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Election for Personal Assessment
1.
Q:
What are the criteria for determining whether a person "ordinarily resides in Hong Kong"?
A:
For the purposes of personal assessment, “ordinarily resides in Hong Kong” means that, apart from temporary or occasional absences from Hong Kong, such person habitually resides in Hong Kong, and is living in Hong Kong as an ordinary member of the community for all the purposes of his/her daily life.
2.
Q:
How to determine whether a taxpayer is ordinarily resident in Hong Kong? Is it sufficient to establish that a taxpayer is an ordinarily resident in Hong Kong if that person holds a Hong Kong Identity Card?
A:
Whether a person ordinarily resides in Hong Kong is a question of fact which depends on the particular circumstances of each case. To determine whether a person is ordinarily resident in Hong Kong, IRD will consider his / her social and economic ties with Hong Kong. Objective factors that will be taken into consideration include:
| (i) | the number of days he/she stayed in Hong Kong, the frequency of his/her visit to Hong Kong and the length of each stay; |
| (ii) | whether he/she has a permanent dwelling in Hong Kong; |
| (iii) | whether he/she owns a property for residence outside Hong Kong; |
| (iv) | whether he/she works or carries out a business in Hong Kong; |
| (v) | whether his/her relatives are mainly residing in Hong Kong |
Generally speaking, IRD does not consider a person, who possesses Hong Kong Identity Card, is ordinarily resident in Hong Kong if he/she lives outside Hong Kong continuously, and even if he/she returns to Hong Kong, the stays here are short and temporary. In determining whether a holder of Hong Kong Identity Card is an ordinarily resident in Hong Kong, consideration has to be given to his/her actual place of residence in the relevant period.
3.
Q:
One of the requirements for personal assessment election is that the applicant should be a permanent resident. I am a holder of Hong Kong Identity Card. Am I eligible to elect for personal assessment?
A:
According to section 41(4) of the Inland Revenue Ordinance, “permanent resident” for the purpose of personal assessment means an individual who “ordinarily resides” in Hong Kong. Since the words “permanent resident” in the Inland Revenue Ordinance and “Hong Kong permanent resident” in section 2 of the Immigration Ordinance or “permanent resident of the Hong Kong Special Administrative Region” in Schedule 1 of that ordinance are two completely different special terms, their scope of application is not the same. Therefore, even though the applicant is holding a Hong Kong Identity Card, his/her eligibility for personal assessment will still depend on whether he/she was ordinarily residing in Hong Kong in the relevant year of assessment.
4.
Q:
I have emigrated to overseas country many years ago. However, I am still receiving rental income from a property in Hong Kong. I would visit Hong Kong occasionally and stay here for a few days every year. Can I reduce my tax payable by electing for personal assessment?
A:
To be eligible for personal assessment, you must be either an ordinarily resident or temporary resident in Hong Kong. As you have emigrated to overseas country, you lived outside Hong Kong continuously for settled purposes and only visited Hong Kong for a limited number of days, you could not be regarded as having satisfied the residence requirement for the purpose of personal assessment. Therefore, you are not eligible to elect for personal assessment.
5.
Q:
I live in Shenzhen for most of the time in a year to oversee my business in the Mainland. However, I am still receiving rental income from a property in Hong Kong. My spouse is a salaries earner living in Hong Kong throughout the year. Am I eligible to elect for personal assessment for year of assessment 2022/23?
A:
From the year of assessment 2018/19 onwards, to be eligible for personal assessment, you must be either ordinarily resident or a temporary resident in Hong Kong. If you are married, you or your spouse must be either ordinarily resident in Hong Kong or a temporary resident and both of you have income assessable to tax under the Inland Revenue Ordinance. If you are not ordinarily resident in Hong Kong or a temporary resident, you are not eligible to elect for personal assessment separately from your spouse. However, if your spouse is ordinarily resident in Hong Kong and both of you have income assessable to tax, you and your spouse may jointly make an election for personal assessment.
6.
Q:
I live in Shenzhen for most of the time in a year to oversee my business in the Mainland. However, I am still receiving rental income from a property in Hong Kong. My spouse is living in Hong Kong throughout the year and does not have any income assessable under Inland Revenue Ordinance. Am I eligible to elect for personal assessment for year of assessment 2022/23?
A:
From the year of assessment 2018/19 onwards, to be eligible for personal assessment, you must be either ordinarily resident or a temporary resident in Hong Kong. If you are married, you or your spouse must be either ordinarily resident in Hong Kong or a temporary resident and both of you have income assessable to tax under the Inland Revenue Ordinance. If you are not ordinarily resident in Hong Kong or a temporary resident, you are not eligible to elect for personal assessment separately from your spouse. Although your spouse is ordinarily resident in Hong Kong, she does not have any income assessable under Inland Revenue Ordinance. Therefore, you are not eligible to elect for personal assessment jointly with your spouse either.
7.
Q:
In the year of assessment 2022/23, both I and my spouse have salaries income and we have jointly assessed under salaries tax. Besides, I am running a sole proprietorship business and my spouse is receiving rental income from a property. Can I elect for personal assessment separately from my spouse?
A:
If you and your spouse are jointly assessed under salaries tax, election for personal assessment must be made by you and your spouse jointly. You cannot elect for personal assessment separately from your spouse.
8.
Q:
In the year of assessment 2022/23, I have salaries income and rental income. My spouse has no income chargeable to tax (i.e. no salaries income, rental income and business income). Do I need to elect for personal assessment jointly with my spouse in order to claim the married person’s allowance?
A:
As your spouse did not have any income chargeable to tax in year of assessment 2022/23, you and your spouse are not eligible to elect for personal assessment jointly. You can elect for personal assessment by yourself (Box 65 of the Tax Return - Individuals). If your spouse has not elected for personal assessment separately in that year of assessment, married person’s allowance will be granted to you.
9.
Q:
- Both my spouse and I 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
I am married. Both my spouse 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 spouse will get benefit by electing for Personal Assessment depends on a lot of factors:
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 Calculator 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. |
10.
Q:
Loss incurred from sole-proprietorship business
- Loss set-off against income for the same year
- Loss set-off against income for future years
I ran a sole-proprietorship business and had assessed loss of $210,000 for 2021/22. The Assessor had agreed to let me carry forward this loss to 2022/23 under Profits Tax.
My business ceased in February 2023 and there was further assessed loss of $68,000 for the year of assessment 2022/23.
During 2022/23, my spouse had salary income of $250,000 and the two of us had elected for Personal Assessment jointly for 2022/23.
After deducting my business loss of $68,000 from my spouse´s income of $250,000, the remaining figure is $182,000. Can I set-off business loss of $210,000 for 2021/22 against my spouse´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 2021/22, business losses for that year will be set-off against the 2022/23 profits of the same business, that is, under Profits Tax. If you have elected for Personal Assessment for 2021/22, the loss will be set-off against the other income of you and your spouse´s for the elected year.
From what you said, you had not elected for Personal Assessment for 2021/22, and so the loss of $210,000 incurred by you for carrying on sole proprietorship "Business A" in 2021/22 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 your or your spouse´s other sources of income for 2021/22 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 2021/22 and neither you nor your spouse had other sources of income, there would be unutilized loss in the amount of $210,000 to be carried forward to 2022/23, 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.