Tax Smart Tips

2026-27 Budget Proposals

(Note: Legislative amendments are required for implementing the proposed tax measures)

In his 2026-27 Budget, the Financial Secretary proposed the following tax measures:

For the year of assessment 2025/26
A one-off reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2025/26 by 100%, subject to a ceiling of $3,000 per case.

From the year of assessment 2026/27 onwards

i)	Increasing basic allowance, married person’s allowance, single parent allowance, child allowance, additional child allowance, dependent parent/grandparent allowance and additional dependent parent/grandparent allowance;
ii)	Raising the deduction ceiling for elderly residential care expenses; and
iii)	Extending the period of claiming additional child allowance for newborns from one year to two years The Chief Executive proposed in his 2025 Policy Address to extend the claim period of additional child allowance for newborns from one year to two years in order to promote fertility. Starting from the year of assessment 2026/27, a taxpayer may claim twice the allowance (i.e. $280,000, based on the proposed child allowance of $140,000) for each child in the first two years following childbirth. This measure is applicable to all children under the age of two by the end of the year of assessment (i.e. all children born on or after 1 April 2025).

One-off tax reduction

For profits tax, the ceiling of the proposed tax reduction is applied to each business. For salaries tax, the ceiling is applied to each individual taxpayer, but for married couples jointly assessed, the ceiling is applied to each married couple (i.e. capped at $3,000 in total). For personal assessment, the ceiling is applied to each single taxpayer or married person who elects for personal assessment separately from his/her spouse. If a taxpayer elects for personal assessment jointly with his/her spouse, the tax reduction is capped at $3,000 for the married 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 the proposed 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/she would get if he/she was not assessed under personal assessment. The exact position will need to be assessed case by case.
To elect for personal assessment, eligible taxpayers should complete Part 7 of his/her tax return for individuals (BIR60) for the year of assessment 2025/26. 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 2025/26. Taxpayers should file their profits tax returns and tax returns for individuals for the year of assessment 2025/26 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 the year of assessment 2025/26 issued before the enactment of the law, the Inland Revenue Department will make a reassessment after the enactment. Taxpayers are not required to make any applications to the Department.
The proposed tax reduction will only be applicable to the final tax for the year of assessment 2025/26, but not to the provisional tax of the same year. Therefore, taxpayers are still required to pay their provisional tax on time. The provisional tax paid will be applied to pay the final tax for the year of assessment 2025/26 and the provisional tax for the year of assessment 2026/27. Excess balance, if any, will be refunded.

Increasing allowances, raising the deduction ceiling for elderly residential care expenses and extending the period of claiming additional child allowance

After enactment of the relevant legislation, IRD will automatically apply the new amounts of allowances and the extended period of claiming additional child allowance in calculating the 2026/27 provisional salaries tax. Taxpayers are only required to complete their tax returns for the year of assessment 2025/26 and they do not need to make separate applications.
If the amount of elderly residential care expenses paid in 2025/26 exceeds the ceiling of $100,000, taxpayers can put down the full amount of payment in Part 12.4 of the 2025/26 tax return. IRD will make reference to the amount stated in calculating the 2026/27 provisional salaries tax.
If the elderly residential care expenses actually paid or expect to be paid in 2026/27 exceed $100,000, taxpayers can apply for holding over the 2026/27 provisional salaries tax by notice in writing within the period specified in the Inland Revenue Ordinance.

Other Useful Tips

Inform IRD promptly if your correspondence address has changed.
Check your copy of “Employer’s Return of Remuneration and Pension” (IR56B/F/G) carefully. In case of doubt, clarify with your employer immediately and inform IRD, if necessary.
Deduction claims under salaries tax (i.e. outgoing and expenses, self-education expenses, approved charitable donations and contributions to the MPF or ORSO Scheme) can be made in relevant parts of Part 4.3 of the tax return.
Deduction claims for interest payments to produce rental income from properties can be made in relevant parts of Part 8 of the tax return.
Deduction claims for home loan interest and domestic rents, and election for using the home loan interest / domestic rents additional deduction ceiling amount can also be made in relevant parts of Part 8 of the tax return.
Deduction claims for qualifying premiums paid under Voluntary Health Insurance Scheme Policy can be made in Part 9 of the tax return.
Deduction claims for assisted reproductive service expenses can be made in Part 10 of the tax return.
Deduction claims for qualifying annuity premiums and tax deductible MPF voluntary contributions can be made in Part 11 of the tax return.
When filing your tax return, do not attach supporting documents for deductions claimed. However, such documents should be retained for 7 years for examination when called for.
When sending your completed tax return to IRD by post, affix sufficient stamp according to the appropriate category of postage so as to ensure delivery in order.
To rectify any error or omission in your tax return discovered after submission, inform IRD in the soonest. State your name, phone number, file number, the relevant year of assessment and details of your amendments, and sign your rectification notice. Users of eTAX - Individual Tax Portal (ITP) can also file their rectification notices through "Make a request / reply" service in their ITP accounts.