Personal Assessment
		Both husband and wife have employment and rental income. Any tax benefit if we elect for Personal Assessment
		Any tool available for computing the tax liability
		Elected for Personal Assessment but which turned out to be disadvantageous
2.	Q:	I am married. Both my wife and I have income from employment. Besides, we have received rental income from a jointly owned property, which was mortgaged to a bank to secure a bank loan. My questions are :- (i) Will there be any tax benefit if we elect for Personal Assessment? (ii) Is there any tool available for computing the tax liability under Personal Assessment? (iii) If we have elected for Personal Assessment but which turned out to be disadvantageous to us, will the Revenue revert back to the normal method of calculation?
	A:	(i)	Whether you and your wife will get benefit by electing for Personal Assessment depends on a lot of factors:
				the amount of salaries income received by you and your wife:
				the amount of rental income received by you and your wife; and
				the amount of allowances and deductions to be claimed by you and your wife, in particular the amount of mortgaged interest paid on earning the rental income.
			Hence, election for Personal Assessment may result in lower tax to pay for one year and no benefit or even disadvantageous in the next year, it depends on the income and deduction position of the year concerned.
		(ii)	If you want to compute your tax liability under Personal Assessment, you may make use of the Tax Computation available in the IRD Homepage. (Please treat the calculation table as a tool which provides information of reference value only)
		(iii)	An election for Personal Assessment that turns out to be disadvantageous will not cause any harm to you. The IRD's computer will make automatic comparison – and if election is not advantageous or will result in more tax to pay, your income will be assessed as if you do not elect for Personal Assessment for that year of assessment. You will be informed of this by way of an Assessor's Note.

ORSO Scheme
		Contribution larger than 5% of the monthly salary
3.	Q:	My employer operates an ORSO Scheme to provide employees with retirement benefit. I have an option to contribute to the Scheme at 0%, 5%, 7.5% or 10% of my salary. If my monthly salary is $10,000 and I have opted to contribute 10% of my salary, i.e., $1,000 per month, can I get the maximum tax deduction of $12,000?
	A:	At monthly salary of $10,000, if you make contributions to a Mandatory Provident Fund Scheme (“MPF Scheme”), your mandatory contribution would amount to $500 per month. In this situation, you may claim deduction for MPF in the amount of $6,000 ($500 x 12 months). Any contribution exceeding 5% of your salary would be regarded as voluntary contributions to the MPF Scheme and not deductible for tax purposes. For ORSO Schemes, there is no mandatory contribution. Hence, you are allowed to opt to contribute from 0 to 10% of your monthly salary. The law allows ORSO Scheme participants to get the same tax deductions as MPF Scheme participants. So, you will get tax deductions of $6,000, namely, $500 per month for 12 months.

Payments received from Insolvency Fund
		Arrears of wages received from Insolvency Fund after the employer closed down upon liquidation
4.	Q:	I had an employment with Hard Luck Company which was closed down upon liquidation in January 2007. In June 2007, I received $36,000 made out from the Insolvency Fund to cover my arrears of wages for the period from April 2006 to August 2006. Should I report this income in my tax return for year of assessment 2007/08?
	A:	As you received the sum of $36,000 during the basis period for the year of assessment 2007/08, you should report that sum in your tax return for the year of assessment 2007/08 as follows:
		(i)	under Paragraph (1) of Part 4.1 of your tax return, state the Name of Employer, Capacity Employed, Period (April 2006 to August 2006) and Total Amount ($36,000);
		(ii)	under Paragraph (2)(ii) of Part 4.1 of your tax return (Box 24), put down the amount received ($36,000);
		(iii)	under Paragraph (3) of Part 4.1 of your tax return (Box 26), put down the amount to be excluded from the total income by reason of relating back of the sum to the relevant year of assessment; and
		(iv)	complete Section 3 of the Appendix to the tax return.
		However, this sum of $36,000 was in fact earned during the year of assessment 2006/07. You may, if you wish, apply to have it related back to the year of assessment 2006/07. Upon receipt of your application for relating back, the Assessor will issue to you an additional assessment for year of assessment 2006/07. Income will not be assessed twice, and the sum of $36,000 will not be assessed as income for 2007/08.

Loss incurred from sole-proprietorship business
		Loss set-off against income for the same year
		Loss set-off against income for future years
5.	Q:	I ran a sole-proprietorship business and had assessed loss of $210,000 for 2006/07. The Assessor had agreed to let me carry forward this loss to 2007/08, under Profits Tax. My business ceased in February 2008 and there was further assessed loss of $68,000 for the year of assessment 2007/08. During 2007/08, my wife had salary income of $250,000 and the two of us had elected for Personal Assessment for 2007/08. After deducting my business loss of $68,000 from my wife's income of $250,000, the remaining figure is $182,000. Can I set-off business loss of $210,000 for 2006/07 against my wife's remaining income of $182,000? If possible, can the balance of unutilized loss, in the amount of $28,000 (that is, $210,000 minus $182,000) be carried forward for set-off against our future income?
	A:	Please note that you are empowered to choose against which type of income your business losses would be set off. If you and your spouse have not elected for Personal Assessment for 2006/07, business losses will be set-off against the 2007/08 profits of the same business – that is, - under Profits Tax. If you have elected for Personal Assessment – the loss will be set-off against the other income of you and your wife's for the elected year. From what you said, you had not elected for Personal Assessment for the year of assessment 2006/07, and so the loss of $210,000 incurred by you for carrying on “Business A” in 2006/07 can only be carried forward for set-off against future profits of “Business A” (i.e., under Profits Tax) and cannot be used to set-off against you or your wife's other sources of income for 2006/07 or for subsequent years. Generally speaking, the rule for deducting business losses under Personal Assessment is that you may deduct   (a) business loss incurred for the current year, and   (b) business losses brought forward under Personal Assessment from previous years. Hence, if you had elected for Personal Assessment for 2006/07 and neither you nor your wife had other sources of income, there would be unutilized loss in the amount of $210,000 to be carried forward to 2007/08, under Personal Assessment. The residue of $28,000 can be further carried forward for set-off against the future income of you or your spouse under Personal Assessment.
"Rateable Value”
		What is "Rateable Value"
6.	Q:	What is the “Rateable Value” of Part 4.2 of the Return?
	A:	Are you aware of the fact that payment of rates is based on “Rateable Value”? The “Rateable Value” of a property is determined by the Rating & Valuation Department and is not arrived at arithmetically. Normally you do not have to complete this item in part 4.2 of your tax return. You only do so when you want to substitute “Rateable Value” for “Rental Value” (RV) and in this event you should put down the “Rateable Value” as shown in the Rates Demand Note of the property concerned. If your employer had provided you with a place of residence, the RV of that place of residence should be included in your Assessable Income. Depending on the type of accommodation provided, the RV is calculated at 4%, 8% or 10% of your total net income after deducting outgoings and expenses (except expenses of self-education). Where your employer has provided you with a residential property, you may elect to include the “Rateable Value” of the property instead of the RV, if to do so can reduce the amount of Salaries Tax to be paid.
Dependent Brother / Sister Allowance
		Brother living together, unemployed due to sickness
7.	Q:	I have a brother, who is over 25 years old and living with me. Since laid off a few years ago he could not find another job. He needs rest over 15 hours each day but seldom goes to the doctor. Can I claim Dependent Brother Allowance under this circumstance?
	A:	To be eligible for Dependent Brother Allowance,
		(a)	You must maintain an unmarried brother, and
		(b)	your brother, if over 25 years of age, was by reason of physical or mental disability, incapacitated for work.
		In your case, you can get deduction for Dependent Brother Allowance if
		(a)	your brother is still single, and
		(b)	he was incapacitated for work by reason of physical or mental disability.
		Before admitting your claim, the Assessor may require you to produce documentary evidence, such as doctor's certificate, to substantiate that your brother is physically unfit for work.
Retired civil servant, emigrated to foreign country
		Eligible to "Joint Assessment"
		Dependent mother lived together and maintained by taxpayer; but did not reside in Hong Kong
8.	Q:	I am a government pensioner and had migrated to Canada. Can I (a) elect for "joint assessment"; and (b) claim Dependent Parent Allowance in respect of my mother who has been living with me in Canada and supported by me throughout the year. Please be advised, both my mother and I had resided in Hong Kong continuously for over 44 years before our migration to Canada.
	A:	Any married couple may elect for joint assessment under Salaries Tax, irrespective of resident status. The point to note for joint assessment is that both spouses have income assessable to Hong Kong Salaries Tax for the year of election. Does your spouse work in Hong Kong, or is now earning pension? Please also note that if your spouse does not earn any income chargeable to Hong Kong Salaries Tax, you may claim Married Person's Allowance. To be eligible for Dependent Parent Allowance, the taxpayer must have maintained at any time during the year a parent who
			is ordinarily residing in Hong Kong;
			is age over 60; and
			has either resided with him/her for a continuous period of 6 months or has received from him/her not less than $12,000 in money towards her maintenance during the year.
		To be eligible for the allowance, all of the above conditions must be fulfilled. As your mother is residing with you in Canada you cannot get the allowance. ( From 2005/06 onwards, dependent parent allowance can be granted for dependent parents or grandparents aged 55 or above but below 60. )
Self Education Expense
		Reimbursement from Continuing Education Fund after the deduction was approved
		Deductions for healthcare professional (including doctors, dentists, nurses, etc.)
9.	Q:	A taxpayer made a claim for a deduction of course fee of $30,000 in his tax return for the year of assessment 2006/07. The deduction was granted. Subsequently, he got a reimbursement of course fee of $10,000 from the Continuing Education Fund in the year of assessment 2007/08. Is this sum of $10,000 a chargeable income?
	A:	Continuing Education Fund (CEF) is set up by the Government to encourage people in continuous study. Any payment from CEF is not a chargeable income, as it is not derived from any office or employment. On the other hand, deductible self-education expenses do not include any reimbursement from employers or other parties. A taxpayer can only claim deductions for the actual amount of self-education expenses paid. In this case, this taxpayer should inform the Inland Revenue Department in writing about the reimbursement of course fee of $10,000 as soon as he received it in the year of assessment 2007/08. The Department will issue an additional salaries tax assessment for the year of assessment 2006/07 to him to adjust the amount of self-education expenses previously granted.
Deductions for healthcare professionals (including doctors, dentists, nurses, etc.)
		Professional indemnity insurance, registration fee and annual practicing fee, subscriptions paid to professional associations
		Course fee and/or examination fee paid for specialty qualifications
		Expenses incurred in travelling overseas to take professional examinations
		Entertainment expenses
		Can practice be incorporated
10.	Q:	I am a practitioner in employment. Can I be allowed to deduct under Salaries Tax professional indemnity insurance which I paid?
	A:	In general, all outgoings and expenses wholly, exclusively and necessarily incurred in the production of assessable income are deductible. Those that are of a domestic, private or capital nature are not. The "wholly, exclusively and necessarily" and "in the production of" rules are very stringent. A more detailed discussion can be found in the Departmental Interpretation and Practice Note No. 9. It should be noted that in order for an expenditure to be deductible, there must be a “perceived connection” between the expense and the assessable income. The outlay is not deducible if it is paid merely to enable a person to acquire employment. A distinction must be drawn between “an expense incurred in gaining income” [for example, the cost of travelling from home to the place of work] and “an expense incurred necessarily for the purpose of gaining it”. There is a well-settled line of cases which hold that such expense is not incurred “in the production of” assessable income, even if the employer requires such an indemnity insurance to be taken out by the taxpayer. The test is not whether the employer imposes the expense but whether the duties do: in the sense that the duties cannot be performed without incurring it.
11.	Q:	As a practitioner in employment, can I be allowed to deduct under Salaries Tax: (a) registration fee and annual practicing fee; and (b) subscriptions paid to professional associations?
	A:	Under a strict interpretation of law [Paragraph 10 above refers], these fees and subscriptions are not deductible. However, if registration with a certain body is required by law, e.g., a medical doctor is required by law to register with the Medical Council and obtain an annual practicing certificate before he is able to practise, deduction of these fees are allowed by extra-statutory concession. On the other hand, where the holding of a professional qualification is a prerequisite of employment and where the retention of membership and keeping abreast of current developments in the particular specialty are of regular use and benefit in the performance of duties, the subscription paid to one professional association is allowed by extra-statutory concession.
12.	Q:	As a healthcare professional, I have to keep up my professional knowledge. Can I be allowed to deduct under Salaries Tax: (a) course fee and/or examination fee paid for specialty qualifications; and (b) expenses incurred in travelling overseas to take professional examinations?
	A:	(a) The law has specific provision for deduction of self-education expenses which are otherwise not deductible under the general stringent rules. Expenses of self-education, including course and examination fees paid for the purpose of attaining specialist qualifications are deductible if they do not exceed a prescribed amount in a year of assessment. For the year 2007/08, the amount is $60,000.     (b) Expenses incurred in travelling overseas to take professional examinations are clearly not incurred in the production of assessable income. They are therefore not deductible.
13.	Q:	I maintain a practice and I am chargeable to Profits Tax. My questions are: (a) To what extent are entertainment expenses deductible under Profits Tax? (b) Is incorporation of my practice prohibited under the Inland Revenue Ordinance?
	A:	(a) Entertainment expenses to the extent that they are incurred in the production of chargeable profits are deductible. Generally, the amounts incurred has to be reasonable having regards to the taxpayer's circumstances. Proper records on details of occasions and people entertained, as well as receipts should be kept and produced for examination when called for by the IRD.     (b) The Inland Revenue Ordinance does not prohibit the incorporation of a professional practice. However, cases will be examined to see if there are tax-avoidance elements. If there are, the anti-avoidance rules will apply. More detail discussions of the anti-avoidance provision can be found in parts C and D of the Departmental Interpretation and Practice Notes No. 15. A discussion of “service company” can be found at the Departmental Interpretation and Practice Notes No. 24.