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ACT B414F Taxation I Group Assignment (Summer 2019 Semester) Due date: 22nd July 2019 ANSWER ALL QUESTIONS Question 1 (50 marks) ABC Ltd is a computing consulting company with its accounting year ended 31 December. The profit before tax for year ended 31 December 2018 was $5,450,000 after including the following items in its financial statements: Income:- Compensation for early termination of a business contract by a customer 135,000 Share of profits from an associated company 380,000 Exchange gain from daily business related payable balance 18,500 Interest income from loans advanced to employees in HK 7,500 2,400 Interest income from unpledged deposit placed with a local bank Interest income from long outstanding business related receivable balance due from overseas customers General bad debt provision written back 8,600 18.400 Deposit forfeited by customers due to cancellation of service engagement 120,000 Expenditure:- Interest expense on overdue account payable to an unrelated overseas hardware supplier regarding the purchase of a computer system in prior 3600 year Interest expense on a bank loan from HSBC guaranteed by ABC Ltd's director personally (the loan was exclusively used for ABC Ltd' s daily 05 business activities) Interest expense on an unsecured bank loan from Standard Chartered Bank (the loan was exclusively used for the acquisition of certain listed shares for 8000 long term investment purposes) 165,000 690,200 Special contribution to ABC Ltd' s recognised occupational retirement scheme covering previous investment loss Annual contribution to ABC Ltd's recognised occupational retirement scheme (17% of cach employee s annual remunerations) Refurbishment expense for a residential property currently used by ABC Ltd' s director as quarters Refurbishment expense for a commercial property currently used by ABC Ltd as office premises Tax payment (salaries tax of ABC Lid' s director) 300.000 750,000 280.000 Tax payment (property tax of self owned property) 120,000 Tax payment (property tax of a director) 52,000 Accounting depreciation 160,500 ABC Ltd also provided information on fixed assets movement and other tax information as follows:- Addition of office furniture 100,500 Addition of computer equipment 120,000 Addition of a motor vehicle 285.000 Tax written down value for 20% pool brought forward 98,300 Tax written down value for 30% pool brought forward 127,000 Qualifying expenditure claiming for commercial building allowance brought forward (all expenditure referred to office premises and directors quarters decoration incurred in prior years. Such properties were all demolished during the year due to refurbishment as per item (1) above) 450,000 Tax written down value brought forward attributable to qualifying expenditure claiming for commercial building allowance as per above Required 340,000 Required: (a) State and explain the factors which are used by IRD in determining the source of employment and evaluate whether Mr. Orlando's employment should be considered a Hong Kong employment or not. (11 marks) (b) According to IRO, certain exemptions may be available to a taxpayer who is subject to salaries tax. Identify and explain these exemptions if they are applicable to Mr. Orlando (7 marks) (c) Compute the salaries tax liability of Mr. Orlando's tax for the year of assessment 2018/19 based on your discussion of as per part (a) and (b) above. (Ignore provisional tax and tax reduction for the year, if there is any). (12 marks) ACT B414F Taxation I Group Assignment (Summer 2019 Semester) Due date: 22nd July 2019 ANSWER ALL QUESTIONS Question 1 (50 marks) ABC Ltd is a computing consulting company with its accounting year ended 31 December. The profit before tax for year ended 31 December 2018 was $5,450,000 after including the following items in its financial statements: Income:- Compensation for early termination of a business contract by a customer 135,000 Share of profits from an associated company 380,000 Exchange gain from daily business related payable balance 18,500 Interest income from loans advanced to employees in HK 7,500 2,400 Interest income from unpledged deposit placed with a local bank Interest income from long outstanding business related receivable balance due from overseas customers General bad debt provision written back 8,600 18.400 Deposit forfeited by customers due to cancellation of service engagement 120,000 Expenditure:- Interest expense on overdue account payable to an unrelated overseas hardware supplier regarding the purchase of a computer system in prior 3600 year Interest expense on a bank loan from HSBC guaranteed by ABC Ltd's director personally (the loan was exclusively used for ABC Ltd' s daily 05 business activities) Interest expense on an unsecured bank loan from Standard Chartered Bank (the loan was exclusively used for the acquisition of certain listed shares for 8000 long term investment purposes) 165,000 690,200 Special contribution to ABC Ltd' s recognised occupational retirement scheme covering previous investment loss Annual contribution to ABC Ltd's recognised occupational retirement scheme (17% of cach employee s annual remunerations) Refurbishment expense for a residential property currently used by ABC Ltd' s director as quarters Refurbishment expense for a commercial property currently used by ABC Ltd as office premises Tax payment (salaries tax of ABC Lid' s director) 300.000 750,000 280.000 Tax payment (property tax of self owned property) 120,000 Tax payment (property tax of a director) 52,000 Accounting depreciation 160,500 ABC Ltd also provided information on fixed assets movement and other tax information as follows:- Addition of office furniture 100,500 Addition of computer equipment 120,000 Addition of a motor vehicle 285.000 Tax written down value for 20% pool brought forward 98,300 Tax written down value for 30% pool brought forward 127,000 Qualifying expenditure claiming for commercial building allowance brought forward (all expenditure referred to office premises and directors quarters decoration incurred in prior years. Such properties were all demolished during the year due to refurbishment as per item (1) above) 450,000 Tax written down value brought forward attributable to qualifying expenditure claiming for commercial building allowance as per above Required 340,000 Required: (a) State and explain the factors which are used by IRD in determining the source of employment and evaluate whether Mr. Orlando's employment should be considered a Hong Kong employment or not. (11 marks) (b) According to IRO, certain exemptions may be available to a taxpayer who is subject to salaries tax. Identify and explain these exemptions if they are applicable to Mr. Orlando (7 marks) (c) Compute the salaries tax liability of Mr. Orlando's tax for the year of assessment 2018/19 based on your discussion of as per part (a) and (b) above. (Ignore provisional tax and tax reduction for the year, if there is any). (12 marks)

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