FAQ for One-off reduction in 2007-08 final tax

Do I need to apply for this tax reduction?

You need not make any application. As a taxpayer, you only need to file your 2007-08 tax return(s) which will be issued starting from the coming April and May 2008. The Inland Revenue Department will effect the tax reduction in the final assessment for 2007-08. Notices of assessment for salaries tax, profits tax, property tax and tax under personal assessment with the tax reduction will be issued in the third quarter of 2008. For notices of assessments issued before legislative amendments, the Department will reassess them after the enactment of the legislation. The excess tax paid, if any, will be refunded to you from late July onwards. There is no need for you to make enquiry.

Can I withhold payment of the 2nd instalment of 2007-08 provisional tax falling due from April 2008 onwards because of the proposed tax reduction?

You are required to pay on time the 2nd instalment of the 2007-08 provisional tax falling due from April 2008. Otherwise, recovery action will be taken by the Inland Revenue Department.

As the tax reduction is to reduce the 2007-08 final tax that will be charged and not relating to the 2007-08 provisional tax that has already been charged, you are still required to pay the 2007-08 provisional tax. The amount of tax that will be reduced can only be computed after you filed your 2007-08 tax return(s) which will be issued to you starting from the coming April and May 2008 and will be reflected in the 2007-08 final assessment. The 2007-08 provisional tax paid will be applied for payment of the 2007-08 final tax and the 2008-09 provisional tax. See the example below for an illustration:

Example
Mr. Chan is single. His salary income during 2007-08 is $216,000. He has paid 2007-08 provisional tax of $9,220.

Salaries Tax Computation Year of Assessment 2007-08		$	$
Income			216,000
Less：Personal Allowance			100,000
Net Chargeable Income			116,000
Tax payable thereon	35,000@2%	700
	35,000@7%	2,450
	35,000@12%	4,200
	11,000@17%	1,870	9,220
Less：75% Tax Reduction			6,915
2007-08 Final Tax			2,305
Less：2007-08 Provisional Tax paid			9,220
Balance of final tax repayable			(6,915)

Provisional Payment for 2008-09
Income			216,000
Less：Personal Allowance			108,000
Net Chargeable Income			108,000
Tax payable thereon	40,000@2%	800
	40,000@7%	2,800
	28,000@12%	3,360	6,960
Balance of total tax payable			45

Will the Inland Revenue Department refund the 2007-08 provisional tax already paid by me?

As the tax reduction is to reduce the 2007-08 final tax that will be charged, the reduction will only be reflected in the notices of assessments to be issued in the third quarter of 2008 and you will then find the amount payable substantially reduced. The amount of tax that can be reduced can only be computed after you have filed your tax return(s) issued to you starting from the coming April and May 2008 and will be reflected in the 2007-08 final tax. The tax reduction is not applicable to the 2007-08 provisional tax. The provisional tax already paid will be applied for payment of the 2007-08 final tax and the 2008-09 provisional tax. Excess balance, if any, will be refunded (see Example in answer to Question 4).

I have profits from a business and rental income from properties let in the year 2007-08. What do I need to do to enjoy the benefit?

The reduction can be reflected in the profits tax and property tax to be demanded for the year 2007-08 if you do not elect for personal assessment. However, if you elect for personal assessment, your business profits and property rental will be aggregated and tax will be calculated under personal assessment. The reduction will be reflected in the tax to be demanded under personal assessment for the year 2007-08. The amount of the reduction you would get might be different when assessed under each type of tax or personal assessment. The exact position would need to be evaluated case by case. Therefore, if you have business and rental income and eligible for personal assessment you may make such election in your 2007-08 tax return. The Department will check if the personal assessment election will reduce the amount of tax payable in your case, and assess you in the way to your advantage.

If I own more than one business or received rental income from more than one property, how is the tax reduction computed?

The tax reduction is based on the property tax payable on each of the properties chargeable to property tax and the ceiling is applied on each property. Similarly, the tax reduction is based on the profits tax payable by each of the businesses chargeable to profits tax and the ceiling is applied on each business.

A husband and a wife with employment income and liable to salaries tax are separately assessed to tax and they can enjoy a maximum tax reduction of $50,000 in total. However, when the husband and the wife are assessed under personal assessment, they can only get $25,000. Is it unfair to a couple electing for personal assessment?

Under salaries tax, a husband and a wife are allowed separate assessment. However, under personal assessment, there is no separate taxation. Usually a couple electing personal assessment have other sources of income, such as business profits and rental income. By electing personal assessment, they can claim deductions, for example, mortgage interest. Whether a taxpayer should apply for personal assessment will depend on his situation.