Dependent Child Allowance
- Child finished schooling and is now unemployed. Still maintained by parents
My son is now 20 years old. He finished schooling in June 2020 and is now unemployed. Hence, I am maintaining his living. Can I claim child allowance for him?
If your child is over 18 but under 25, child allowance can be granted to you only if your child is receiving full time education at any time during the year of assessment. In your case, you can claim child allowance for the year of assessment 2020/21 in view of the fact that your son was receiving full time education during April 2020 to June 2020.
- 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?
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.
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.|
My employer operates an ORSO Scheme to provide employees with retirement benefit. I have an option to contribute to the Scheme at 0%, 5%, 7.5% or 10% of my salary. If my monthly salary is $10,000 and I have opted to contribute 10% of my salary, i.e., $1,000 per month, can I get the maximum tax deduction of $12,000?
At monthly salary of $10,000, if you make contributions to a Mandatory Provident Fund Scheme ("MPF Scheme"), your mandatory contribution would amount to $500 per month. In this situation, you may claim deduction for MPF in the amount of $6,000 ($500 x 12 months). Any contribution exceeding 5% of your salary would be regarded as voluntary contributions to the MPF Scheme and not deductible for tax purposes.
For ORSO Schemes, there is no mandatory contribution. Hence, you are allowed to opt to contribute from 0 to 10% of your monthly salary. The law allows ORSO Scheme participants to get the same tax deductions as MPF Scheme participants. So, you will get tax deductions of $6,000, namely, $500 per month for 12 months.
Payments received from Insolvency Fund
- Arrears of wages received from Insolvency Fund after the employer closed down upon liquidation
I had an employment with Hard Luck Company which was closed down upon liquidation in January 2020. In June 2020, I received $36,000 made out from the Insolvency Fund to cover my arrears of wages for the period from April 2019 to August 2019. Should I report this income in my tax return for year of assessment 2020/21?
As you received the sum of $36,000 during the basis period for the year of assessment 2020/21, you should report that sum in your tax return for the year of assessment 2020/21 as follows:
|(i)||under Paragraph (1) of Part 4.1 of your tax return, state the Name of Employer, Capacity Employed, Period (April 2019 to August 2019) and Total Amount ($36,000);|
|(ii)||under Paragraph (1)(ii) of Part 4.1 of your tax return (Box 29), put down the amount received ($36,000);|
|(iii)||under Paragraph (2) of Part 4.1 of your tax return (Box 31), put down the amount to be excluded from the total income by reason of relating back of the sum to the relevant year of assessment; and|
|(iv)||complete Section 2 of the Appendix to the tax return.|
However, this sum of $36,000 was in fact earned during the year of assessment 2019/20. You may, if you wish, apply to have it related back to the year of assessment 2019/20. Upon receipt of your application for relating back, the Assessor will issue to you an additional assessment for year of assessment 2019/20. Since income will not be assessed twice, the sum of $36,000 will not be assessed as income for 2020/21.
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 2019/20. The Assessor had agreed to let me carry forward this loss to 2020/21 under Profits Tax.
My business ceased in February 2021 and there was further assessed loss of $68,000 for the year of assessment 2020/21.
During 2020/21, my spouse had salary income of $250,000 and the two of us had elected for Personal Assessment jointly for 2020/21.
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 2019/20 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?
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 2019/20, business losses for that year will be set-off against the 2020/21 profits of the same business, that is, under Profits Tax. If you have elected for Personal Assessment for 2019/20, 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 2019/20, and so the loss of $210,000 incurred by you for carrying on sole proprietorship "Business A" in 2019/20 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 2019/20 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 2019/20 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 2020/21, 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.
What is the "Rateable Value" of Part 4.2 of the Return?
Are you aware of the fact that payment of rates is based on "Rateable Value"? The "Rateable Value" of a property is determined by the Rating & Valuation Department and is not arrived at arithmetically.
Normally you do not have to complete this item in part 4.2 of your tax return. You only do so when you want to substitute "Rateable Value" for "Rental Value" (RV) and in this event you should put down the "Rateable Value" as shown in the Rates Demand Note of the property concerned.
If your employer had provided you with a place of residence, the RV of that place of residence should be included in your Assessable Income. Depending on the type of accommodation provided, the RV is calculated at 4%, 8% or 10% of your total net income after deducting outgoings and expenses (except expenses of self-education). Where your employer has provided you with a residential property, you may elect to include the "Rateable Value" of the property instead of the RV, if to do so can reduce the amount of Salaries Tax to be paid.
I have a brother, who is over 25 years old and living with me. Since laid off a few years ago he could not find another job. He needs rest over 15 hours each day but seldom goes to the doctor. Can I claim Dependent Brother Allowance under this circumstance?
To be eligible for Dependent Brother or Dependent Sister Allowance, you must maintain an unmarried brother or sister and this brother or sister
|(a)||must be under the age of 18 years,|
|(b)||was receiving full time education at a university, college, school or other similar educational establishment if he/she was of or over 18 but under 25 years old; or|
|(c)||was by reason of physical or mental disability, incapacitated for work if he/she was aged 18 or above.|
In your case, you can get deduction for Dependent Brother Allowance if
|(a)||your brother is still single, and|
|(b)||he was incapacitated for work by reason of physical or mental disability.|
Before admitting your claim, the Assessor may require you to produce documentary evidence, such as doctor's certificate, to substantiate that your brother is physically unfit for work.
Retired civil servant, emigrated to foreign country
- Eligible to "Joint Assessment"
- Dependent mother lived together and maintained by taxpayer; but did not reside in Hong Kong
I am a government pensioner and had migrated to Canada. Can I
(a) elect for "joint assessment"; and
(b) claim Dependent Parent Allowance in respect of my mother who has been living with me in Canada and supported by me throughout the year.
Please be advised, both my mother and I had resided in Hong Kong continuously for over 44 years before our migration to Canada.
Any married couple may elect for joint assessment under Salaries Tax, irrespective of resident status. The point to note for joint assessment is that both spouses have income assessable to Hong Kong Salaries Tax for the year of election. If your spouse does not earn any income chargeable to Hong Kong Salaries Tax, you may claim Married Person's Allowance.
To be eligible for Dependent Parent Allowance, the taxpayer must have maintained at any time during the year a parent who
- is ordinarily residing in Hong Kong;
- is age over 55; and
- has either resided with him/her for a continuous period of no less than 6 months or has received from him/her not less than $12,000 in money towards her maintenance during the year.
To be eligible for the allowance, all of the above conditions must be fulfilled. As your mother is residing with you in Canada, you cannot get the Dependent Parent Allowance.
Self Education Expense
- Reimbursement from Continuing Education Fund after the deduction was approved
A taxpayer made a claim for a deduction of course fee of $30,000 in his tax return for the year of assessment 2020/21. The deduction was granted. Subsequently, he got a reimbursement of course fee of $10,000 from the Continuing Education Fund in the year of assessment 2021/22. Is this sum of $10,000 a chargeable income?
Continuing Education Fund (CEF) is set up by the Government to encourage people in continuous study. Any payment from CEF is not a chargeable income, as it is not derived from any office or employment. On the other hand, deductible self-education expenses do not include any reimbursement from employers or other parties. A taxpayer can only claim deductions for the actual amount of self-education expenses paid. In this case, this taxpayer should inform the IRD in writing about the reimbursement of course fee of $10,000 as soon as he received it in the year of assessment 2021/22. The IRD will issue an additional salaries tax assessment for the year of assessment 2020/21 to him to adjust the amount of self-education expenses previously granted.
Deductions for healthcare professionals (including doctors, dentists, nurses, etc.)
- Professional indemnity insurance, registration fee and annual practicing fee, subscriptions paid to professional associations
- Course fee and/or examination fee paid for specialty qualifications
- Expenses incurred in travelling overseas to take professional examinations
- Entertainment expenses
- Can practice be incorporated
I am a practitioner in employment. Can I be allowed to deduct under Salaries Tax professional indemnity insurance which I paid?
In general, all outgoings and expenses wholly, exclusively and necessarily incurred in the production of assessable income are deductible. Those that are of a domestic, private or capital nature are not. The "wholly, exclusively and necessarily" and "in the production of" rules are very stringent. A more detailed discussion can be found in the Departmental Interpretation and Practice Note No. 9.
It should be noted that in order for an expenditure to be deductible, there must be a "perceived connection" between the expense and the assessable income. The outlay is not deductible if it is paid merely to enable a person to acquire employment. A distinction must be drawn between "an expense incurred in gaining income" [for example, the cost of travelling from home to the place of work] and "an expense incurred necessarily for the purpose of gaining it".
There is a well-settled line of cases which hold that indemnity insurance is not incurred "in the production of" assessable income, even if the employer requires such an indemnity insurance to be taken out by the taxpayer. The test is not whether the employer imposes the expense but whether the duties do: in the sense that the duties cannot be performed without incurring it.
As a practitioner in employment, can I be allowed to deduct under Salaries Tax:
(a) registration fee and annual practicing fee; and
(b) subscriptions paid to professional associations?
Under a strict interpretation of law [Paragraph 10 above refers], these fees and subscriptions are not deductible.
However, if registration with a certain body is required by law, e.g., a medical doctor is required by law to register with the Medical Council and obtain an annual practicing certificate before he is able to practise, deduction of these fees are allowed by extra-statutory concession.
On the other hand, where the holding of a professional qualification is a prerequisite of employment and where the retention of membership and keeping abreast of current developments in the particular specialty are of regular use and benefit in the performance of duties, the subscription paid to no more than one professional association is allowed by extra-statutory concession.
As a healthcare professional, I have to keep up my professional knowledge. Can I be allowed to deduct under Salaries Tax:
(a) course fee and/or examination fee paid for specialty qualifications; and
(b) expenses incurred in travelling overseas to take professional examinations?
|(a)||The law has specific provision for deduction of self-education expenses which are otherwise not deductible under the general stringent rules. Expenses of self-education, including course and examination fees paid for the purpose of attaining specialist qualifications are deductible if they do not exceed a prescribed amount in a year of assessment. The maximum deductible amount is $80,000 for the years of assessment 2015/16 and 2016/17. From the year of assessment 2017/18 onwards, the deduction ceiling for expenses of self-education will be increased from $80,000 to $100,000.|
|(b)||Expenses incurred in travelling overseas to take professional examinations are clearly not incurred in the production of assessable income. They are therefore not deductible.|
I maintain a practice and I am chargeable to Profits Tax. My questions are:
(a) To what extent are entertainment expenses deductible under Profits Tax?
(b) Is incorporation of my practice prohibited under the Inland Revenue Ordinance?
|(a)||Entertainment expenses to the extent that they are incurred in the production of chargeable profits are deductible. Generally, the amounts incurred has to be reasonable having regards to the taxpayer's circumstances. Proper records on details of occasions and people entertained, as well as receipts should be kept and produced for examination when called for by the IRD.|
|(b)||The Inland Revenue Ordinance does not prohibit the incorporation of a professional practice. However, cases will be examined to see if there are tax-avoidance elements. If there are, the anti-avoidance rules will apply. More detail discussions of the anti-avoidance provision can be found in parts C and D of the Departmental Interpretation and Practice Notes No. 15. A discussion of "service company" can be found at the Departmental Interpretation and Practice Notes No. 24.|