Reducing profits tax, salaries tax and tax under personal assessment for the year of assessment 2012/13

The Financial Secretary proposed a one-off reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2012/13 by 75%, subject to a ceiling of $10,000 per case. The reduction will be reflected in the taxpayer’s final tax payable for the year of assessment 2012/13.

The proposed tax reduction is not applicable to property tax. Individuals with rental income, if eligible for personal assessment, may be able to enjoy such reduction under personal assessment. Businesses making profits will benefit from the tax reduction whether personal assessment is elected or not. However, the amount of tax reduction they will get might be different under personal assessment. The exact position will need to be evaluated case by case. Individuals having business and rental income may make election for personal assessment in their tax returns for individuals for the year of assessment 2012/13. The Inland Revenue Department will check if the election will reduce the amount of tax payable in each case, and assess each taxpayer in the way most advantageous to him.

For more details, please refer to implementation details of the tax reduction for the year of assessment 2012/13.

Increasing child allowances and raising the deduction ceiling for expenses of self-education

To alleviate peoples’ burden of raising children and to encourage life learning, the Financial Secretary proposed:

raising the deduction ceiling for expenses of self-education from $60,000 to $80,000.

For more details of the deduction for the expenses of self-education, please click here.

 

These two tax measures will be effective from the year of assessment 2013/14.    For more details, please refer to implementation details of increasing child allowances and raising the deduction ceiling for expenses of self-education.

Providing tax concessions to captive insurers

The Financial Secretary proposed to reduce the profits tax on the offshore insurance business of captive insurance companies, such that they will enjoy the same tax concessions as those currently applicable to reinsurance companies. This measure will be effected by amending the Inland Revenue Ordinance.

Profits Tax Exemption for Private Equity Funds

The Financial Secretary proposed to extend the profits tax exemption for offshore funds to include transactions in private companies which are incorporated or registered outside Hong Kong and do not hold any Hong Kong properties nor carry out any business in Hong Kong.  This will allow private equity funds to enjoy the same tax exemption as offshore funds.  The Administration will conduct consultation on the amendments to relevant tax legislation and detailed proposals.

The Financial Secretary proposed to waive the business registration fees for 2013-14. For details, please click here.

 

Profits tax, salaries tax and tax under personal assessment for the year of assessment 2012/13 will be reduced by 75%, subject to a ceiling of $10,000 per case. This measure will be effected by amending the Inland Revenue Ordinance.  Upon passage of the legislation, the Inland Revenue Department will give effect to the tax reduction when making the assessments.

For profits tax, the ceiling of the tax reduction is applied on each business. For salaries tax, the ceiling is applied on each individual taxpayer; but for couples jointly assessed, the ceiling is applied on each couple. For personal assessment, single taxpayers will each be subject to the ceiling. Married couples must make their personal assessment election together and the ceiling will therefore apply to each couple.

A taxpayer who is separately chargeable to salaries tax and profits tax can enjoy reduction under each of the tax types. However, if he elects for personal assessment, his income chargeable to salaries tax, profits tax and property tax will be aggregated to compute the tax payable under personal assessment. The reduction will have to be based on the tax payable under personal assessment. To apply for personal assessment, if eligible, the taxpayer should complete Part 6 of his tax return for individuals (BIR60). The Inland Revenue Department will check if the election will reduce the amount of tax payable in each case, and assess each taxpayer in the way most advantageous to him.

Individuals having salaries income only, but no business profits and rental income, are not required to elect for personal assessment.

The proposed reduction will reduce taxpayers’ amount of tax payable for the year of assessment 2012/13. Taxpayers should file their profits tax returns and tax returns for individuals for the year of assessment 2012/13, to be issued in coming April and May respectively, as usual. Upon enactment of the relevant legislation, the Inland Revenue Department will effect the reduction in the final assessment. For any final assessment for 2012/13 issued before the enactment of the law, the Inland Revenue Department will make a reassessment after the enactment. It is expected that excess tax paid will be refunded starting from late July 2013. Taxpayers are not required to make any applications or enquiries to the Department.

The proposed tax reduction will only be applicable to the final tax for the year of assessment 2012/13, but not to the provisional tax of the same year. Therefore, taxpayers are still required to pay their provisional tax on time despite the proposed reduction. The provisional tax paid will be applied to pay the final tax for the year of assessment 2012/13 and the provisional tax for the year of assessment 2013/14. Excess balance, if any, will be refunded.

 

Implementation details of increasing child allowances and raising the deduction ceiling for expenses of self-education

After enactment of the relevant legislation, the Inland Revenue Department will automatically apply the new level of child allowances in calculating the provisional salaries tax for the year of assessment 2013/14. Taxpayers who are eligible to claim child allowance are only required to complete their tax returns for individuals for the year of assessment 2012/13 and they do not need to make separate applications for the increased child allowances. Taxpayers who want to apply for additional allowance for the child born on 1 April 2013 to the date of the completion of the tax return can refer to FAQ 11 and Example 2. For child born after the completion of the tax return, taxpayer can apply for holding over of provisional tax after receipt of the notice of assessment.

 

As for the arrangements to give effect to the raised deduction ceiling for expenses of self-education for the year of assessment 2013/14, please refer to FAQ 9 to 10 and Example 2.

For more details of applying for holding over of provisional tax, please click here.

 

You can use the tax computation program to calculate your salaries tax and tax under personal assessment for the years of assessment 2012/13 and 2013/14 under the above proposals.

 

See the illustrative examples showing how the tax measures, if implemented, would reduce taxpayers’ salaries tax and tax under personal assessment.