Randy Chan (“Randy”) was a British-born Chinese whose home base was in the UK. He commenced his employment with Dragon PLC (“Dragon”), a company incorporated in the UK, as the Asian Regional Marketing Manager of Dragon’s branch office in Hong Kong on 1 April 2019. One of his duties was to travel over Asian countries such as Malaysia and Indonesia to oversee Dragon’s business in these countries. His employment contract was negotiated and concluded in London. Randy’s remuneration was remitted to Randy’s bank account maintained in London in Hong Kong Dollars.

Randy’s travelling schedule in Asia during the year of assessment 2019/20 has been extracted as follows:

Year Date 2019 1 Apr – 12 Apr

16 May – 23 Jul 15 Aug – 30 Aug 5 Sep – 20 Sep
7 Oct – 19 Oct 17 Nov – 2 Dec

2020 20 Jan – 2 Feb 7 Mar – 31 Mar

Place of Stay

Hong Kong Hong Kong Hong Kong Malaysia/Indonesia Hong Kong

Hong Kong Singapore/Taiwan/Japan Hong Kong

Purpose of Stay

Business
Business and 5 days of Annual Leave

Business Business Business Business

Business and 10 days of Annual Leave Business

The following information relates to Randy for the year of assessment 2019/20 (all amounts are denominated in Hong Kong dollars):

1. (1) Dragon paid Randy a basic salary of $100,000 per month. Randy contributed 5% of this salary to the MPF.

2. (2) Entertainment Allowance of $20,000 per month was paid in cash to Randy by Dragon.

3. (3) Randy’s total utility bills amounted to $35,000. Out of which $20,000 was reimbursed by Dragon PLC.

4. (4) During Randy’s time in Hong Kong, he stayed in a serviced apartment at a monthly rental of $20,000. This was paid for by Dragon directly to the serviced apartment vendor company.

5. (5) Dragon made a total payment of $120,000 to cover the university fees of Randy’s daughter. His daughter is aged 18 and was studying full-time at a university in Coventry, UK in the year of assessment. Randy’s son is aged 23, graduated in 2017 and now working as a freelance designer in the UK.

6. (6) Dragon provided a company car and a driver for Randy’s use when visiting customers in Hong Kong. The cost of the company car was $200,000. The driver was hired by Dragon at $10,000 per month. Total petrol and maintenance costs amounted to $20,000 for the year. All costs were borne by Dragon.

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(7) On 1 May 2019, Randy was granted a share option to acquire 10,000 shares at an exercise price of $10 per share. Randy paid $5,000 for the option. On 14 October 2019, Randy exercised the option to acquire 8,000 shares. On 1 January 2020, Randy sold the option for the remaining 2,000 shares to Peter Wong at $10,000. On 3 March 2020, Randy sold the 8,000 shares he acquired on 14 October 2019. Market values of Dragon’s share were:

1 May 2019
14 October 2019 1 January 2020 3 March 2020

$20 per share $25 per share $22 per share $30 per share

8. (8) Randy received $10,000 interest income from his bank savings account maintained in London, UK.

9. (9) Randy donated $2,000 to Hong Kong Red Cross on 2 February 2020.

10. (10) Randy spent $5,000 in a wine-tasting class with a Michelin 1-star French Restaurant in Hong Kong. He has a keen interest in finding out more about wine and would like to expand his own business network with his classmates.

11. (11) Randy’s wife, Dora, a housewife, lives in London with their daughter and son.

Required:

1. (a) Identify the Source of Employment of Randy Chan using the factors relevant for determining the source of employment in the tax case of CIR v George Andrew Goepfert (1987) 2 HKTC 210 (also referred as “The Goepfert’s Case”). (5 marks)

2. (b) Discuss whether Randy Chan will be subject to salaries tax exemption under the “60 days

rule”. (2 marks)

(c) Disregard your answer in part (b) above, calculate the Day-In-Day-Out (DIDO) Ratio for Randy Chan assuming that his is subject to salaries tax for the year of assessment 2019/20. Show your detailed workings. (4 marks)

(d) Assuming that Randy is having a foreign employment, calculate the Hong Kong salaries tax payable by Randy Chan for the year of assessment 2019/20, showing clearly the basis period, assessable income, net assessable income, net chargeable income and salaries tax payable, if any. (19 marks)

Note: You should ignore provisional tax, any one-off tax concessions and overseas tax. [Total for Question 2: 30 marks]

Answer rating: 100% (QA)

a The source of Randy Chans employment is in Hong Kong The factors relevant for determining the source of employment in the tax case of CIR v George Andrew Goepfert 1987 2 HKTC 210 are i the place of ... View the full answer