1 TAX PLANNING FChFP Conversion Course Jason Lam CPA.
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Transcript of 1 TAX PLANNING FChFP Conversion Course Jason Lam CPA.
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TAX PLANNINGTAX PLANNING FChFP Conversion CourseFChFP Conversion Course
Jason LamJason Lam
CPACPA
33
TAXATION SYSTEM IN HONG KONGTAXATION SYSTEM IN HONG KONG
the territorial principle the territorial principle
44
TAXATION SYSTEM IN HONG KONGTAXATION SYSTEM IN HONG KONG
Profit tax rate:Profit tax rate:– Corporation – 17.5% (03/04; 04/05)Corporation – 17.5% (03/04; 04/05)– Unincorporated business – 15.5% (03/04)Unincorporated business – 15.5% (03/04) 16% (04/05)16% (04/05)
Salaries tax rate:Salaries tax rate:– Standard rate – 15.5% (03/04)Standard rate – 15.5% (03/04) 16% (04/05)16% (04/05)
Property tax rate:Property tax rate:– 15.5% (03/04)15.5% (03/04)– 16% (04/05)16% (04/05)
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TAX PLANNING STRATEGIESTAX PLANNING STRATEGIES
DeflectionDeflection
Income deferralIncome deferral
Deduction - Remuneration packagingDeduction - Remuneration packaging
– Holiday passageHoliday passage
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INDIVIDUAL TAX PLANNINGINDIVIDUAL TAX PLANNING
EMPLOYMENT INCOMEEMPLOYMENT INCOME
– 60 Day Rule of Visit60 Day Rule of VisitHK Employment
No service in HK Service in HK
No tax Visitor Non-visitor
> 60 days ≦60 days
Tax TaxNo tax
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Non HK Employment
No service in HK Service in HK
No tax Visitor Non-visitor
> 60 days ≦60 days
Tax TaxNo tax
Apportional Apportional
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INDIVIDUAL TAX PLANNINGINDIVIDUAL TAX PLANNING
EMPLOYMENT INCOMEEMPLOYMENT INCOME
– Remuneration PackageRemuneration Package
If a benefit cannot be converted into cash, no If a benefit cannot be converted into cash, no
salaries tax liability would arisesalaries tax liability would arise
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Example 1Example 1
Assuming Mr. X is now receiving a monthly salary of HK$60,000 per month with 12 months’ salary for a year. If he can structure his employment package in such a way that out of the employment package, HK$10,000 per month is regarded as a refund of rent paid, his tax position will be completely different.
Revised
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(2003/2004) With Without benefit-in benefit-in kind kind HK$ HK$ Total package (HK$60,000 x 12) 720,000 720,000 Less: Refund of rent (120,000) --- ———— ———— 600,000 720,000 Add: Housing benefit 60,000 --- ———— ———— Assessable income 660,000 720,000 Less: personal allowance (104,000) (104,000) ———— ———— Net assessable income 556,000 616,000 ======= =======
1111
Salaries tax at progressive rate
1st HK$32,500 @2% 650.00 650.00
2nd HK$32,500 @7.5% 2,437.50 2,437.50
3rd HK$32,500 @13% 4,225.00 4,225.00
Remaining @18.5% 84,822.00 95,922.50
———— ————
92,134.50 103,235.00
======= =======
Tax saving HK$11,100.50
1212
Example 2
Assuming Mr. X in example 1 above now decides to acquire a property for his own use. Mr. X is required to pay mortgage loan interest of HK$20,000 a month. He can choose either to buy the property under his own name or arrange a company to acquire the property and lease the property to his employer for a monthly rental of HK$20,000 as quarter provided to him. In this case, his tax position will also be different.
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(2003/2004) Acquire Acquire under under company own name HK$ HK$ Total package (HK$60,000 x 12) 720,000 720,000 Less: Housing allowance (240,000) --- Home loan interest deduction --- (100,000) ———— ———— 480,000 620,000 Add: Housing benefit 48,000 --- ———— ———— Assessable income 528,000 620,000 Less: personal allowance (104,000) (104,000) ———— ———— Net assessable income 424,000 516,000 ======= =======
1414
Salaries tax at progressive rate
1st HK$32,500 @2% 650.00 650.00
2nd HK$32,500 @7.5% 2437.50 2,437.50
3rd HK$32,500 @13% 4,225.00 4,225.00
Remaining @18.5% 60,402.50 77,422.50
———— ————
67,715 84,735
======= =======
Company position
Rental income 240,000 ---
Less: Mortgage interest (240,000) ---
———— ————
Assessable profit --- ---
======= =======
Total Tax 67,715 84,735
======= =======
Tax saving HK$17,020
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INDIVIDUAL TAX PLANNINGINDIVIDUAL TAX PLANNING
EMPLOYMENT INCOMEEMPLOYMENT INCOME
– Stock OptionsStock Options
– Holiday PassageHoliday Passage
– Rental Arrangement for Housing Rental Arrangement for Housing
AccommodationAccommodation
– Termination Payment (Compensation for Termination Payment (Compensation for
loss of office)loss of office)
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SOLE PROPRIETORSHIP / SOLE PROPRIETORSHIP /
PARTNERSHIP INCOMEPARTNERSHIP INCOME
– Section 9A of the Inland Revenue Section 9A of the Inland Revenue
OrdinanceOrdinance
PROPERTY INVESTMENT INCOMEPROPERTY INVESTMENT INCOME
USE OF PERSONAL ASSESSMENTUSE OF PERSONAL ASSESSMENT
INDIVIDUAL TAX PLANNINGINDIVIDUAL TAX PLANNING
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Example 3
Assuming Mr. Y received salary income of HK$600,000 during the year. He also owned a property for letting purpose and derived rental income of HK$200,000 during the year. For such property, he has incurred mortgage loan interest of HK$150,000 during the same year.His tax position will be as follows:
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(2003/2004) Separate Personal assessment assessment HK$ HK$ Salary income 600,000 600,000 ———— ———— Rental income --- 200,000 Less: Statutory deduction --- (40,000) ———— ———— --- 160,000 Less: Mortgage loan interest --- (150,000) ———— ———— --- 10,000 ———— ———— Assessable income 600,000 610,000 Less: Personal allowance (104,000) (104,000) ———— ———— Net assessable income 496,000 506,000 ======= =======
1919
Salaries tax at progressive rate
1st HK$32,500 @2% 650 650
2nd HK$32,500 @7.5% 2,437.50 2,437.50
3rd HK$32,500 @13% 4,225 4,225
Remaining @18.5% 73,722.50 75,572.50
———— ———— 81,035 82,885
======= ======= Property tax
Rental income 200,000 ---
Less: Statutory deduction (40,000) ---
———— ———— Net assessable income 160,000 ---
======= ======= Property tax assessment (15.5%) 24,800 ---
======= =======
Total tax 105,835 82,885
======= ======= Tax saving HK$22,950
2020
PROFITS TAX PLANNINGPROFITS TAX PLANNING
Only profits arising in and deriving Only profits arising in and deriving
from Hong Kong is taxable from Hong Kong is taxable
No tax on capital gains No tax on capital gains
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PROFITS TAX PLANNING PROFITS TAX PLANNING STRATEGIES (1)STRATEGIES (1)
Segregation of onshore and offshore Segregation of onshore and offshore
businesses and profitsbusinesses and profits
Apportionment of profitsApportionment of profits
Deduction of expensesDeduction of expenses
Timing and classification of capital Timing and classification of capital
expenditureexpenditure
2222
PROFITS TAX PLANNING PROFITS TAX PLANNING STRATEGIES (2)STRATEGIES (2)
Apportionment of onshore and offshore Apportionment of onshore and offshore
expensesexpenses
Using companies with tax lossesUsing companies with tax losses
Taxability of interest incomeTaxability of interest income
Delay recognition of profitsDelay recognition of profits
Choice of financial year endChoice of financial year end
Securing capital gain claimSecuring capital gain claim
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ANTI-AVOIDANCE PROVISIONSANTI-AVOIDANCE PROVISIONS
╳ do not have real commercial substance and
justification
╳ sole or dominant purpose of obtaining a tax
benefit
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Sections 61 and 61ASections 61 and 61A
Sec 61: concerns artificial and fictitious Sec 61: concerns artificial and fictitious transactionstransactions
Sec 61A: concerns transactions which are Sec 61A: concerns transactions which are actually entered or effected but with the actually entered or effected but with the sole or dominant purpose of obtaining a sole or dominant purpose of obtaining a tax benefittax benefit
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Individual Tax Rules in ChinaIndividual Tax Rules in ChinaResidency in China Taxable income
< 1 year China- source income
> 1 year and ≦ 5 years China- source and foreign- source income (1)
> 5 years Worldwide income from 6th year
≦ 90 days(2) in a calendar
year, income from overseas
employers
Tax exempt
1.Upon application to and approval from the tax authorities, the
taxation of foreign-source income can be limited to that received from Chinese enterprises, Chinese establishments, Chinese economic organisations, and Chinese individuals.
2.The 90-day test is extended to 183 days if the individual is a tax resident of a country that has executed a taxation treaty with China.