In this blog we will discuss different implementation of tax policies for allowances given to employee at different stages.
In the case D 40/12 of employee husband wife collectively named as T, the issue which was faced by board of revenue department was, whether the withdrawals that were made by T subsequently for the consumption of loan meet the requirements of a loan for home. And furthermore the amount should be assessed as HLI deduction that was paid for the interest paid on the loan. By having the following point of views the appeal of T was dismissed by board of revenue department:
Contribution of Employee working in Establish Company in Hong Kong to Recognized Retirement Schemes
It is allowed to taxpayer to claim the deduction of tax for:
Amount to be Deducted
The amount that is allowed to be deducted for an assessment year is least of:
According to Section 26G, any sum that was allowed under profit tax as deduction to self-employed person under Section 16AA of tax law will be disallowed for deduction.
The contributions will not be deductible that are made by employees of a Hong Kong incorporation to a recognized scheme known as MPF scheme.
Personal Allowances to an Employee
The different personal allotments under Section 27 of Hong Kong tax law that are available under personal statement or salaries tax are:
Under the Inland Revenue ordinance, the amount of allowances is approved and described.
Basic Allowance to Employee
Under Section 28 (1), the allowance that is permitted to an individual in an assessment year is chargeable to salaries tax in that assessment year. A married person’s allowance is not granted to a person that is granted with a basic allowance, as in Section 28 (2).
Allowance of Married Person
The person who is married at any time during that assessment year is granted with a married person’s allowance (MPA) in that assessment year and
In the year of marriage, if death of husband / wife, separation and divorce the full married personal’s allowance is granted to the applicant(s).
Discussing an example. On 1 January 2016, Mr. Wong and his wife were divorced. Mr. Wong was employed by a Hong Kong incorporation. During the assessment year 2013 to 14 the wife of Mr. Wong had no income that have to be chargeable to salaries tax. Although Mr. Wong was divorced in the assessment year 2015 to 16, he was allowed to claim the married person’s allowance for that year.
Under Section 29 (4), if there are husband and wife living apart from each other’s, a married person’s allowance will only be permitted where the partner that is asserting the allowance is supporting or maintaining the other partner. In a case of Sit Kwok Keung it was observed that two partners would not be husband and wife if these are divorced. So no married person’s allowance can be granted to a partner even though following the year of divorce he/she is still maintaining or supporting the other partner.
Allowance for Child
An individual who had appending his life in maintaining or supporting the life of an unmarried child at any time during the assessment year would be granted as a child allowance in that assessment year. And unmarried child should be who was during that assessment year:
Under Section 31 (1A) of Hong Kong tax law, with effect from the assessment year 2007 to 08 it was decided that the amount of child allowance will be increased in the assessment year in which the child is born. The table ‘Summary of deduction, personal allowances and tax rates’ would be given in the subsequent articles.
The meanings of Child, a child of an individual that is a taxpayer or whose income is enough to be chargeable to salaries tax. This child can be adopted or step child or child of the taxpayer’s partner, or his / her former partner, whether or not born in the state of parents being married. The adoption or manner of an adopted child must be acknowledged by the laws of Hong Kong, as in Section 27 (3).
Under Section 31 (3) (a), the allowances of all child can only be claimed by one spouse for a wife or husband. And there is also a restriction for acquiring such allowances that these husband and wife should not live apart. And it is the right of husband and wife to nominate anyone among them to claim such allowance. If a consent on the nomination of a partner for claiming the child allowance is made it cannot be abrogated without the sanction of CIR, under Section 31 (3) (b)
In accordance with the Section 31 (2), if husband and wife are not living together but apart from each other than based on the contributions made by each of them on the maintenance, support and education of the child, the child allowance is divided.
Seeing an example to understand it. A taxpayer rendering Hong Kong company incorporation services named as Mr. Au and his wife were working on the maintenance and support of three children. During the assessment year ended 31 March 2016, the ages of these children were 2, 3 and 5 respectively. Only one them among Mr. Au and his wife can claim the child allowance in case if Mr. Au and his wife both do not elect for assessment jointly. For the assessment year 2015 to 16 the child allowance was (3 * $100,000) $300,000.
Allowance for Dependent Parent
In an assessment year, the dependent parent allowance (DPA) is granted to an individual, if that individual, or partner of that individual, not as a partner that is living apart from him / her maintains his / her parent or parent of his / her partner for that assessment year. According to Section 30 (1) (a), the parent that are being maintained should be a resident in Hong Kong at any time in that assessment year normally:
A DPA was granted to a taxpayer who plans for starting a business in Hong Kong or works as an employee and maintaining a dependent parent who was aged 55 to 59 at any time during that assessment year with effect from 2005 to 06. Under the Government’s Disability Allowance Scheme, throughout the assessment year taxpayer was not eligible to claim an allowance. In respect of each parent maintained under Section 30 (2), a DPA was granted if: