Viewpoints

What is “Personal Assessment (PA)”? Under the Inland Revenue Ordinance, there are 3 types of direct taxes, namely, Salaries Tax, Profits Tax and Property Tax. Personal Assessment is not a tax levy. It is a method of computation of tax that may lighten the tax burden of certain taxpayers who are subject to Profits Tax and/or Property Tax and/or Salaries Tax. However, there is no merit for choosing PA if the relevant taxpayer only liable to pay Salaries Tax. Deductions and allowances under PA Sole-proprietor or partners of a business and property owners who receive rental income are assessed to Profits Tax and Property Tax respectively at standard rate. By choosing “Personal Assessment”, they may claim the following deductions and/or allowances on their income/profits and their tax liabilities will be computed at progressive rates applicable to Salaries Tax: 1. interest incurred on money borrowed for the purpose of producing property […]

Under Section 8(1) of the Inland Revenue Ordinance, pension arising in Hong Kong is chargeable to salaries tax. No definition of “pension” is made in IRO. So, the Literal Rule applies so that its ordinary meaning will be adopted. In short, pension is a periodical payment to a person in consideration of his past services. Section 9(3) extends the charge to cover a pension which is voluntary or is capable of being discontinued. This provision was to overcome the decision in Stedeford v. Beloe 16 TC 505 in which pension was held to be excluding voluntary payments. Like employment income, only the pension arising in or derived from Hong Kong is assessable. This follows that we have to determine the location of the source of the pension. From case law, the location of the fund from which the pension is paid is the decisive factor in determining whether the pension […]

A married person may claim the allowance if his spouse does not have taxable salary income. Marriage means a lawful marriage. Full allowance is granted in the year of marriage. No apportionment of the allowance is required. If his spouse has assessable income, the taxpayer cannot get the allowance unless both spouses elect to have their income jointly assessed in a single tax bill. Election for joint assessment must be signed by both the husband and wife, within one year after the end of the year of assessment. If either spouse gets a Salaries Tax assessment after this time limit, then the time limit will be extended to 1 month after the assessment becoming final and conclusive (i.e. 2 months from the date of assessment in case of no objection). It is advisable for the couple to elect for joint assessment if either spouse has low taxable income. This is […]

Section 9(1)(a) of the Inland Revenue Ordinance (IRO) defines taxable emoluments to include: salary, wages, leave pay, fee, commission, bonus, gratuity, perquisite or allowance whether they are derived from employer. Special provisions are laid down in the IRO to tax special perks such as subsidized accommodation, retirement benefits, share options, holiday benefits and children’s education subsidies. Under Section 9, all kinds of cash allowances arising from an employment are wholly taxable. They include housing allowance, living-cost allowance, transportation allowance, baggage allowances, medical allowance, clothing allowances, tips…etc. So, to make the benefits non-taxable, the employer should be made solely liable to pay the benefits — in that case, these benefits will be inconvertible into cash or have no cash value. Caution: Such arrangement does not work for subsidized accommodation, retirement benefits, share options, holiday benefits and children’s education subsidies because they are subject to special provisions of the IRO. Only emoluments […]

Section 26E of Inland Revenue Ordinance states that the interest paid on loan for purchase of residence is tax deductible. In brief, the qualifying conditions are: –  the person is the property owner; and  the property is a ratable unit in Hong Kong; and  the property is used as the person’s residence; and  the loan is subject to mortgage from a recognized lender such as bank. The interest on loan for purchase of a car park space in the same development of the home is also deductible. It is added to the interest on the loan for the purchase of the home for the purpose of interest deduction. There is a limit on the interest deduction. The current limit is $100,000. If the deduction is below the limit, the unused part cannot be carried forward. A person can only get the deduction for a total of […]

From 2003/2004 onwards, holiday benefits granted by employers are assessable under Section 9(2A) (a) of Inland Revenue Ordinance. The assessable amount is the actual cost incurred by the employer in providing the benefit to the employee and / or his family. The law provides that the charge of tax is irrespective of the following factors: (a) Whether or not the benefit is convertible into cash, (b) Whether the employer of the employee has the primary liability to pay the benefit, (c) Whether or not the benefit will add additional cost to the employer, (d) Whether or not the benefit will cause opportunity cost to the employer (for example the lost revenue arising from the sale of discounted-price air tickets by air-liner employer to employee). The payment for the relocation of an employee and his family to Hong Kong on commencement of employment or for the relocation of an employee out […]

An employer is required to notify the Revenue of a new employee who is likely to be chargeable to Salaries Tax. That is his annual income larger than the basic allowance. The notification should be made in the form IR56E. The time limit for the notification is three months after the appointment date. An employer is required to deliver a form IR56B to the Revenue in respect of every employee who is likely to be chargeable to Salaries Tax every tax year. The time limit is stated in the Revenue’s letter annexed with the forms, usually one month of the letter. An employer must notify the Revenue of the termination of employment of an employee who is chargeable to Salaries Tax. The time limit for the notification is at least one month before the termination. The notification should be made in the form IR56F. An employer must notify the Revenue […]

An employee has a master and servant relationship with his employer. The work of an employee is within the control of his employer as to what to do, how to do and when to do. See Employed versus self-employed for more. An office holder holds an office created by law or covenants. The office holder¡¦s duties are statutory and irrespective of whoever holding the office. A common example is the director office of a company. Not all so-called “directors” are office holders in law. If a “director” is employed by a company through an employment contract, he is an employee only, not a “director” for tax purpose. The income from a Hong Kong employment is taxable in full. The remuneration from a Hong Kong office is taxable in full too. So, in general, whether the income is from a Hong Kong employment or from a Hong Kong office is unimportant. […]

A taxpayer may claim the elderly home expenses he pays for his or his spouse¡¦s parent or grandparent subject to the following conditions: The parent or grandparent is at least 60; or if under 60, he is eligible to claim disabled allowance. The expenses actually paid by the taxpayer or by his spouse in the year of assessment. The expenses are paid to a recognized elderly home in Hong Kong. The expenses cover accommodation, food, nursing care and sundry expenses but exclude those of private medical care or those of a personal nature not in the nature of residential care. The expenses reimbursed by Social Welfare Department cannot be claimed. Full-year expenses are allowed when the parent reaches 60 in the year of assessment. In other words, no time apportionment of the expenses is necessary. The maximum deduction is HK$60,000 for each parent. No double claim for the same parent […]

A taxpayer making donations to charity can claim tax deduction if: It is a donation of money; and It is for charitable purpose; and It is paid to a charitable institution or a trust of a public character that is exempt from tax under Section 88 of IRO or to the Hong Kong SAR government; and The total donations in the year of assessment is not less than $100. A taxpayer cannot claim for the donation which has been allowed as a deduction in his spouse’s Salaries Tax assessment or in his own Profits Tax assessment. The maximum deduction is 25% of his net income (assessable income less deductions). He may claim the deduction in tax return. If he forgets to do so, he may claim it by an objection when he receives the assessment. Even if he misses the objection deadline, he can still claim it by a Section […]