[SOLVED] CASE STUDY FOR HONG KONG TAXES Python

CASE STUDY FOR HONG KONG TAXES (100 marks)

David is a UK citizen who has been married to Nancy since March 2016. Nancy is a permanent resident of HongKong and lives there regularly. David and Nancy are both over 25 years old.

David works for ZAB Limited (ZAB), the Hong Kong subsidiary of the multinational company Zenith Inc., which is incorporated in the UK. From a tax perspective, both his place of employment and the residence of ZAB are considered to be in the UK.

David serves as both the director and purchasing manager of ZAB Limited. His remuneration is paid by ZAB. While he is based in the UK, David frequently travels throughout the Asia Pacific region, especially to HongKong.

David’s travel schedule for HongKong in the year 2023/2024 is as follows:

2 April 2023 to 10 April 2023;

6 May 2023 to 12 May 2023;

11 August 2023 to 15 August 2023;

10 November 2023 to 29 November 2023; and

1 January 2024 to 30 March 2024.

David’s remuneration for the year 2023/2024 is detailed below (all amounts are in Hong Kong Dollars):

(1)       Annual salary income: $2,440,000; director fee $200,000.

(2)       Year-end bonus: $120,000

(3)       An interest-free loan of $100,000 was provided by ZAB on April 1, 2023, and is due for repayment in December 2024. The annual market interest rate is 8%.

(4)      Yearly travelling  allowance (paid on  1 April):  $100,000.   The  allowance was to subsidize David travelling costs between HK and the UK. The actual spending made by

David for such purpose was $40,000 during the year.

(5)       In 1 June 2023, David rented a flat in Hong Kong for his and his wife at a monthly rent of $30,000. ZAB refunded $27,000 to him monthly upon submission of the rental receipts. David signed the qualifying tenancy with the landlord as an attempt to claim concessionary deductions for domestic rent.

(6)       On 5 April 2023, David was granted an option to purchase 50,000 shares of ZAB at $5 each within 2 years. He paid $10,000 for the option. On 15 August 2023, he exercised the option. On 20 August 2023, he sold all the shares. The market value per share were as follows:

1 April 2023                           $8

15 August 2023                       $12

20 August 2023                       $15

(7)       David’s son, aged 24, George, is studying full-time in an international school in the UK.  ZAB has signed an agreement with the school so that the school fees of George are payable by ZAB. During the year, ZAB paid fees totalling $80,055 to the school.

(8)      Nancy  does  not  have  any  salary  income  in  Hong  Kong.  In  March  2023,  she purchased an office unit in Hong Kong, financing it with a loan from a local bank, which incurs an annual interest of $250,000. On May 1, 2023, the office unit was leased under the following terms:

The building management office charged a monthly management fee of $1,750 for its services. The tenant paid this fee to the building management company through Nancy.

Starting from 1 November 2023, the tenant failed to pay the rent and the management fee. On 30 March 2024, the tenant moved out of the property and could no longer be contacted. Nancy was required to pay the overdue management fee from November 2023 onwards. Fortunately, it was found that rates had been paid by the tenant in advance up to March 2024.

In March 2024, Nancy spent $60,000 to replace the door, which had been damaged whilst let to the tenant.

Nancy operated a beauty business in partnership with a friend, sharing profits and losses equally. For the year 2023/2024, the assessable profit attributed to Nancy, as confirmed by the IRD, was $320,000. Additionally, the tax loss attributed to her for 2022/2023, also agreed upon by theIRD, was $150,000. The agreed profit tax rate was 7.5%.

(9)       During the year, David paid the following:

(10) It is  agreed by the IRD that the year of assessment 2023/2024 has  365  days  as denominator for apportioning assessable incomes.

Required (All figures should be displayed as integers):

(a) Determine the number of days David visited Hong Kong  (60  days ‘rule);  and calculate the number of days for income apportionment under the mid-day rules.  (4 marks)

(b) Additionally, briefly explain whether he is liable to Salaries Tax liability for the assessment year 2023/2024 in (i) salary income & (ii) director fee. (4 marks)

(c) Assess David’s Salaries Tax liability for the 2023/2024 assessment year, if any. (Ignore provisional tax) (36 marks)

(d) Briefly explain your tax treatment of the following items:

(i)        School fees $80,055 paid by ZAB (Note 7) (2 marks)

(ii)        An interest-free loan of $100,000 provided by ZAB (Note 3) (2 marks)

(e) Prepare the property tax computation, if applicable for Nancy for the year of assessment 2023/24. (Ignore provisional tax) (12 marks)

(f)  Are David and Nancy eligible to apply for joint election of personal assessment for the year 2023/2024? Please provide an explanation referencing the relevant  ordinances. (6 marks)

(g) Compute the taxes payable (for each person) under joint election of personal assessment for the year 2023/2024. (Ignore provisional tax) (26 marks)

(h) Advise it is advantageous for David and Nancy to jointly elect for personal assessment. Present your findings in a columnar format. (8 marks)