Taxation assignment

Taxation I TMA 2 14 ACT B414
Due date: 2015 November 30
Please take note.
The TMAs must be created using word processing software, such as Microsoft Word, and submitted using the Online Learning Environment (OLE). By the deadline, all assignments must be uploaded to the OLE.
The score for a TMA may be changed to zero if it is not uploaded to the OLE in the necessary format.
No extension of the deadline for the final TMA will be permitted, per University regulation. This regulation will be severely upheld. Any final TMA that is submitted after the deadline will have its score reduced to zero.
1st question: 30 points
Korean Mr. Kyung has been employed in Hong Kong for four years. On July 25, 2013, he and his family made their way back to Korea. He purchased a Wan Chai property before departing Hong Kong and went into a two-year lease agreement with Ms. Cheung to rent it out. The agreement’s provisions were specifically described as follows:
The lease becomes effective on August 1, 2013.
ii The rent for each month was $32,000, which was due in advance on the first of the month.
iii A $64,000 rental deposit was paid with the lease agreement.
iv In response to the tenant’s request, Mr. Kyung agreed to provide a one-month rent-free period from August 1 to August 31, 2013.
The $2,500 quarterly rate and $1,800 monthly management fee are already included in the rent; the tenant is not responsible for paying them separately.
vi The owner is responsible for paying for any property repairs.
Mr. Kyung paid $15,000 in monthly mortgage loan interest to the Standard Chartered Bank in Hong Kong during the fiscal year that ended on March 31, 2014. In addition, he shelled out $16,000 for an agency fee to lease the space. Ms. Cheung reported in February 2014 that she had spent $25,000 on repairs for the water pipe and power line. After some discussion with Ms. Cheung, Mr. Kyung decided he did not have to reimburse her for the money.
15th assignment file
Mr. Kyung received a property tax return for the assessment year of 2013–2014 on May 15, 2014. Mr. Kyung disregarded the tax return because he thought he was no longer a resident of Hong Kong.
As Mr. Kyung’s tax advisor, you must inform him of the extent of Hong Kong’s property tax charges, as well as his position with regard to those taxes and the next steps to take. (8 markings)
Determine Mr. Kyung’s property tax due for the assessment year of 2013–2014, assuming he is liable to Hong Kong property tax, and explain how you treated any income or expense that did not appear in your calculation. Any interim tax, tax waiver, tax reduction, or rate concession should not be taken into account.
(15 marks)
c Briefly describe to Mr. Kyung the responsibilities that property owners have in relation to Hong Kong property tax. (7 markings)
Query 2 (25 points)
The following details are given in relation to a manufacturing company that Mr. Cheung owns. The company closes its books every year on March 31.
a The following list includes the tax-written-down values of plant and machinery moved forward from the 2013–2014 assessment year:
$ 30% pool 50,000
20% pool 100,000 b The following are the plant and machinery movements for the fiscal year that ended on March 31, 2015:
One motor van, which in 2009 cost $130,000, sold for $18,000. For $150,000, a brand-new motor van was purchased.
ii On hire-purchase arrangements, a $80,000 sewing machine was purchased. On July 1st, 2014, a down payment of $35,000 was made, and the remaining balance, plus interest, is due in 10 equal monthly installments of $5,000. Beginning in August 2014, the installment is due on the first of the month.
iii The 30% pool includes a car that Mr. Cheung’s son has occasionally utilized for personal usage since April 1, 2014. With the IRD, a 70% private usage portion has been agreed upon. In June 2011, the car’s price was $127,000. On April 1, 2014, the car’s estimated market value was $60,000.
Taxation I 16 ACT B414
IV Mr. Cheung took over the office equipment from his father’s business to utilize in his own. The written-down value of the furniture that was acquired was $6,000 on the date that his father’s business was terminated. The furniture had a current market worth of $12,000 at the time.
v Old equipment that was part of the 20% pool was trashed, and new equipment that would cost $20,000 has been ordered but has not yet been delivered. A $5,000 deposit has been paid, and if the supplier cannot deliver the machine within a month, the payment will be returned.
Establish the depreciation allowances for Mr. Cheung’s company for the assessment year 2014–2015 in line with the applicable regulations of the Inland Revenue Ordinance.
Query 3 (25 points)
Mr. Orlando, a citizen of the United States, has been employed since 2008 with Clever Inc. in Los Angeles’ finance division. He was transferred to the Hong Kong office in April 2015 to serve as the regional financial controller. In his new position, he frequently travels to other Asian nations to assess financial and related issues. He did not sign a new job contract with the Hong Kong branch of Clever Inc., but they did give him the administrative and support services he required to perform his duties. Immediately following his arrival in Hong Kong, Mr. Orlando’s pay was deposited into his newly formed Hong Kong bank account. Regarding crucial matters of direction and strategy, Mr. Orlando continues to collaborate closely with his American boss.
a Describe the criteria that the IRD uses to determine the source of employment and debate whether or not Mr. Orlando’s employment should be regarded as a Hong Kong employment.
(10 marks)
b Describe how the source of employment affects whether employment income is subject to Hong Kong’s wages tax.
(6 markings)
c Taxpayers may qualify for a number of exemptions under the terms of the Inland Revenue Ordinance, regardless of their job status. Mention the exemptions that are available, citing the relevant sections when necessary, as well as the requirements that must be met in order to be eligible for the exemptions. (9 marks)
Query 4 (20 points)
Professional Services Limited (‘PSL’), a business with a Hong Kong incorporation, offers expert teaching services. The following is PSL’s income statement for the fiscal year that ended December 31, 2014:
Note in Assignment File 17 $ $ Earnings
(1) Service revenue 801,000
Income from interest (2) 27,000
Gain from selling fixed assets 5,000 833,000
wages and salaries 300,000
Professional and legal costs 50,000
Prepaid expenses (4) 60,000
Depreciation 56,000
Insurance 3,500
Interest and bank fees (5) 20,000
Gain on exchange (6) (1,000)
Travel expenses (1) 15,000
Advertising 11,000
printing and office supplies 130,000
Accounts receivable provision (7) (2,000)
Diverse costs (8) 71,500 (714,000)
119,000 in profit before taxes
Additional information about PSL’s operations for the year is provided by the following data, which was taken from the audit working papers:
1 PSL got a total of $120,000 in compensation for two lectures it delivered in Singapore during the course of the year. The compensation included the cost of instructional supplies, seminar facilitators, and other teaching-related hardware. The facilitators’ transportation expenses from Hong Kong to Singapore came to $15,000.
Among the interest income items were:
I transferred $20,000 from a USD fixed deposit to the HSBC office in New York.
ii $7000 was transferred from a HK$ savings account to the Hong Kong branch of HSBC.
3 The following items were included in legal and professional fees:
Fees for trade debt collection Hong Kong clients $5,000
Singapore residents 4,000
Professional charges for the compulsory provident fund 20,000
ACT B414 (18) Taxation I
legal costs associated with a publisher’s 10,000 claim of copyright infringement
Audit and tax fees totaling $11,000
4 PSL keeps a mandatory provident fund for its employees, and regular contributions of $60,000 were made in the past year, which is equivalent to 20% of the total compensation of all qualified employees.
5 What was included in bank fees and interest was as follows:
bank fees for routine daily transactions $8,000
Interest on bank overpublish with HSBC that exceeded $12,000 and was protected by the US dollar fixed deposit mentioned in (2)(i)
6 The $1,000 exchange gain resulted from the Singaporean clients’ settlement mentioned in (1) above.
7 The following information is included in the provision for accounts receivable:
General $(5,000) brought forward as a balance
written-off receivables from Hong Kong clients Amount recovered from a customer in Hong Kong who had been written off in 2009: 4,000 (11,000)
4,500 in staff loans written off
General 5,500 carried over balance
8 Included in other costs are the following:
tax penalty for late filing $3,000
reimbursement for a worker whose job was terminated 12,000
Tax on director salaries 13,000
17,000 Singapore personal income tax for employees
Office supplies (all permitted) 18,000
9 Although PSL’s previous year earnings tax computation indicated a tax loss of $10,000, the Inland Revenue Department has not yet accepted this. The estimated depreciation allowances for all equipment and buildings used for business purposes for the current year are $66,000.
Establish the year of assessment and basis period for Professional Services Limited’s Hong Kong profits tax liability for the fiscal year ending on December 31, 2014. (In your calculations, disregard provisional profits tax and any tax waivers or reductions.)
— TMA 2 END —



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