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| Tax
Information : Can an individual
business owner pay less tax by electing Personal Assessment
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Example 1 (pay less tax
by electing Personal Assessment)
Peter, single, had
assessable profits from his sole-proprietorship business amounting
to $280,000 for the year of assessment 2007/08. During the
year, Peter acquired a property used as his dwelling. Interest
paid up to 31 March 2008, on a loan from a bank secured over
a mortgage of his dwelling amounted to $60,000. |
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|
Personal Assessment not elected |
| $ |
|
Assessable Profits |
280,000 |
|
Tax thereon (at standard rate 16%) |
44,800 |
|
Less : 75% tax reduction (capped
at $25,000) |
25,000 |
|
Tax payable |
19,800 |
|
Personal Assessment elected |
| $ |
$ |
|
Assessable Profits |
280,000 |
|
Less : |
Home Loan Interest |
60,000 |
|
|
Basic Allowance |
100,000 |
160,000 |
|
Net Chargeable Income |
120,000 |
|
On the first |
$35,000 @ 2% |
|
700 |
|
On the next |
$35,000 @ 7% |
|
2,450 |
|
On the next |
$35,000 @ 12% |
|
4,200 |
|
Remainder |
$15,000 @ 17% |
|
2,550 |
|
Tax thereon (at progressive rates) |
9,900 |
|
Less : 75 % tax reduction |
7,425 |
|
Tax Payable |
2,475 |
|
If Peter elects Personal Assessment he can claim
deductions for home loan interest and personal allowance and
get total tax savings of $17,325 (i.e. $19,800 - $2,475).
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Example 2 (election for
Personal Assessment may not be advantageous)
John,
single, had assessable profits from his sole-proprietorship
business amounting to $280,000 for the year of assessment
2007/08. For this year he also received salaries income of
$360,000 from an employment. |
|
Personal Assessment not elected |
| $ |
|
Assessable Profits |
280,000 |
|
Tax thereon (at standard rate 16%) |
44,800 |
|
Less : 75 % tax reduction (capped
at $25,000) |
25,000 |
|
Tax payable |
19,800 |
|
|
Salaries Income |
360,000 |
|
Less : |
Basic Allowance |
100,000 |
|
Net Chargeable Income |
260,000 |
|
On the first |
$35,000 @ 2% |
|
700 |
|
On the next |
$35,000 @ 7% |
|
2,450 |
|
On the next |
$35,000 @ 12% |
|
4,200 |
|
Remainder |
$155,000 @ 17% |
|
26,350 |
|
Tax thereon (at progressive rates) |
33,700 |
|
Less : 75 % tax reduction (capped
at $25,000) |
25,000 |
|
Tax Payable |
8,700 |
|
Total Tax Payable (i.e. $19,800 +
$8,700) |
28,500 |
|
Personal Assessment elected |
|
$ |
|
Assessable Profits |
280,000 |
|
Salaries Income |
360,000 |
|
Total Assessable Income |
640,000 |
|
Less : |
Basic Allowance |
100,000 |
|
Net Chargeable Income |
540,000 |
|
On the first |
$35,000 @ 2% |
|
700 |
|
On the next |
$35,000 @ 7% |
|
2,450 |
|
On the next |
$35,000 @ 12% |
|
4,200 |
|
Remainder |
$435,000 @ 17% |
|
73,950 |
|
Tax thereon (at progressive rates) |
81,300 |
|
Less : 75 % tax reduction (capped
at $25,000) |
25,000 |
|
Tax Payable |
56,300 |
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John has to pay $27,800 (i.e. $56,300 - $28,500)
more if he elects Personal Assessment. This is because under
Personal Assessment, tax is calculated at progressive tax
rates on the aggregated income from all sources. As the marginal
scale of the progressive rates is 17%, which is higher than
the standard rate of 16%, it may not be advantageous for taxpayers
with large amount of income to elect Personal Assessment.
Besides, under Personal Assessment, only one tax reduction
of $25,000 is deducted. |
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