assessment.

Compute the personal assessment tax liability for Mr. and Mrs. M for the year of assessment 2020/21.

Mr. and Mrs. Z had the following income and outgoings in the year of assessment
2020/21:

Mr. Z Mrs. Z
Property income (net assessable value) (property tax already paid $32,000
$4,800)
Salaries income (no salaries tax paid) $102,800
Profits from proprietorship. (donations of $11,000 have been allowed $113,000
and profits tax of $16,950 already paid)
Share of partnership loss $50,000
Mortgage interest paid in respect of property $35,000
Total donations made $18,000 $4,000

The couple has one child aged 10 during the year of assessment 2020/21.

Compute the personal assessment tax liability for Mr. and Mrs. Z for the year of assessment 2020/21.
Personal Assessment Exercise

Mr. Kwok supplies you with the following information related to the year ending 31s March 2020.

a) He was employed as an accountant by Jim Chase and Co (JC), a firm carrying on construction
business in Hong Kong, and received an annual salary of $200,000.
b) He was provided with a flat in Kowloon by the firm at a monthly rental of $1,000. He also paid
management service charges amounting to $2,000 per annum.
c) He received an annual salary of $60,000 from an unincorporated business operated by his wife.
d) He received a holiday warrant from JC for $20,000 which he spent as follows: air ticket to
Singapore for himself and his wife ($5,000×2),accommodation in Singapore ($10,000).
e) It is a condition of his employment with JC that he joins the EA Club to help promote the firm’s
business interests. Annual subscription for the club members is $20,000,of which the firm
refunded him $10,000.
f) JC provides him with a company credit card which he used to purchase petrol for private motoring
for a total value of $5,000.
g) He received a cash scholarship of $3,000 from JC to study advanced accounting at an evening
course run by the Baptist University.
h) He made a donation of $25,000 to the Community Chest.
i) He received interest of $10,000 paid by the administrator of his late father's estate for delayed
payment of a legacy.
j) He owns a flat in Kowloon Bay which is leased for $4,000 per month. He paid rates on this flat
of $3,000 for the year. He also took out a mortgage to purchase the flat and total interest payments
amounted to $50,000.
k) At all times during the year he was married and maintained two children aged 17 and 20. The 20-
year-old finished schooling in September 2019 and is still looking for a job.
l) His wife operated a bakery business in Sai War, and the agreed assessable profits for the year
ending 31st March 2020 were $60,000

Calculate Mr. Kwok’s tax liability for the year of assessment 2019/2020.Assume Mr. Kwok has not
yet paid any tax for 2019/2020 and has elected for personal assessment.
(Adapted from ACCA/HKSA 3.3H D89Q6)