In his 2014-15 Budget, the Financial Secretary proposed a number of tax measures, all of which require legislative amendments before implementation.
Highlights of the measures and implementation details are set out in the following paragraphs. Answers to frequently asked questions (FAQ) and illustrative examples showing how the first two proposed measures, if implemented, would reduce taxpayers’ salaries tax and tax under personal assessment are also provided.
You may use the tax computation program
provided at www.gov.hk/etax to calculate your salaries tax and tax under personal assessment if the above proposals are implemented.
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Reducing profits tax, salaries tax and tax under personal assessment for the year of assessment 2013/14
The Financial Secretary proposed a one-off reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2013/14 by 75%, subject to a ceiling of $10,000 per case. This measure will be effected by amending the Inland Revenue Ordinance.
For profits tax, the ceiling of the tax reduction is applied to each business. For salaries tax, the ceiling is applied to each individual taxpayer; but for couples jointly assessed, the ceiling is applied to 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.
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.
A taxpayer who is separately chargeable to salaries tax and profits tax can enjoy tax reduction under each of the tax types. For a taxpayer having business profits or rental income and electing for personal assessment, the reduction will be based on the tax payable under personal assessment. It might be different from the amount of tax reduction he would get if he was not assessed under personal assessment. The exact position will need to be evaluated case by case. 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.
To apply for personal assessment, if eligible, the taxpayer should complete Part 6 of his tax return for individuals for the year of assessment 2013/14 (BIR60). Individuals having salaries income only, but no business profits and rental income, need not elect for personal assessment.
The proposed reduction will reduce taxpayers’ amount of tax payable for the year of assessment 2013/14. Taxpayers should file their profits tax returns and tax returns for individuals for the year of assessment 2013/14, 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 2013/14 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 2014. 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 2013/14, 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 2013/14 and the provisional tax for the year of assessment 2014/15. Excess balance, if any, will be refunded.
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Increasing dependent parent/grandparent allowance and raising the deduction ceiling for elderly residential care expenses
The Financial Secretary proposed to increase dependent parent/grandparent allowance for maintaining parents/grandparents effective from the year of assessment 2014/15. The allowance for maintaining a dependent parent or grandparent aged 60 or above will increase from the present $38,000 to $40,000. The additional allowance for taxpayers residing with these parents or grandparents continuously throughout the year will also increase from $38,000 to $40,000 in respect of each dependant. The allowance for maintaining a dependent parent or grandparent aged between 55 and 59 will increase from the current $19,000 to $20,000. The same increase applies to the additional allowance for taxpayers residing with these parents/grandparents throughout the year, i.e. from $19,000 to $20,000 in respect of each dependant.
Taxpayers having parents or grandparents aged 60 or above admitted to residential care homes could claim deduction for elderly residential care expenses. The Financial Secretary proposed to raise the deduction ceiling for elderly residential care expenses from the current $76,000 to $80,000 effective from the year of assessment 2014/15.
After enactment of the relevant legislation, the Inland Revenue Department will automatically apply the new level of allowances for maintaining dependent parents/grandparents in calculating the provisional salaries tax for the year of assessment 2014/15. Taxpayers who claim dependent parent/grandparent allowance in their returns for the year of assessment 2013/14 are not required to make separate applications for the increased allowances.
As for the arrangements to give effect to the raised deduction ceiling for elderly residential care expenses for the year of assessment 2014/15, please refer to FAQ 9 and 10 and Example 3.
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Waiving stamp duty for trading of all exchange traded funds
The Financial Secretary proposed to waive the stamp duty for the trading of all exchange traded funds. We will propose amendments to the Stamp Duty Ordinance.