What are disable and single parent allowances and how salary tax is computed for a taxpayer working for Company Setup in Hong Kong?


This blog will be discussing on the different allowances that are given to the taxpayer upon fulfilling the certain conditions. The allowances that will discuss here include single parent allowance and disable dependent allowance. And finally, tax rates for salaries and how a taxpayer salaries tax is computed will be discussed.

In a case D 10/11 it was observed that, T was an employee and looking for starting a small business in Hong Kong for his on private earning. In respect of T’s wife sister named as Ms. A, the dependent sister allowance was claimed by T. At the time of assessment, the age of Ms. A was 18 years. She was suffering with polio due to malformation of her lower limbs after her birth. She was bounded to use wheel-chair. She was residing in Mainland China and her life was totally dependent on the pension of her mother. Her brother in law named as T and her sister were living in Hong Kong. Parents of Ms. A visited her several times in a year and her sister visit her once in year. They used to bring the daily appliances for her. The wife of T used to talk to her on phone weekly. The medical and daily expenses of Me. A were also being managed by T and her wife.

But the claim of T was not allowed by board as T was failed to manifest that he and his wife had mainly cared for Ms. A. Despite of her handicap there was no proof to suggest that Ms. A is unable to taken care of herself. The parents of Ms. A were only able to fulfill the daily needs of Ms. A. Despite of the resources and efforts that were provided by T to Ms. A there was a much travel distance between them. As disable dependent allowance under Section 31 A of Hong Kong tax law was not included in the notice of appeal of T so he was not able to rely on it. Ms. A was not residing in the Hong Kong in any event, so she was not able to fulfill the requirements.

In relation to any person the ‘brother or sister or brother / sister of the partner’ means:

  • A natural brother/sister of the person or his/her spouse.
  • An adopted brother/sister of the person or his/her spouse.
  • A step brother/sister of the person or his/her spouse.
  • In the case if partner of a person is died in near past, a person who was brother / sister of the partner as discussed earlier in the above paragraphs if the partner was alive.

Allowance for Disable Parent

In accordance with Section 31 A of Hong Kong tax law, in respect of each dependent of the person who is eligible to claim an allowance under disability allowance scheme of government or (‘disability allowance’), the disabled dependent allowance was granted to that person.

In relation to a person word ‘Dependent’ means:

  • A brother/sister or brother/sister of the spouse of person for whom that person is allowed to a disabled brother or sister allowance for the assessment year.
  • A partner in whose respect a married person’s allowance is allowed to be granted to a person.
  • A child in whose respect a child allowance is to be granted to the person for the assessment year.
  • A parent or parent of his/her partner in whose respect a dependent parent allowance is to be granted to the person for assessment year.   
  • A grandparent or grandparent of his/her partner in whose respect a dependent grandparent allowance is to be granted to the person for assessment year.  

The scheme administered by department of social welfare is referred specifically by the disability allowance scheme of the government. In the case D 137/01 it was observed that the compensation received by the dependent parent from the pneumoconiosis medical board was not a disabled dependent for the purpose of Section 31A of Hong Kong tax law.

Allowance for Single Parent

The allowance of single parent is granted, if at any time during the assessment year the parent had predominant or sole affection to the child, in respect of who’s the child allowance is to be granted to the person during that assessment year, as under Section 32 (1).

This allowance is not allowed to a person:

  • Accordance with Section 32 (2) (c), in regards of any second or successive child.
  • As under Section 32 (2) (b), if the person was married and was living with his or her partner at any time during the assessment year.
  • In Section 32 (2) (a), by the reason during an assessment year that person made contributions to the education and maintenance of child.

In D 62/97 it was observed that, a single parent allowance was not allowed to a taxpayer who was divorced. The former husband of that taxpayer was made the custodian of the children. The access rights for child custody were only applicable to the taxpayer on holidays and weekends, working in company setup in Hong Kong.

In another case D 169/01 it was observed that the custody of two sons of a taxpayer was given to his ex-wife after his divorce. In spite of paying the monthly sums to bear the expenditures of his sons, he was not provided with dominant or sole care of them. The key thing to note here is that, the word ‘care’ is used for the single parent allowance while word ‘maintains’ is used for child allowance exclusively, as taken form the case of Sit Kwok Keung.

The allowance should be divided in the case if the claim of single parent allowance is done by the two or more persons for the same child in same assessment year. The division of allowance should be decided by CIR on such basis that:

  • Under Section 32 (3) (a), with respective period to which during the assessment year each person had predominate or sole care of child.
  • Under Section 32 (3) (b), as observed in case D 62/97 if those periods are uncertain in the opinion of CIR on such basis it may decide by CIR as being just.

 

Tax Rate for Salaries 

Tax on salaries is charged:

  • Under Section 13 (2) (a) of Hong Kong tax law, the tax rates that were standard on the whole of NAI as decreased by concessionary deductions.
  • Under Section 13 (1) of Hong Kong tax law, at the rate that is progressive and specified on the person’s NCI for each assessment year.

Whichever is lesser among above? And these tax rates are applicable on the income of taxpayer that is either an employee or earning after starting a small business in Hong Kong.

The continuous progressive tax table for assessment years 2007 - 08 to 2015 - 16 is as follows:

Net income chargeable

Rate of Tax

Tax

Accumulative Tax

2008 - 09 to 2015 - 16




$ 1- $ 40,000

2 %

$ 800

$ 800

$ 40, 001 - $ 80,000

7 %

$ 2,800

$ 3,600

$ 80,001 - $ 120,000

12 %

$ 4,800

$ 8,400

Over $ 120,000

17 %



2007 / 08




$ 1 - $ 35,000

2 %

$ 700

$ 700

$ 35,001 - $ 70,000

7 %

$ 2,450

$ 3,150

$ 70,001 - $ 105,000

12 %

$ 4,200

$ 7,350

Over $ 105,000

17 %



Salaries Tax Computation

The method given below is a typical format to compute the salaries tax for the assessment year 2015 to 16 for an individual taxpayer working as an employee of sole proprietorship HK:

Individual Name

Computation of Salaries tax

Assessment year 2015 to 16

Basic period from: 1 April 2015 to 31 March 2016

 

Principal employment’s income     =     $ A

Less: expenses and allowable outgoings under section     =     $ B

 12 (1) (a)

Depreciation allowances under section     =     $ C

12(1) (b)

                                                                                                  $ (D)                                                                                                        ----------

                                                                   $ E

Add: rental value of dwelling provided by associated

Company or employer (percentage of E)                     = $ F   

Less: rent suffered                                        $(G)

                                                            ---------

Net rental value                                                                 $ H

                                                                 ---------

                                                                                           $ I

Add: income from other employment like part time job = $ J

                                                               --------

                                                                 $ K

Less: loss that was brought forward and set-off (if any) = $ (L)

Expenses for self-education under section 12 (1) (e)    =   $ (M)

                                                                                               -------

Net income that is assessable after set-off of loss b/f = $ N 

Less: concessionary deductions:

Charitable donations that were approved (limited to 35% of K) = $ O

Expenses for residential care elderly (as from 1998 to 99) = $ P

Interest for Home Loan (as from 1998 to 99) = $ Q

Contribution to recognized retirement scheme as from (2000 to 01) = $ R

                                                                         ---------

Total deductions that are concessionary                                             $ (S)

                                                                         ----------

Net income that is assessable after concessionary deductions      =      $ T

Less: personal allowances                                                             =       $ U

                                                                          --------

Net chargeable income                                                                  =        $ V

                                                                          ---------

Salaries tax for assessment year:

Standard rate on T and lower of progressive rates on V         = $ W

Less: tax reduction One-off (if applicable)                              = $ X

                                                                   ---------

Payable salaries tax                                                                   = $ Y    

Following notes are helpful for salaries tax computation for an individual taxpayer working as employee or struggling for company formation HK.

  • In computation of rental value, the income from associated companies is considered if by associated companies’ quarters are provided.
  • In the order to calculate the rental value gratuity paid on the termination or retirement of employment, payment for lump sum and gain on share options are not included.
  • H is restricted to zero if it is negative.
  • For the computing the 35 % limitations of donations for charity, losses that are brought forward are not considered.
  • The net assessable income is nil if K is negative or zero. Then the deduction of personal allowances, concessionary deduction and self-education expenses are not mandatory.
  • The net assessable income after concessionary deduction is nil if T is negative or zero and in such case it is not mandatory to deduct personal allowances.
  • For the assessment year 2003 - 04 to 2007 – 08, 25 % of K is deducted for approved charitable donation.       

Discussing an example of a taxpayer named as Mr. Wu, who was marketing manager for company formation HK. The annual salary that was being received by him was $ 800,000. During the year ended 31 March 2015 he was provided by his employer with a flat that was rent-free. Annual membership fee of amount $ 1,600 was paid by him in December 2014 to the institute of marketing. In March 2015 he also donated an amount of $ 1,000 to the community chest. He also contributed in MPF scheme with an amount of $ 31,500. The wife of Mr. Wu was died almost three years ago. It was his duty to maintain and take care of his son and two parents. The age of his son was 15 years while his two parents were having age more than 60 years. His parents lived with him all over the year that ended on 31 March 2015. For the assessment year 2014 to 15 the salaries tax liability of Mr. Wu is as given below:

  Mr. Wu

Computation of Salaries tax

Assessment year 2014 to 15

Basic period: 1 April 2014 to 31 March 2015

 

Principal employment’s income     =     $ 800,000

Less: expenses and allowable outgoings    =     ($ 1, 600)

                                                ----------------

                                                 = $ 798,400

Add: rental value ($ 798,400 * 10 %)             = $ 79,840                        

Net income assessable = (798,400 + 79,840) = $ 878,240

Less: Charitable donations that were approved = $ 1,000

Contribution to recognized retirement scheme = $ 17,500

                                                -----------------

                                                                          = ($ 18,500)

Total deductions that are concessionary         = ($ 878,240 - $ 18,500)                                                                                       ----------------------------------

Net income assessable after concessionary deductions      =      $ 859, 740

Less: Basic allowances                                                        =     $ 120,000

          Dependent parent allowances                                     =     $ 80,000

          Child allowances                                                         =     $ 70,000

          Other Dependent parent allowance                             =     $ 80,000

          Single parent allowances                                              =    $ 120,000

                                                                        -----------------------

          Total in term of allowances                                                   =      ($ 470,000)

                                                                         

Net income chargeable                                                                 =        $ 859,740 - $ 470,000

                                                                                                       =        $ 389,740

                                                                         

Net chargeable income on the progressive rates

1st $ 120,000                                                                                   =  $ 8,400

Balance of $ 267,740 at 17 %                                                         =  $ 45,855

                                                                                     ---------------

Low progressive and standard rate                                                  =  $ 54,255

Less: 75 % waived, limited to                                                          = ($ 20,000)

                                                                                                       ------------------

Payable salaries tax                                                    =  $ 34,255

 

 

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