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2012-13 Budget - Tax Measures

The relevant legislation on the tax measures announced in the 2012-13 Financial Budget was passed by the Legislative Council on 12 July 2012 and gazetted on 20 July 2012:

You may click on the following links to calculate the amount of your tax liability and read about the implementation details:

Reducing profits tax, salaries tax and tax under personal assessment for year of assessment 2011/12

A reduction of 75% of the final tax for the year of assessment 2011/12 in respect of profits tax, salaries tax and tax under personal assessment, subject to a ceiling of $12,000 per case.

The 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 the year of assessment 2011/12. 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.

 


Increasing allowances

The allowances for the year of assessment 2012/13 and onwards:

Increasing allowances
Year of Assessment Present(2011/12)
$
(From 2012/13 onwards)
$
Basic Allowance 108,000 120,000
Married Person's Allowance 216,000 240,000
Single Parent Allowance 108,000 120,000
Child Allowance (For each dependant)    
  1st to 9th Child 60,000 63,000
  Additional Child Allowance for each child in the year of birth 60,000 63,000
Dependent Brother / Sister Allowance
(For each dependant)
30,000 33,000
Dependent Parent / Grandparent Allowance
(For each dependant)
   
  Parent / Grandparent aged 60 or above, or is eligible to claim an allowance under the Government's Disability Allowance Scheme 36,000 38,000
  Parent / Grandparent aged between 55 and 59 18,000 19,000
Additional Dependent Parent / Grandparent Allowance (For each dependant who is living with the taxpayer continuously throughout the year)    
  Parent / Grandparent aged 60 or above, or is eligible to claim an allowance under the Government's Disability Allowance Scheme 36,000 38,000
  Parent / Grandparent aged between 55 and 59 18,000 19,000
Disabled Dependant Allowance (For each dependant) 60,000 66,000

For information about the allowances, please click here.

 


Increasing the deduction ceiling for elderly residential care expenses

The deduction ceiling for elderly residential care expenses is increased from $72,000 to $76,000 each year as from the year of assessment 2012/13.

For information about deduction of elderly residential care expenses, please click here.

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Extending the number of years of deduction for home loan interest

The number of years of deduction for home loan interest is extended from 10 years of assessment to 15 years of assessment with effect from the year of assessment 2012/13, while maintaining the current deduction ceiling of $100,000 a year. The additional 5 years home loan interest deduction is not applicable to the year of assessment prior to the year of assessment 2012/13. However, it will not affect taxpayers' entitlement (including those who had already got the deduction of home loan interest for 10 years of assessment) of the 5 additional years deduction from the year of assessment 2012/13 and onwards.

For information about deduction of home loan interest, please click here.

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Increasing the allowable deduction for mandatory contributions to Mandatory Provident Fund schemes

The maximum annual tax deduction for mandatory contributions to Mandatory Provident Fund schemes is increased from $12,000 to $14,500 for the year of assessment 2012/13, and to $15,000 for the year of assessment 2013/14 onwards. The change is made in the light of the increase of the maximum relevant income level under the Mandatory Provident Fund Schemes Ordinance to $25,000, which is effective from June 2012.

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Waiving business registration fees for 2012/13

The business registration fees for the year 2012/13 are waived to benefit all business operators. For details, please click here.

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Implementation details of the tax measures

(a) Tax reduction for year of assessment 2011/12
  This measure benefits businesses paying profits tax, whether incorporated or unincorporated, salary tax payers and individuals electing for personal assessment. The reduction is 75% of the final tax payable for year of assessment 2011/12 or $12,000, whichever is the less. For example, if the final tax is $10,000, the reduction will be $7,500 with a balance of $2,500 to be paid.

For profits tax, the ceiling is applied on each business. For salaries tax, the ceiling of $12,000 per case 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, the taxpayer should complete Part 6 of his individuals tax return (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 reduction does not provide taxpayers an immediate refund of tax paid. It reduces their amount of tax payable for the year of assessment 2011/12. Taxpayers should file their profits tax returns and individuals tax returns for the year of assessment 2011/12 as usual. The Inland Revenue Department will effect the reduction in the final assessment. For any final assessment for 2011/12 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 from late July 2012 onwards. Taxpayers are not required to make any applications or enquiries to the Department.

The tax reduction is only applicable to the final tax for the year of assessment 2011/12, but not to the provisional tax of the same year. The provisional tax paid will be applied to pay the final tax for the year of assessment 2011/12 and provisional tax for the year of assessment 2012/13. Excess balance, if any, will be refunded.
 
(b) Tax measures applicable from the year of assessment 2012/13
  The Inland Revenue Department will automatically apply the new level of allowances in calculating the provisional salaries tax for the year of assessment 2012/13. Taxpayers are only required to complete their tax returns for the year of assessment 2011/12 and they do not need to make separate applications. As for the increased deduction ceiling for the deduction items, please refer to FAQ 8 to 12 and Example 3 for the arrangements.

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Tax Calculator

You can use the Tax Calculator to calculate your salaries tax and tax under personal assessment for the years of assessment 2011/12 and 2012/13 under the above proposals.

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Illustrative examples

See the illustrative examples showing how the tax measures reduce taxpayers' salaries tax and tax under personal assessment.