Salaries Tax – Part 3 Source of Income

Tutorial Questions

Question 1 (Adopted from ACCA J04 F6HKG Q4)

Mr Johnson is employed by a US company as a regional operations controller, looking after

the company’s operations in Asian countries, including Hong Kong. During the year ended
31 March 2022, he visited Hong Kong to exercise his duties on the following dates:

Arriving Hong Kong Departing Hong Kong Remarks

1 April 2021
10 June 2021
8 November 2021
16 January 2022
19 February 2022
15 April 2021
25 June 2021 20 June – 25 June on vacation
29 November 2021
17 January 2022
24 February 2022

Vacation details:
As well as taking vacation in Hong Kong from 20 June to 25 June inclusive, Mr Johnson took
vacation for another 14 days in Europe during December 2021.

Note: The total number of days in 2021/22 is 365.

Required:
(a) Calculate the number of days that Mr Johnson visited Hong Kong in 2021/22 and
determine whether Mr Johnson is exempt from or subject to Hong Kong salaries
tax.
(b) Regardless of your answer to part (a) above, calculate the time-apportionment ratio
for Mr Johnson assuming that he is subject to salaries tax for 2021/22.
(DIDO Ratio: 53/365)
(a) Since the total no. of days of visiting HK is 61, which exceeds 60 days, Mr Johnson is
subject to HK salaries tax.
(b) Time-apportionment ratio=[(6+14)x(61-5-6)/(365-6-14)+(61-5-6)]/365=53/365

Question 2

John, a UK resident, is employed by a corporation based in the UK, with an annual income
equivalent to HK$4,000,000. John is required to travel to various group companies in
different countries to oversee their operations. However, for convenience purposes, most of
his work is performed in Hong Kong. John’s travelling schedule for the year ended 31 March
2022 was as follows:

Hong Kong 225 days (including 15 days annual leave)

China 95 days
Other Asian countries 20 days
UK 25 days
365 days (assume 365 days in the year)

Calculate John’s assessable income for the year of assessment 2021/22?

A. $4,000,000
B. $2,465,752
C. $2,301,368
D. $2,400,000 [15x(225-15)/(365-15)+(225-15)]/365x$4,000,000
Question 3 (Modified QP Module D Jun19)

CK Limited is a listed company incorporated in Hong Kong. To facilitate the exploration of

the business, CK Limited requested the help from its Singapore affiliate company CN
Limited for providing advice and recommendation. In this connection, Mr Tang, the general
manager of CN Limited visited Hong Kong extensively in the year ended 31 March 2022 to
provide advice and support to CK Limited. Mr Tang was aware of the fact that he might be
subject to salaries tax, but had no idea how to quantify the respective tax liabilities. The
details of his remuneration and travel schedule for the year ended 31 March 2022 is as
follows:

Details of remuneration (converted into HK$)

Salary $1,638,000
Discretionary bonus $434,800
Education allowance 39,000

Dates of arrival to Hong Kong Date of departure from Hong Kong

28 June 2021 17 July 2021
5 September 2021 14 September 2021
4 December 2021 22 December 2021
5 March 2022 22 March 2022
26 March 2022 29 March 2022

Note: Assume 365 days in the year.

Mr Tang was married in 2020, and ordinarily resided in Singapore together with his spouse
and his mother (age 75). He also paid a tuition fee equivalent to HK$78,000 to a University in
Singapore for a business course which is for employment use. During his visit to Hong Kong,
he stayed in a fully furnished services apartment at the expense of CK Limited. During the
year, Mr Tang spent 9 days in Hawaii together with his family for vacation.

Required:

Compute the salaries tax liabilities of Mr Tang for the year of assessment 2021/22.
(Check figures: DIDO Ratio: 68/365; Rental Value: $39,343; Assessable Income: $432,774; Net
Chargeable Income: $90,774; Salaries Tax Payable: $3,446)
Mr Tang
Salaries Tax Computation
Year of Assessment 2021/22
Basis period: 1 April 2021 to 31 March 2022
$ $
Salary 1,638,000
Discretionary bonus 434,800
Education allowance 39,000
2,111,800
Time apportionment:
HK: [9x66/(365-9)+66]=68days
Taxable: $ 2,111,800x 68/365 393,431
Rental value (39,3431x10%) 39,343
Assessable income 432,774
Less: Self-education expense (78,000)
354,774
Less: Part 5 allowance
Married person’s allowance (264000)
Net chargeable income 90,774
Progressive rate on NCI: 3,446
50,000x2%+40774x6%
Standard rate on $354,774x15% 532,161
Salaries tax liability 3,446

Question 4 (Modified from ACCA D08 F6HKG Q5)

Roger is employed by Golden Inc (Golden), a company incorporated in the US, as regional
finance director. His employment contract was discussed and signed in New York and his
salary is paid directly into his bank account in New York. Since 2017, Roger has been based
in the Hong Kong office but is required to travel within the region when necessary. During
the year ended 31 March 2022, he made the following overseas trips:

PRC 120 days

Other Asian countries 50 days
US 55 days (including 15 days annual leave)

For the rest of the year, Roger stayed in Hong Kong and did not take any annual leave in Hong
Kong. Assume 365 days in the year.
The following additional information relates to Roger for the year ended 31 March 2022 (all
amounts are denominated in Hong Kong dollars):

(1) Annual salary: $1,440,000. -T

(2) Roger was granted an option to buy 50,000 shares in Golden. He paid a nominal
amount of $5,000 for this option. On 1 February 2022, Roger exercised the option to
take up 30,000 shares for $45,000. The fair market values of a Golden share were as
follows:

1 February 2022 $3.0 -T

31 March 2022 $3.5

(3) Roger lives with his family in a serviced apartment in Causeway Bay. The cost of the
apartment is $30,000 per month and this is paid by Golden. Roger paid $8,000 to join
the clubhouse and was reimbursed half of this amount by Golden as he would meet
clients at the clubhouse for the purpose of fostering business contacts. -T

(4) Golden provided Roger with a car and a driver. The car was leased from a car agency
in the name of Golden, at a monthly rental of $6,000. The driver was hired by Golden
at $9,600 per month. The total petrol and maintenance costs for the car for the year
were $60,000, all of which were paid for by Roger and reimbursed by Golden. Roger
estimated that about 20% of the usage of the car did not relate to Golden’s business.

(5) Golden employed an amah for Roger at a cost of $4,500 per month and refunded
Roger his utilities bills, which were $38,000 for the year. -T

(6) Golden operates a medical insurance scheme for all of its employees through an
insurance company, and pays an annual premium of $5,500 per employee. During the
year, Roger was hospitalised for two weeks. In order that he could continue to carry
out his employment duties whilst in hospital, he paid an extra $24,000 for a private
room. The basic hospital fees and public ward fees of $45,000 were reimbursed by the
insurance company, while two-thirds of the extra fees were reimbursed by Golden.-T

(7) Roger contributed a total of $18,000 to the Mandatory Provident Fund.

(8) Roger is married with two children, aged 24 and 15. The elder child is studying full-
time in Canada.

Required:
Calculate the Hong Kong salaries tax payable by Roger for the year of assessment

2021/22. Note: You should ignore overseas tax.

(Check figures: DIDO ratio: 146/365; Rental Value: $60,400; Assessable Income: $681,200;
Net Chargeable Income: $159,200; Salaries Tax Payable: $10,288)
 Roger
Salaries Tax Computation
Year of Assessment 2021/22
Basis period: 1 April 2021 to 31 March 2022
$ $
Salary 1,440,000
Reimbursement half of club joining fee 4,000
Reimbursement of petrol fee (60000x20%) 12,000
Refund of utilities bills 38,000
Reimbursed of extra medical (24000x2/3) 16,000
1,510,000
Time apportionment:
HK: [15x140/(365-15)+140]=146 days
Taxable: $1510000x 146/365 604,000
Rental value (604000x10%) 60,400
Share option gains
-On exercise [(3-1.5)x30,000-5,000x(30/50)] 42,000
Apportioned on Time basis [$42000x(146/365)] 16,800
Assessable income 681,200

Less: Concessionary deduction

Contribution to Mandatory Provident Fund (18,000)
Net assessable income after concessionary deduction 663,200
Less: Part 5 allowance
Married person’s allowance (264,000)
Child allowance (age 15 &24) (240,000)
Net chargeable income 159,200
Salaries tax at progressive rate on NCI: 10,288
50,000x2%+50,000x6%+50,000x10%+9,200x14%
Salaries tax at standard rate: $663,200x15% 99,480
Salaries tax liability 10,288
Question 5 (Modified from ACCA D15 F6HKG Q5)

Simon Smith, a US resident, is working as a marketing manager for a US company (USCo).

From 1 April 2021, he started to travel around the region visiting USCo’s operations and
meeting clients. During the year ended 31 March 2022, Simon spent a total of 230 days in
Hong Kong as follows:

7 April 2021 to 1 May 2021 25

12 June 2021 to 9 September 2021 90 (including 20 days annual leave)
14 October 2021 to 5 February 2022 115
230

Note: Assume 365 days in the year.

All his remuneration is paid into Simon’s bank account in the US. For the year ended 31
March 2022, Simon had the following income and expenditure:

1. A monthly salary of $96,000.

2. An annual entertainment allowance of $48,000, of which only $40,000 was actually

expended.

3. Simon was provided with a hotel serviced apartment in Hong Kong with a monthly
rental of $12,000. The total annual charges for this serviced apartment of $144,000
were paid directly to the hotel company by USCo; and 5% of the total charges was
deducted from Simon’s salary.

4. Received a reimbursement of medical expenses in the sum of $45,000 from a medical

insurance scheme. USCo is contracted to pay an annual premium of $6,000 to the
scheme for each staff. -NT

5. During the year, USCo paid $45,000 to a travel company to purchase a package tour to
Canada to be taken by Simon for holiday purposes. The package tour could be
transferred to another person for $40,000. USCo also paid $1,000 to take out a travel
insurance policy for Simon.

6. USCo provided Simon with a company car for his use. The market value of the car was
280,000 and the second hand value as at 31 March 2022 was $210,000. USCo also
provided Simon with a corporate credit card which he used to pay for his petrol costs of
$3,000 per month. The credit card balance was settled in full by USCo. It has been
agreed with the assessor that 75% of the usage of the car was for USCo’s business.

7. For business purposes, Simon joined the International Golf Club for an annual
membership fee of $35,000. USCo agreed to reimburse half of the annual membership
fee. Simon also paid an annual membership fee of $2,600 to The Chartered Association
of Marketing.

8. During the year, Simon enrolled onto a Putonghua course offered by a local university
and paid a tuition fee of $15,000. The enrolment was fully supported by USCo, as it
plans to expand its business in China. USCo reimbursed Simon half of the tuition fee.
9. On 1 April 2020, Simon was granted 5,000 shares by USCo subject to a vesting period.
The shares vested in him on 30 September 2021. The market value of the shares on 1
April 2020 and 30 September 2021 was $55,000 and $66,000 respectively.

10. On 1 October 2021, Simon was given an option to purchase 100,000 shares in Diamond
Inc, a subsidiary of USCo which is listed on the New York Stock Exchange, at a price
equivalent to $15 per share. Simon paid $2,000 for this option. The market price of
Diamond Inc shares on 1 October 2021 was $16 per share. Simon exercised the option
to purchase 50,000 of the shares on 30 November 2021 when the market price of the
shares was $18 per share.

Required:
Calculate Simon Smith’s net assessable income, if any, for the year of assessment 2021/22.
Note: You are not required to calculate the tax payable.
(Check figures: Rental Value: $80,050; Assessable Income: $965,350; Net Assessable Income:
$955,250)
Simon Smith
Net Assessable Income Computation
Year of Assessment 2021/22
Basis period: 1 April 2021 to 31 March 2022
$ $
Salary (96,000x12) 1,152,000
Entertainment allowance 4,000
Holiday benefit 45,000
Reimbursement of petrol fee (3,000x12x25%) 9,000
Reimbursed of Golf Club membership fee (35,000/2) 17,500
Share award benefit 55,000
1,338,500
Time apportionment:
HK: [20x(230-3-20)/(365-20)+(230-3-20)]=219 days
Taxable: $1,338,500x 219/365 803,100
Rental value [(803,100-2,600)x10%] 80,050
Less: rent suffered (144,000x5%) (7,200) 72,850
Share option gains
-On exercise [(18-15)x50,000-2,000x(50,000/100,000)] 149,000
Apportioned on Time basis [$149,000x(219/365)] 89,400
Assessable income 965,350
Less: Self-education expense (15,000/2) (7,500)
Membership fee of The Chartered Association of Marketing (2,600)
Net assessable income 955,250

Question 6 (Modified QP Module D Dec14)

Mr E had a Hong Kong employment with A Ltd as a ship captain. The numbers of days on
which Mr E stayed in Hong Kong in the years of assessment 2019/20, 2020/21 and 2021/22
are 30, 40 and 65 respectively. Out of the days he was present in Hong Kong, Mr E merely
attended meetings in Hong Kong for 10 days, 20 days and 30 days during the relevant three
years respectively.
Required:
Evaluate whether Mr E is chargeable to salaries tax for the years of assessment 2020/21
2021/22.
(check figures: exempt in 2020/21)
Question 7

Mr Lee, a director of a Canadian company, was asked to return to Hong Kong and work for
the company’s subsidiary in Hong Kong as a chief executive officer on the following terms:

1. He entered into a separate employment contract with the Hong Kong subsidiary for a
term of 3 years renewable. The contract was faxed to Canada and signed by Mr Lee
but the original contract was subsequently signed by two parties in Hong Kong.

2. He was paid a monthly salary of Can$10,000. 30% of the salary was credited by the
Canadian company into his bank account in Canada and 70% into his bank account in
Hong Kong. Given that Mr Lee’s contribution is for the benefit of the Hong Kong
subsidiary, the Canadian company recovered the whole amount of salary from the
Hong Kong subsidiary.

3. While Mr Lee is under the employment of the Hong Kong subsidiary, he remains as
director of the Canadian company until further notice. The annual director’s fee
entitled by Mr Lee is Can$5,000.

Mr Lee arrived in Hong Kong with his wife and 2 children on 15 February 2020 and reported
duty on 1 March 2020. Mr Lee’s parents and other family members are in Hong Kong.
During the years 2019/20 to 2021/22, Mr Lee has the following trips and overseas tax paid:

Y/A 2019/20: - all days in HK since 15/2/2020 (arrival date);

- paid Canadian tax of HK$3,000 on director’s fee

Y/A 2020/21: - 288 days in China, paid PRC Individual Income Tax of HK$23,000;
- 20 days in Canada attending director’s meeting, paid Canadian tax of
HK$3,000 on the director’s fee.
- less than 60 days in HK

Y/A 2021/22: - 80 days in Singapore, Singapore income tax of HK$5,000 was paid;
- no trip to Canada for director’s meeting; paid Canadian tax of
HK$3,000 on director’s fee.

In Mr Lee’s HK salaries tax returns, he made the following claims:

1. Y/A 2019/20: Not taxable in HK as he only started to work in HK on 1 March 2019.

2. Y/A 2020/21: Not taxable in HK as less than 60 days were spent in HK.

3. Y/A 2021/22: Taxable in HK on time apportionment basis, so that only income for his
services in HK is taxable in HK. Moreover, the Singapore tax and Canadian tax paid
should be allowed as deduction in HK.

Required:
Discuss and analyse the source of Mr Lee’s employment, and whether or not his claim for
his HK tax positions from 2019/20 to 2021/22 would be successful.