ACY3003 Hong Kong Taxation

2024-25 Semester 2

Group Assignment – Case Study

Total: 50 marks

You group is required to prepare:

(1)    A COVER PAGE with the following details:

(i)     Class number (e.g. ACY3003-L01);

(ii)    Names and student IDs of your group members; and

(iii)   Contributions made by each member (otherwise  an equal percentage of contribution would be assumed).

(2)    Answer BOTH questions.

Question 1

Required:

Based on the case given, your group is required to prepare and type the following computations in a professional way. Please ignore provisional tax and any tax rebate / concessions on final tax payable:

(a)     Profits Tax Computation 2024/25 for Spinning Limited (Client 1) showing its profits tax payable. (16 marks)

(b)     Salaries Tax Computation 2024/25 for Charles (Client 2) showing his salaries tax payable, no Personal Assessment and/or Joint Assessment are elected. (18 marks)

(c) Applicable Stamp Duty payable by Mr Wei. (Client 3). (3 marks)

(d)     Property Tax Computation 2024/25 for Mr Wei. (Client 3) (6 marks)

Question 2

Required:

Your clients also seek advice from you, please advise them with respect to the followings:

(a)     Charles (Client 2) would like to understand whether he will be regarded by the Inland Revenue Department of Hong Kong as having an overseas employment and the Hong Kong salary tax implications. (3 marks)

(b)     Mr Wei (Client 3) compliance obligations with respect to Hong Kong property tax. (4 marks)

[TOTAL: 50 marks]

The Case

You are the Tax Partner of Robinson & Robson, CPA, a local CPA firm which offers audit and taxation services for clients in Hong Kong. Recently you have been approached by three clients of yours. They came to seek your professional advice, and you need to advise them on several topics under Hong Kong Taxation.

Client 1 – Spinning Limited

Spinning Limited (Spinning), a Hong Kong-incorporated company, carrying on business in Hong Kong as a wholesaler of textile machinery in Hong Kong. For the year ended 31 March 2025, Spinning’s profit and loss account contained the following details:

Notes:

(1) Interest income comprises: $

Interest on HK$ deposits with a bank in Hong Kong 13,500

Interest on a loan advanced to a director (Spinning has advanced a low-interest rate loan to a director to finance his acquisition of an investment property in the US. The funds were remitted to his bank account in the US) 22,000

Interest from overdue customers in Hong Kong 1,850

Total per accounts 37,350

(2) Compensation received comprises: $

Customer compensation – a customer in Hong Kong terminated the distribution contract during the year 50,000

Total per accounts 50,000

(3) Staff expenses comprise: $

Salaries and bonuses 1,965,000

Wages for the Spinning’s general manager’s domestic driver 100,000

Mandatory provident fund (MPF) regular contributions 125,000

Annual dinner at ABC Restaurant and cash prizes for lucky draw 60,000

Total per accounts 2,250,000

(4) Rent and rates comprise: $

Rent and rates for the Chairman’s apartment in Shatin 252,750

Rates for office in Central 36,400

Total per accounts 289,150

(5) Selling and marketing expenses comprise: $

Distribution costs 657,000

Rebate commissions to Retailer BBT in Hong Kong 193,500

Rebate commissions to undisclosed agents 20,100

Penalties in speeding incurred by a business manager on a business trip 900

Advertising and promotion 1,116,500

Total per accounts 1,988,000

(6) Interest expenses comprise: $

Interest on a bank loan, secured by a personal guarantee from the company’s director 41,500

Overdraft interest in current account with the bank in Hong Kong 11,500

Interest on late settlement of accounts payable with a US supplier 8,000

Total per accounts 61,000

(7) Repairs and Maintenance comprise: $

Replacement of office curtains 21,000

Refurbishment of showroom 27,500

Repair of office photocopier 22,800

Total per accounts 71,300

(8)

The total depreciation charge for the year was $540,000 based on the book value of Spinning’s fixed assets as at 31 March 2025. During the year, the following additions were made:

Date Particulars

21 July 2024 Purchased some office furniture for $70,000.

1 March 2025 Purchased computer laptops and software licenses for $213,000.

(9) Bad debts were written off due to the bankruptcy of a customer.

(10)  Spinning made the following donations during the year: $

Hong Kong Red Cross (cash) 25,000

Orbis Hong Kong (secondhand books) 5,000

Total per accounts 30,000

(11)  The tax written down value brought forward in respect of the plant and machinery pools were:

10% - Nil

20% - $461,500

30% - $640,000

(12) Spinning owned a property which was used as the office in Central. The qualifying expenditure and written down value in respect of the office property for commercial building allowance purposes was $1,250,000 and $250,000 respectively.

Client 2 – Charles

Charles is a US resident. He has been employed by Xycom Inc (Xycom), a company operating in the US in the consumer electronics industry. At the beginning of 2024, he was  seconded to Xycom Hong Kong Limited (Xycom HK), a company incorporated and listed in Hong Kong, for 5 years. Xycom HK is a subsidiary of Xycom. Charles’s terms of employment with Comcas remained unchanged during his assignment to Xycom HK. As a regional general manager, he was based in the Hong Kong office of Xycom HK and was required to travel and look after the Xycom’s customers in the Asian countries.

Charles’s salary is paid in US dollars into his bank account in New York. During the year ended 31 March 2025, he exercised his duties in Hong Kong on the following dates:

Vacation details:

As well as taking vacation in Hong Kong from 20 June to 25 June 2024 inclusive, Charles took vacation for another 13 days in Thailand during December 2024.

Charles is remunerated by a fixed monthly salary of $240,000. With effect from 1 April 2024, he is provided with a serviced apartment in Hong Kong at a monthly rental of $60,000 paid by the Xycom HK, but Charles was required to contribute $6,000 per month. Charles also paid monthly laundry charges of $2,000 to the apartment company.

During the year ended 31 March 2025, Charles also received the following items from Xycom HK:

(1)      On 1 April 2024, he received a cash allowance of $100,000 towards relocating his wife and his son from the US to Hong Kong. He spent $92,000 in total for this purpose.

(2)      From 1 April 2024, when Charles and his family moved into the service, the utility bills totalling $30,000 were paid by Xycom HK.

(3)      Charles  was provided with a company car and a driver for use in Hong Kong. The car was worth $400,000 and was registered in the name of Xycom HK. The driver was hired by Xycom HK at $32,000 per month. Charles used the car for both business and personal purposes on a 70:30 basis, which was agreed with the Inland Revenue Department for tax purposes. Charles was also provided with a corporate credit card which he used to pay for the petrol cost of $10,000 per month. The credit card balance was settled by Xycom HK. Charles did not use the corporate credit card for any other purposes.

(4)      Charles was sick at the end of 2024 and hospitalised for five days in Thailand. The total medical expenses amounted to $100,000, of which $60,000 was successfully claimed against his employer’s insurance company. The balance was reimbursed by Xycom HK.

(5)      On 15 August 2024, Charles was granted an option to acquire 15,000 shares at $9 each in Xycom HK, at an option cost of $8,000. On 30 March 2025, he exercised the option on all the shares and sold the shares the next day. The market values per share were as follows:

15 August 2024           $13

30 March 2025            $29

31 March 2025            $32

(6)      On 1 April 2024, Charles was granted 20,000 shares by Xycom US subject to a vesting period. The shares vested in him on 31 January 2025.    Charles sold the 10,000 shares on 15 February 2025. The market price of each share was $28 on 1 April 2024, $40 on 31 January 2025 and $42 on 15 February 2025.

(7)      Charles paid an annual subscription of $12,000 to the Hong Kong Football Club.

(8)      Charles enrolled in a part-time EMBA programme in management offered by the University of Hong Kong and paid an annual tuition fee of $280,000 during the year.    50% of the tuition fee was reimbursed by Xycom.

(9)      By virtue of his employment status, Charles and Xycom are not required to make any contribution to the mandatory provident fund in Hong Kong.

(10)    Charles made cash donations of $12,000 in January 2025 to the Hong Kong Community Chest. He also paid $5,000 for a ticket to attend a fund-raising show organised by World Vision Hong Kong in March 2025.

(11)    Charles’s wife, Angel, is a housewife. Angel is  a Hong Kong permanent resident. Their 22-year-old daughter is currently studying for a part-time master’s degree at The City University of Hong Kong. Angel’s mother is aged 58 and lives with the couple in Hong Kong, starting from 1 April 2024. Angel’s father is aged 65 and lives in a nursing home in Hong Kong at a cost of $14,000 per month. The cost is fully paid by Charles. Angel’s father is disabled and is eligible to claim the disability allowance from the Hong Kong government, but he has not made the claim.

Client 3 – Mr. Wei

Mr. Wei is a non-Hong Kong resident and an Australian citizen. He came to Hong Kong on 27 March 2024 to visit his friends. On 1 May 2024, Mr. Wei signed the ASP to purchase a commercial property (first-time in his life buying properties in Hong Kong) located at Wong Chuk Hang, Hong Kong. Total costs paid by Mr. Wei included:

acquisition cost (consideration):                $30,000,000

legal cost and agency fee:                                $150,000

decoration and clean-up costs:                     $1,200,000

The property was subsequently leased out to Mr. Fung under the following terms:

(i)      Term of lease: two years from 1 August 2024

(i)      Monthly rental: $56,000

(ii)     Rent deposit: $102,000 paid on signing the lease agreement

(iii)    Management fee: $2,500 per month, payable by the tenant to management company

(iv)    Rates: $6,000 per quarter, payable by the landlord to the government

(v)     Repair of windows in the commercial property: $2,000 paid by Mr. Wei

(vi)    Mr. Fung failed to pay rent since 1 January 2025. Mr. Wei was informed by the management company that the tenant had moved out on 28 February 2025 and could not be contacted.