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TQ_U4_SalariesTax(2) 1

BUSI 0018 – Hong Kong Taxation

Tutorial Questions

Unit 4 – Salaries Tax (2)

Question 10

Mr Lam, the managing director of one of your clients, Galaxy Trading Limited, came to youroffice. He was concerned about restructuring his own salaries package, and that of the otheremployees. He wanted to ensure that all fringe benefits provided by the company were to be

 provided in a tax efficient manner i.e. to minimize the salaries tax liabilities of the employees but at minimal costs to the company.

Required:

(a) Explain to Mr Lam the extent to which fringe benefits are subject to salaries tax inHong Kong with reference to the relevant statutory provisions and general principles.

(b) Advise him how to provide the following fringe benefits to the employees of thecompany in a tax efficient manner:(i) a domestic helper(ii) low interest loan(iii) club membership(iv) education fee of child

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TQ_U4_SalariesTax(2) 2

Question 11

Part (a)

Explain whether, and if so to what extent, the amount described in each of the followingcases is subject to Hong Kong salaries tax:

(1) Mr. Tam, the chief accountant of a local manufacturing company, was approached bya competitor company which offered him a job. In order to convince him to remain inthe existing position, his existing employer paid him a "non-competition payment"amounting to $100,000 in return for a promise that he would not accept the offer.

(2) PQR (HK) Co. Ltd. was given permission to list its shares on the Hong Kong StockExchange. Under the terms of the listing arrangement with the Stock Exchange, eachemployee of the company was entitled to a certain number of shares upon payment ofa price of $15 per share. This was also the amount paid by general members of the

 public who wish to subscribe for the newly listed shares, but the general public mightnot be allocated with the number of shares that they subscribed for in the case of over-subscription. Mr. Wong, an existing employee, applied to subscribe for the shares.

After exercising this right to acquire the shares, Mr. Wong thereafter sold the sharesin the open market and earned a profit.

(3) Mr. Yu became seriously ill and was hospitalised for nearly one month. His hospitalfee of $50,000 was paid by an insurance company under a health policy undertaken

 by Mr. Yu’s employer. Mr. Yu’s employer paid an annual premium of $3,000 on this policy to the insurance company.

Part (b)

Peter Pang was employed by XYZ Company Limited at a monthly salary of $20,000 up to 30June 2009. In addition to his salary, the company also paid him a housing allowance of$5,000 per month, but he actually lived in his own property on Hong Kong Island.

On 1 July 2009, Peter was promoted to manager with a revised monthly salary of $30,000.He moved into the company’s quarter at a rent of $3,000 per month payable to XYZ.

In December 2009, Peter was sent to London on a business trip for a month and resided in aLondon hotel. The company paid all the hotel accommodation expenses, which amounted to$24,000. During his stay in London, his family continued to reside in the company's quarter.

You are required to compute the assessable income for the year of assessment 2009/10 for

Peter Pang.