Answers of Taxation Assignment Essay Sample
Harmonizing to Inland Revenue Departmental Interpretation and Practice Note No. 10. the Commissioner accepts that an employment is located outside Hong Kong if all of the undermentioned three conditions are satisfied.
a. The contract of employment is negotiated and entered into. and is enforceable outside Hong Kong. B. The employer is resident outside Hong Kong.
c. The employee’s wage is paid to him outside Hong Kong.
Mr. Pan is non a Hong Kong occupant. and he was offered the occupation by an American company. It is really likely that his contract of employment was negotiated and entered into and enforceable outside Hong Kong. Mr. Pan’s employer is an American company. and his employer’s occupant position is outside Hong Kong. Mr. Pan’s salary is paid to his bank history in America by his employer. Thus. all the three conditions for an employment located outside Hong Kong are satisfied. Mr. Pan’s employment is outside Hong Kong.
If Mr. Pan’s employment is outside Hong Kong. his wages revenue enhancement liability is determined by the figure of yearss he stays in Hong Kong in the twelvemonth of appraisal concerned. Therefore. Mr. Pan is non able to determine his Hong Kong wages revenue enhancement liability until the footing period for the twelvemonth of appraisal has
passed. The longer the clip he stays in Hong Kong for a twelvemonth of appraisal. the more wages revenue enhancement he has to pay.
In order to avoid such uncertainness. Mr. Pan may negociate with his employer to split his responsibilities into two parts. viz. one for the Hong Kong office and the other for the caput office. When Mr. Pan is present in Hong Kong. he works for the Hong Kong office. and while he is outside Hong Kong. he works for the caput office. In this manner. Mr. Pan can split his wages into two parts. and all the income derived from the employment with the caput office is exempt from Hon Kong wages revenue enhancement under Section 8 ( 1A ) because he performs all services outside Hong Kong.
In add-on to the double employment. Mr. Pan may plan an efficient wage bundle to take advantage of the discriminatory intervention on certain income. such as refund of rent by the employer. and proviso of benefits. which are non Mr. Pan’s liability to pay.
a. Refund of rent
Mr. Pan can bespeak his employer to return the monthly rent of $ 20. 000 to him alternatively of giving him the wage of $ 20. 000. In Hong Kong. refund of rent is non treated as a hard currency allowance for the employee. It is taxed in the signifier of rental value which is calculated as 10 % of the income of the employee. Therefore. the effectual nonexempt sum is greatly reduced. B. Provision of adjustment by the employer
Alternatively of leasing the level by himself. Me Pan may bespeak his employer to lease the level for him. The monthly rent paid by the employer to the landlord is non treated as assessable income of Mr. Pan. but the benefit is taxed in the signifier of rental value which is besides calculated as 10 % of the income of the employee. In other words. the revenue enhancement consequence is the same as that of a refund of rent. c. Education for employee’s kids
It is provided in Sections 9 ( 1 ) ( a ) ( four ) and 9 ( 2A ) ( B ) that instruction allowance provided for employee’s kids by an employer is to the full nonexempt. and it will do no difference whether the school fee of Mr. Pan’s kids is paid by the employer or Mr. Pan himself for Hong Kong wages revenue enhancement intent. d. Contractual payments made by the employer for an employee It is provided in Section 9 ( 1 ) ( a ) ( four ) that if an employee can set up with his employer in such a manner that the employer is a contractual party to pay for the employee’s disbursals. so such a payment made by the employer for the benefit of the employee is non nonexempt in Hong Kong. I. Medical benefit
The employer may set up Mr. Pan to see designated physicians who have contractual relationship with the employer for the proviso of medical services for the employees. As the liability for payment of the medical measure lies on the employer. Mr. Pan is non nonexempt on the medical benefit so provided. two. Domestic retainer
If the employer of Mr. Pan employs a domestic retainer for Mr. Pan. and the employment contract is signed between the domestic retainer and Mr. Pan’s employer. the domestic servant’s wage paid by the employer is non treated as Mr. Pan’s nonexempt wage. three. Payment of public-service corporation measures
If the public-service corporation measures. e. g. . electricity. telephone. or H2O. are addressed to the employer who has a primary liability to settle the measures. the disbursals so paid by the employer for the benefits for the employee are non nonexempt. This is possible if the flat is owned or let by the employer. If Mr. Pan lives in the level Lashkar-e-Taiba by himself. so the public-service corporation measures will be addressed in his ain name. Reimbursement of such disbursals will be treated as a hard currency allowance to Mr. Pan and nonexempt.
e. Use of employer’s installations
If the employer has recreational installations such as recreational nines. the installations and benefits enjoyed by the staff are non nonexempt because they are non exchangeable into hard currency. Mr. Pan may supply him with a company auto and such benefit is besides non nonexempt in Hong Kong.
In order to hold an efficient wages revenue enhancement planning. Mr. Pan may bespeak his employer to split his services into two separate employment contracts. one with the caput office and the other with the Hong Kong office. He can besides do usage of the discriminatory intervention in taxing benefits in sort to cut down his Hong Kong wages revenue enhancement liability. In add-on. he is back uping his married woman and kids. he can claim married person’s allowance and kid allowance which will further cut down his Hong Kong wages revenue enhancement liability.
Wages Tax Calculation
Year of Assessment 2008/09
Mr. GaoMrs. Gao
$ $ $ $
Salaries400. 000250. 000
Commission100. 000 0
500. 000250. 000
Attention deficit disorder: Rental value ( $ 500. 000 ten 10 % ) 50. 000
Less: Rent suffered 12 ten $ ( 16. 000 + 500 -15. 000 ) 18. 00032. 0000
532. 000250. 000
Less: Contribution ( restricted to 35 % ) 186. 20013. 800
Contribution to retirement scheme12. 00012. 000
Aged residential attention expenses60. 000258. 200025. 800
273. 800224. 200
Less: Basic allowance108. 000108. 000
Child allowance050. 000
Dependent parent allowance60. 000168. 0000158. 000
Net indictable income105. 80066. 200
Wages revenue enhancement thereon $ 40. 000 @ 2 % 800800
$ 40. 000 @ 7 % and $ 26. 200 @ 7 % 2. 8001. 834
$ 25. 800 @ 12 % 3. 0960
6. 6962. 634
Standard rate ( $ 273. 800 ten 15 % and 224. 200 ten 15 % ) 41. 07033. 630 [ which are higher than the revenue enhancement at progressive rates ]
Therefore. the wages revenue enhancement collectible by Mr. and Mrs. Gao are $ 6. 696 and $ 2. 634 severally
Property Tax Calculation
Year of Assessment 2008/09
Rent ( $ 11. 500 ten 12 ) 138. 000
Less: Rates7. 000
Less: Statutory tax write-off ( $ 131. 000 ten 20 % ) 26. 200
Net assessable value104. 800
Property revenue enhancement ( $ 104. 800 ten 15 % ) 15. 720
Entire revenue enhancements collectible by Mr. and Mrs. Gao
Wages revenue enhancement ( $ 6. 696 + $ 2. 634 ) 9. 330
Property tax15. 720
Mr. and Mrs. Gao
Personal Assessment Calculation
Year of Assessment 2008/09
Mr Gao Mrs Gao
Internet assessable value 104. 800 0
Net assessable income 532. 000 250. 000
636. 800 250. 000
Less: Interest disbursals ( restricted to sack assessable value ) 104. 800 0 532. 000 250. 000
Less: Business loss ( 50. 000 ) 0
482. 000 250. 000
Less: Contribution ( 186. 200 ) ( 13. 800 )
Contribution to recognised retirement strategy ( 12. 000 ) ( 12. 000 ) Elderly residential attention disbursals ( restricted to $ 60. 000 ) ( 60. 000 ) 0
223. 800 224. 200
Less: Married person’s allowance 216. 000
Child allowance 50. 000
Dependent parent allowance 60. 000 326. 000
Net indictable income 122. 000
Wages revenue enhancement thereon $ 40. 000 @ 2 % 800
$ 40. 000 @ 7 % 2. 800
$ 40. 000 @ 12 % 4. 800
$ 2. 000 @ 17 % 340
( Standard rate $ 448. 000 x15 % = $ 67. 200 which is higher than $ 8. 740. ) Since personal appraisal revenue enhancement of $ 8. 740 is lower than the entire revenue enhancements collectible by Mr. and Mrs. Gao in the sum of $ 25. 050. it is advantageous to elect for personal appraisal for the twelvemonth of appraisal 2008/09.
The liability of personal appraisal revenue enhancement is as follows:
Mr. Gao = $ 8. 740 ten 223. 800/448. 000 = $ 4. 366
Mrs. Gao = $ 8. 740 ten 224. 200 448. 000 = $ 4374