In his 2015-16 Budget, the Financial Secretary proposed a number of tax measures, all of which require legislative amendments before implementation.
- Reducing profits tax, salaries tax and tax under personal assessment for the year of assessment 2014/15
- Increasing child allowances
- Providing tax concessions to corporate treasury centres
- Profits tax exemption for private equity funds
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 by GovHK to calculate your salaries tax and tax under personal assessment if the above proposals are implemented.
The Financial Secretary proposed a one-off reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2014/15 by 75%, subject to a ceiling of $20,000 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 (BIR60) for the year of assessment 2014/15. 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 2014/15. Taxpayers should file their profits tax returns and tax returns for individuals for the year of assessment 2014/15, 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 2014/15 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 2015. 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 2014/15, 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 2014/15 and the provisional tax for the year of assessment 2015/16. Excess balance, if any, will be refunded.
The Financial Secretary proposed to increase the child allowance and the additional child allowance in the year of birth from the current $70,000 to $100,000 for each child effective from the year of assessment 2015/16. After the increase, the total allowance for a child born in 2015/16 will be $200,000 for the year.
After enactment of the relevant legislation, the Inland Revenue Department will automatically apply the new level of child allowances in calculating the provisional salaries tax for the year of assessment 2015/16. Taxpayers who are eligible to claim child allowance are only required to complete their tax returns for individuals for the year of assessment 2014/15 and do not need to make separate applications for the increased child allowances. Taxpayer who wants to apply for additional allowance for the child born on or after 1 April 2015 and up to the date of completion of the tax return can refer to FAQ 10 and Example 2. For child born after the date of completion of the tax return, taxpayer can apply for holding over of provisional tax after receipt of the notice of assessment (refer to FAQ 11).
On profits tax, the Financial Secretary proposed to allow, under specified conditions, interest deductions under profits tax for corporate treasury centres and reducing profits tax for specified treasury activities by 50 per cent. This measure will be effected by amending the Inland Revenue Ordinance.
The Government plans to table a bill in the Legislative Council later to allow private equity funds to enjoy profits tax exemption available to offshore funds.