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APTITUDE TEST

Hong Kong Taxation

Sample Paper – 30 marks

Kindly note the actual examination paper, totaling 100 marks, will comprise multiple-choice questions (MCQs) of one mark to three marks, as indicated. Candidates are required to choose the best answer to each MCQ. For your easy reference, the correct answer is highlighted in bold in this sample paper. The total time allowed for this examination is one hour and 45 minutes.

Page 1 of 7

Table A: Personal Allowances and Deduction

Year of assessment 2002-03 2003-04

Personal allowance

$ $

Basic Married person’s Single parent

108,000 216,000 108,000

104,000 208,000 104,000

Child 1

st to 2

nd child (each)

3rd

to 9th

child (each)

30,000 15,000

30,000 30,000

Dependent parent / grandparent Basic Additional (for dependent residing with taxpayer)

30,000 30,000

30,000 30,000

Dependent brother / sister

30,000 30,000

Disabled dependant

60,000 60,000

Deductions Self-education expenses Home loan interest Elderly residential care expenses Contribution to recognised retirement scheme Approved charitable donations

40,000 150,000 60,000 12,000

10%

40,000 100,000 60,000 12,000

25%

Depreciation allowance Plant and machinery: IA

60%

60%

AA Given in question

Industrial building: IA 20% 20% AA 4% 4%

Commercial building: AA

2% (up to 1997/98) 4% (1998/99 onwards)

Table B: Tax rates

Tax rates Year of assessment Tax rates Year of assessment

2002-03 2003-04 2002-03 2003-04

% % % %

Standard Progressive $1 - $30,000 $30,001 - $32,500 $32,501 - $35,000 $35,001 - $37,500 $37,501 - $40,000 $40,001 - $50,000 $50,001 - $60,000 $60,001 - $62,500 $62,501 - $65,000 $65,001 - $67,500 $67,501 - $70,000

15.0

2.0 2.0 2.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0

15.5

2.0 2.0 7.5 7.5 7.5 7.5 7.5 7.5 7.5 13.0 13.0

$70,001 - $80,000 $80,001 - $90,000 $90,001 - $92,500 $92,501 - $95,000 $95,001 - $97,500 $97,501 - $100,000 $100,001 - $102,500 $102,501 - $105,000 $105,001 - $107,500 Above $107,500 Corporation profits tax rates

12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 17.0 17.0

16.0

13.0 13.0 13.0 13.0 13.0 18.5 18.5 18.5 18.5 18.5

17.5

Page 2 of 7

Answer ALL multiple choice questions. Choose the best answer for each question.

Marks will NOT be deducted for incorrect answers.

(TOTAL: 30 marks)

1. Expert Limited purchased a motor car under hire purchase terms. During the year ended

31 December 2003, it made a total repayment of $120,000, being principal and interest of

$108,000 and $12,000 respectively. The amount of initial allowance to which Expert

Limited is entitled in respect of the motor car for the year of assessment 2003/04 is:

(2 marks)

A $64,800.

B $72,000.

C $32,400.

D $36,000.

2. In accordance with para. 9 of DIPN No. 21, if the activities of a Hong Kong trading

business are limited to the following, the Inland Revenue Department will accept that the

profits derived by such business are not taxable. These activities are: (1 mark)

(i) issuing or accepting sales order.

(ii) arranging letter of credit.

(iii) issuing or accepting an invoice.

(iv) maintaining accounting activities.

A (i), (ii) and (iii) only.

B (i), (ii) and (iv) only.

C (i), (iii) and (iv) only.

D (ii), (iii) and (iv) only.

3. Who is eligible to elect for personal assessment? (1 mark)

A An individual who carries on business in Hong Kong.

B An individual who receives rental income from a property situated in Hong Kong.

C A permanent resident of Hong Kong who is aged 21.

D An individual who visits Hong Kong for less than 180 days in a year of assessment.

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4. Mr. A has a Hong Kong employment. During the year ended 31 March 2004, he rendered

services in Country C for 100 days during which he earned employment income of

$100,000. He has paid tax $16,000 to the tax authority of Country C in respect of $80,000

of the employment income. His total income during the year ended 31 March 2004 was

$365,000. His assessable income for the year of assessment 2003/04 is: (2 marks)

A $365,000.

B $349,000.

C $265,000.

D $285,000.

5. Mr. B was employed by F Ltd at a monthly salary of $30,000. He was provided with a

rent-free quarter up to 31 December 2003, the date of his retirement. In recognition of his

past good services, F Ltd gave him $120,000 as a gratuity and bought him a new car for

$200,000 on 31 December 2003. The second hand market value of the car was

$110,000 on 31 December 2003. Mr. B did not apply for relating back of any lump sum.

The assessable income of Mr. B for the year of assessment 2003/04 is: (2 marks)

A $527,000.

B $550,000.

C $617,000.

D $591,100.

6. Which of the following statutes is NOT administered by the Inland Revenue Department?

(1 mark)

A Air Passenger Departure Tax Ordinance.

B Betting Duty Ordinance.

C Stamp Duty Ordinance.

D Estate Duty Ordinance.

7. Which of the following expenses is NOT deductible from the assessable value under

property tax? (1 mark)

A Rates paid by owner.

B Rent proved to be irrecoverable.

C Statutory deduction of 20%.

D Management fee paid by owner.

Page 4 of 7

8. In 1990, P Ltd, a company carrying on business in Hong Kong, entered into a processing

agreement with a China party for processing its goods. P Ltd provides raw materials,

technical know-how and management, production skills and supervision and plant and

machinery. Its total profits of $1,800,000 for the year of assessment 2003/04, after

making the necessary adjustments, consist the following:

$

Manufacturing profit 1,500,000

Rental income from Hong Kong property 200,000

Loan interest (all taxable) 100,000

1,800,000

P Ltd’s assessable profit for the year of assessment 2003/04 is: (1 mark)

A $1,800,000.

B $1,700,000.

C $1,050,000.

D $900,000.

9. Mr. Smith is a pilot employed by an overseas airline company. He was present in Hong

Kong for 61 days and 59 days and 62 days respectively during the years ended

31 March 2002, 2003 and 2004. His annual salary is $1,095,000. Which of the following

statements is TRUE? (2 marks)

A He is not chargeable to salaries tax for the year of assessment 2002/03.

B His assessable income for the year of assessment 2001/02 is $183,000.

C His assessable income for the year of assessment 2002/03 is $177,000.

D His assessable income for the year of assessment 2003/04 is $1,095,000.

10. When a taxpayer lodges an appeal to the Board of Review against the Commissioner of

Inland Revenue’s determination, which of the following documents is NOT required to be

enclosed with the notice of appeal? (1 mark)

A A copy of the Commissioner of Inland Revenue’s determination.

B A copy of the notice of assessment in dispute.

C A statement of the grounds of appeal.

D A copy of the reasons for the determination.

11. According to DIPN21, which of the following income / profit MAY be apportioned?

(1 mark)

A Trading profit.

B Manufacturing profit.

C Cross-border land transportation income.

D Rental income from real property.

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12. Before 31 March 2003, Mr. Ho’s income was not subject to Hong Kong salaries tax.

Mr. Ho was granted an option at a cost of $5,000 to purchase 100,000 shares at $2 each in

his employer’s holding company on 1 May 2002. Mr. Ho was seconded to Hong Kong

and was employed by a Hong Kong company on 1 April 2003. On 1 June 2003, Mr. Ho

exercised the option. The market value of the shares as at 1 June 2003 was $4. The

share option gain chargeable to salaries tax is: (2 marks)

A Nil.

B $400,000.

C $200,000.

D $195,000.

13. W Ltd carries on a manufacturing business in Hong Kong and prepares its accounts to

31 March each year. During the year ended 31 March 2004, it purchased an industrial

building from Y Ltd for $8,000,000. Y Ltd was a developer who developed the building for

sale. W Ltd used the building for its production department immediately after purchase.

The land cost and the cost of construction of the building was $3,000,000 each. The

amount of industrial building allowance that can be claimed by W Ltd for the year of

assessment 2003/04 is: (3 marks)

A $1,920,000.

B $960,000.

C $928,000.

D $720,000.

14. Mr. So commenced business on 1 October 2002 and the adjusted profits for his first period

of account ended 31 December 2003 were $300,000. The adjusted profits for the year of

assessment 2002/03 are: (2 marks)

A Nil.

B $60,000.

C $120,000.

D $150,000.

15. Which of the following factors will be considered in determining the locality of employment?

(1 mark)

A The place where the taxpayer renders services.

B Who bears the taxpayer’s remuneration.

C Whether the taxpayer’s remuneration forms part of the expenses of a Hong Kong

entity.

D The place where the contract of employment was negotiated and entered into,

and is enforceable.

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16. H and W are husband and wife. For salaries tax purposes, which of the following

statements is FALSE? (1 mark)

A If H wants to claim married person’s allowance, he must not be living apart from

W.

B If H has claimed married person’s allowance, he cannot claim basic allowance.

C If H has claimed married person’s allowance, he cannot claim single parent allowance.

D If W has no chargeable income, then H can claim married person’s allowance.

17. Mr. L is single. During the year ended 31 March 2004, he had employment income of

$120,000 and assessable profits of $30,000 (after deducting charitable donations of

$90,000). Mr. L has not yet claimed an approved charitable donation of $30,000. Mr. L

has elected for personal assessment for the year of assessment 2003/04. The amount of

approved charitable donations deductible as a concessionary deduction under personal

assessment is: (2 marks)

A $30,000.

B $37,500.

C $15,000.

D $127,500.

18. Which of the following income is chargeable to profits tax? (1 mark)

A Dividend.

B Interest on tax reserve certificate.

C Interest accrued from financial institutions after 22 June 1998.

D Interest on a qualifying debt instrument.

19. Q Ltd and Mr. Lee carries on a partnership business in Hong Kong, sharing profits & losses

equally. During the year ended 31 March 2004, the partnership’s assessable profit of

$400,000 will be wholly allocated to Q Ltd. Q Ltd has a share of loss brought forward of

$100,000. It also suffers loss of $120,000 from its own business. The profits tax

payable by the partnership for the year of assessment 2003/04 is: (2 marks)

A $70,000.

B $52,500.

C $31,500.

D $27,900.

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20. Which of the following persons may claim exemption from property tax? (1 mark)

A An individual who is eligible to claim disability allowance.

B A sole proprietor.

C A partnership.

D A corporation.

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(QUESTIONS)

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