Q1:

Personal Assessment Computation 2018/19 for Tony and May. (Assume that the couple will elect personal assessment jointly for the year.) (19 marks)

The case Tony and May have appointed your employer, HS & Co, as their tax representatives to take care of their lax filing in Hong Kong. As the lax manager in charge, you are given the following information in respect of the couple for the year ended 31 March 2019, Section 1 - Personal Information (1) Tony Cheung, HKID E123456(8): May Leung: HKID A345678(9). (2) Tony and May are married with two children, David and Mia, with information below: - David Cheung, HKID P604578(2), DOB May 23, 1998, unmarried and currently a full time student at University of Sydney. - Mia Cheung, HKID R297364(3), DOR September 6, 2002, unmarried and currently Studying Form 6 at a local secondary school. (3) Tony and his family reside at Flat 1806, Glory Garden, 25 Prince Edward Road, Kowloon. The apartment was rented by Tony since five years ago. (4) Tony's daytime phone number is 2983-3430 and Tony's mobile is 6343 9933. May's daytime phone number is 3927 8232 and her mobile number is 9439 4836. (5) May is a housewife. She is the only child of her father who lives in a registered nursing home called Fook On Elderly Home. The nursing home bills for the year amount to S120,000, which was paid by Tony. On top of this, May paid $1,000 per month to her father as petty cash. Personal information about May's father is below: Name: Mr Kin Po Leung; - DOB: Feb 22, 1932; - HKID: P349505(6) (6) Tony's parents are living away from the couplc. Tony paid $5,000 per month lo his parents. It has been agreed between Tony and his sister that the dependent parcnt allowance for the parents will be claimed by his sister. Section 2 - Financial Information (7) Tony is employed as chicf sales executive by Vita Ltd, a company carrying on business in Hong Kong since 1 May 2017. The following information relates to Tony concerning the year of assessment 2018/19: (i) Salaries and commission of $1,300,000, subject to a deduction of 5% as his contribution to the mandatory provident fund (MPF) (ii) Discretionary bonus declared by Vita Ltd and credited to Tony's account on: . 16 May 2018; S80,000 for the period from 1 April 2017 to 31 March 2018 - 19 May 2019: S90.000 for the period from 1 April 2018 10 31 March 2019 (ii) During the year, Vita Ltd paid $84,000 directly to University of Sydney for the tuition fucs of Tony's son, David. (iv) Tony was granted an allowance of $32,000 in March 2019 for the purchase of a holiday passage, of which he spent $30,000 when he was on vacation leave in April 2019. He spent the remaining $2,000 buying a souvenir for his secretary during the trip. (v) Tony's salaries tax liabilitics were bome by Vita Ltd. On 20 January 2019, Vita Ltd paid $160,000 of his salaries tax for the year of assessment 2017/18. (vi) Tony rented his current residence in Kowloon for $35,000 per month and received $32,000 per month from his cnployer as housing reimburseincnl. Tony has submilled the lease contract and rental receipts to his employer as evidence. (vii) Vita Ltd operates an employee share scheme. During the year, Tony was granted an option to buy 3,000 shares at a cost of $600. The exercise price is S3 per share. On 5 January 2019, he exercised the option to buy 2,000 sharcs and sold the option for the balance of the shares to another staff at $600. Tony sold all his shares on 6 January, The market price of the shares was as follows: - $5 per share on 5 January 2019 - $5.5 per share on 6 January 2019 (viii) During the year, Tony had an accident and was hospitalized for two weeks. Total hospital bill was $100,000. Tony received a rimbursement from his chiplayer in the amount of S60,000. His employer did not enter into any group medical insurance for the stall. On top of this reimbursement, Tony also received reimbursement of $40,000 from his insurance company under the personal insurance plan in his own name. (8) Tony also runs T&M Boutique as a sole proprietor in Ilong Kong (B.R. No 33445566). The following is the business'income statement for the year ended 31 December 2018: Notes $ Sales Cost of goods sold 650.000 (130,000) 520,000 Interest income Profit on disposal of fixed assets (i) (viii) 7.000 2,500 9,500 529,500 (ii) (iii) (iv) Salarics lo staff Legal and professional foc Staff MPF contributions Rent and rates Miscellancous expense Interest expenses Depreciation Net profit (150,000) (30,000) (7,500) (96,000) (16,000) (12,000) (36,000) (vi) (vii) (vii) (347,500) 182,000 Additional notes to the above: (1) Interest income includes $5,000 interest on RMB deposit placed in a HK bank and $2,000 interest accrued on lax reserve certificalc bought from 1IKSAR govertincnt. (ii) There is only one employee working as shop assistant for the boutique. She is Linda Ng. 22, unmarried, living at 20B, Block 3, East Estates, North Point, Hong Kong. She does not receive any remuneration other than salaries. (iii) Legal and professional fee includes $13,400 being tax advisory fees for lodging a tax appeal. Others relate lo accounting and tax filing foo. (iv) The contributions to MPT schemes for staff represent 5% of the basic salary of salt. (V) Rent and rates include $4,000 carpet replacement for the shop. (vi) Miscellancous expense comprises: Stock loss due to thcfi Parking fines Total 10,750 5,250 16,000 (vii) Inlcrest expense of $12,000 was paid on a bank loan obtained to finance the business operation. The loan was secured by personal guarantee given by Tony, (viii) During the year, an old van was traded-in for $9,500 lo acquire an electric van which had a cost of $44,000. The net book value of the old van was $7,000 (original cost $35,000). There is no other addition to fixed asset during the year. Based on 2017/18 profits tax return, the tax written down value of the plant and machinery 20% pool is $30,000 and 30% pool is $40.000. (9) On April 2018, Tony bought an apartment located at Flat D, Block 2, Chelsea Height, Causeway Bay, Hong Kong. Total costs paid by Tony included: - acquisition cost: - legal cost and agency fuc: - renovation cost: $8,500,000 $150,000 $600.000 The apartment was subsequently lcascd out under the following terms: (1) Term of Icasc: 2 years from 1 July 2018 (ii) Monthly rental: $36,000 (iii) Rent deposit: $72,000 paid on signing the lease agreement (iv) Management fec: $2,500 per month, payable by the tenant to management company (v) Raies: $3,000 per quarter, payable by the landlord to the government (vi) Tenant failed to pay rent since 1 January 2019. Tony was informed by the management company that the tenant had moved out on 28 February 2019 and could not be contacted. Tony partly financed the acquisition of the apartment through a mortgage from Bank of Lust Asia. The total amount of mortgage interest paid by Tony is $180,000 for the year ended 31 March 2019 (10) On 1 July 2018, May bought an office located at Room 28, 8/F, Block B, Mega Building, 30 Hung To Road, Kwun Tong. The office was Icascd oul under the following terms: 0 Term of lease: four years from 1 July 2018 (ii) Monthly rental: $20,000 (iii) Rent-free period: one month from 1 July 2018 (iv) Rent deposit: S40,000 paid on signing the lease agreement (v) Premiuin: $24,000 paid on signing the lease agreement (vi) Management fee: $1,000, payable by the tenant to the management company (vii) Ralu's: $1,500 per quarter, payable by the landlord to the government May paid a total of S100,000 as legal ee and stamp duty on the acquisition, and $20,000 as agency fee for the leasing. She financed the acquisition of the office by way of a loan borrowed from a friend called Susan Wong who is currently living in PRC. During the year ended 31 March 2019, May paid loan interest of $150,000 to Susan End of Group Assignment The case Tony and May have appointed your employer, HS & Co, as their tax representatives to take care of their lax filing in Hong Kong. As the lax manager in charge, you are given the following information in respect of the couple for the year ended 31 March 2019, Section 1 - Personal Information (1) Tony Cheung, HKID E123456(8): May Leung: HKID A345678(9). (2) Tony and May are married with two children, David and Mia, with information below: - David Cheung, HKID P604578(2), DOB May 23, 1998, unmarried and currently a full time student at University of Sydney. - Mia Cheung, HKID R297364(3), DOR September 6, 2002, unmarried and currently Studying Form 6 at a local secondary school. (3) Tony and his family reside at Flat 1806, Glory Garden, 25 Prince Edward Road, Kowloon. The apartment was rented by Tony since five years ago. (4) Tony's daytime phone number is 2983-3430 and Tony's mobile is 6343 9933. May's daytime phone number is 3927 8232 and her mobile number is 9439 4836. (5) May is a housewife. She is the only child of her father who lives in a registered nursing home called Fook On Elderly Home. The nursing home bills for the year amount to S120,000, which was paid by Tony. On top of this, May paid $1,000 per month to her father as petty cash. Personal information about May's father is below: Name: Mr Kin Po Leung; - DOB: Feb 22, 1932; - HKID: P349505(6) (6) Tony's parents are living away from the couplc. Tony paid $5,000 per month lo his parents. It has been agreed between Tony and his sister that the dependent parcnt allowance for the parents will be claimed by his sister. Section 2 - Financial Information (7) Tony is employed as chicf sales executive by Vita Ltd, a company carrying on business in Hong Kong since 1 May 2017. The following information relates to Tony concerning the year of assessment 2018/19: (i) Salaries and commission of $1,300,000, subject to a deduction of 5% as his contribution to the mandatory provident fund (MPF) (ii) Discretionary bonus declared by Vita Ltd and credited to Tony's account on: . 16 May 2018; S80,000 for the period from 1 April 2017 to 31 March 2018 - 19 May 2019: S90.000 for the period from 1 April 2018 10 31 March 2019 (ii) During the year, Vita Ltd paid $84,000 directly to University of Sydney for the tuition fucs of Tony's son, David. (iv) Tony was granted an allowance of $32,000 in March 2019 for the purchase of a holiday passage, of which he spent $30,000 when he was on vacation leave in April 2019. He spent the remaining $2,000 buying a souvenir for his secretary during the trip. (v) Tony's salaries tax liabilitics were bome by Vita Ltd. On 20 January 2019, Vita Ltd paid $160,000 of his salaries tax for the year of assessment 2017/18. (vi) Tony rented his current residence in Kowloon for $35,000 per month and received $32,000 per month from his cnployer as housing reimburseincnl. Tony has submilled the lease contract and rental receipts to his employer as evidence. (vii) Vita Ltd operates an employee share scheme. During the year, Tony was granted an option to buy 3,000 shares at a cost of $600. The exercise price is S3 per share. On 5 January 2019, he exercised the option to buy 2,000 sharcs and sold the option for the balance of the shares to another staff at $600. Tony sold all his shares on 6 January, The market price of the shares was as follows: - $5 per share on 5 January 2019 - $5.5 per share on 6 January 2019 (viii) During the year, Tony had an accident and was hospitalized for two weeks. Total hospital bill was $100,000. Tony received a rimbursement from his chiplayer in the amount of S60,000. His employer did not enter into any group medical insurance for the stall. On top of this reimbursement, Tony also received reimbursement of $40,000 from his insurance company under the personal insurance plan in his own name. (8) Tony also runs T&M Boutique as a sole proprietor in Ilong Kong (B.R. No 33445566). The following is the business'income statement for the year ended 31 December 2018: Notes $ Sales Cost of goods sold 650.000 (130,000) 520,000 Interest income Profit on disposal of fixed assets (i) (viii) 7.000 2,500 9,500 529,500 (ii) (iii) (iv) Salarics lo staff Legal and professional foc Staff MPF contributions Rent and rates Miscellancous expense Interest expenses Depreciation Net profit (150,000) (30,000) (7,500) (96,000) (16,000) (12,000) (36,000) (vi) (vii) (vii) (347,500) 182,000 Additional notes to the above: (1) Interest income includes $5,000 interest on RMB deposit placed in a HK bank and $2,000 interest accrued on lax reserve certificalc bought from 1IKSAR govertincnt. (ii) There is only one employee working as shop assistant for the boutique. She is Linda Ng. 22, unmarried, living at 20B, Block 3, East Estates, North Point, Hong Kong. She does not receive any remuneration other than salaries. (iii) Legal and professional fee includes $13,400 being tax advisory fees for lodging a tax appeal. Others relate lo accounting and tax filing foo. (iv) The contributions to MPT schemes for staff represent 5% of the basic salary of salt. (V) Rent and rates include $4,000 carpet replacement for the shop. (vi) Miscellancous expense comprises: Stock loss due to thcfi Parking fines Total 10,750 5,250 16,000 (vii) Inlcrest expense of $12,000 was paid on a bank loan obtained to finance the business operation. The loan was secured by personal guarantee given by Tony, (viii) During the year, an old van was traded-in for $9,500 lo acquire an electric van which had a cost of $44,000. The net book value of the old van was $7,000 (original cost $35,000). There is no other addition to fixed asset during the year. Based on 2017/18 profits tax return, the tax written down value of the plant and machinery 20% pool is $30,000 and 30% pool is $40.000. (9) On April 2018, Tony bought an apartment located at Flat D, Block 2, Chelsea Height, Causeway Bay, Hong Kong. Total costs paid by Tony included: - acquisition cost: - legal cost and agency fuc: - renovation cost: $8,500,000 $150,000 $600.000 The apartment was subsequently lcascd out under the following terms: (1) Term of Icasc: 2 years from 1 July 2018 (ii) Monthly rental: $36,000 (iii) Rent deposit: $72,000 paid on signing the lease agreement (iv) Management fec: $2,500 per month, payable by the tenant to management company (v) Raies: $3,000 per quarter, payable by the landlord to the government (vi) Tenant failed to pay rent since 1 January 2019. Tony was informed by the management company that the tenant had moved out on 28 February 2019 and could not be contacted. Tony partly financed the acquisition of the apartment through a mortgage from Bank of Lust Asia. The total amount of mortgage interest paid by Tony is $180,000 for the year ended 31 March 2019 (10) On 1 July 2018, May bought an office located at Room 28, 8/F, Block B, Mega Building, 30 Hung To Road, Kwun Tong. The office was Icascd oul under the following terms: 0 Term of lease: four years from 1 July 2018 (ii) Monthly rental: $20,000 (iii) Rent-free period: one month from 1 July 2018 (iv) Rent deposit: S40,000 paid on signing the lease agreement (v) Premiuin: $24,000 paid on signing the lease agreement (vi) Management fee: $1,000, payable by the tenant to the management company (vii) Ralu's: $1,500 per quarter, payable by the landlord to the government May paid a total of S100,000 as legal ee and stamp duty on the acquisition, and $20,000 as agency fee for the leasing. She financed the acquisition of the office by way of a loan borrowed from a friend called Susan Wong who is currently living in PRC. During the year ended 31 March 2019, May paid loan interest of $150,000 to Susan End of Group Assignment