What tax measures are proposed in the 2015-16 Budget for individual taxpayers?
Subject to passage of the law amendments by the Legislative Council, individual taxpayers will get a one-off reduction of 75% of the final tax for the year of assessment 2014/15 in respect of profits tax, salaries tax and tax under personal assessment, subject to a ceiling of $20,000 per case. Furthermore, child allowances, the implementation of which requires law amendments, will be increased from the year of assessment 2015/16 onwards as follows :
Year of Assessment
(From 2015/16 onwards)
For each of the 1st to 9th child
Additional Child Allowance for each child born during the year of assessment
Do I need to apply for the tax reduction and the new allowances?
You only need to file, as usual, your 2014/15 tax return for individuals (BIR60) which will be issued in May this year. After enactment of the relevant legislation, IRD will effect the tax reduction in the final assessment for 2014/15. If you are eligible to claim child allowance or additional child allowance for new born child in the year of birth, IRD will apply the new allowances in calculating the 2015/16 provisional tax. For 2014/15 assessments issued before the legislative amendment, IRD will revise them after enactment of the legislation. It is expected that the excess tax paid, if any, will be refunded to taxpayers starting from mid August 2015. There is no need for you to make a separate application.
Can I withhold payment of the 2nd instalment of 2014/15 provisional tax falling due from April 2015 onwards because of the proposed tax reduction?
You are required to pay on time the 2nd instalment of the 2014/15 provisional tax falling due from April 2015. Otherwise, recovery action will be taken by IRD. Similar to previous occasions, the tax reduction is to reduce the 2014/15 final tax that will be charged and not relating to the 2014/15 provisional tax that has already been charged. Therefore, you are still required to pay the 2014/15 provisional tax as charged.
Will the Inland Revenue Department refund the 2014/15 provisional tax already paid by me?
As the tax reduction is to reduce the 2014/15 final tax that will be charged, the reduction will only be reflected in the notices of salaries tax assessment, profits tax assessment and personal assessment for 2014/15 that will be issued starting from the third quarter of 2015. The tax reduction is not applicable to the 2014/15 provisional tax. The provisional tax paid will be applied to pay the 2014/15 final tax and 2015/16 provisional tax. Excess balance, if any, will be refunded.
I have to pay salaries tax for the year 2014/15 and I have elected for personal assessment for the year. How the tax reduction should be computed?
Under personal assessment, all income of an individual taxpayer, including salaries, will be aggregated to compute the tax payable. Hence, the amount of tax reduction for the year 2014/15 is 75% of the tax assessed under personal assessment and not the tax payable under salaries tax.
A husband and a wife, each with employment income and liable to salaries tax, are separately assessed to tax and they can enjoy a maximum tax reduction of $40,000 in total. However, when the husband and the wife are assessed under personal assessment, they can only get a reduction of $20,000. Is it unfair to a couple electing for personal assessment?
Profits tax, salaries tax and tax under personal assessment for the year of assessment 2014/15 are reduced by 75%, subject to a ceiling of $20,000 per case. Under salaries tax, a husband and a wife are separately assessed. Each of them will get a tax reduction of 75%, subject to a ceiling of $20,000. However, under personal assessment, there is no separate taxation and only one assessment will be issued. Therefore, the tax reduction for the couple is 75%, capped at $20,000. Whether a taxpayer should apply for personal assessment will depend on his situation. When considering an election for personal assessment for the year of assessment 2014/15, taxpayers should take into account the factor that the tax reduction for each couple will be capped at $20,000. IRD will check each personal assessment election to see if it will reduce the amount of tax payable, and assess each taxpayer in the way most advantageous to him.
What amount of Child Allowance can I claim in respect of a child born in 2015/16 and thereafter?
You can claim Child Allowance of $100,000 and a one-off allowance of $100,000 in the year of assessment in which your child was born (i.e. 2015/16). In the years thereafter, you can claim for each year a Child Allowance of $100,000 in respect of the child as long as other prescribed conditions are satisfied.
My child was born on 3 April 2015. What should I do if I want to claim the child allowance in the year of birth?
You can complete Part 8.2 of the 2014/15 tax return for individuals by providing details of your new born child. IRD will grant Child Allowance of $200,000 for that child when computing your 2015/16 provisional tax.