In this blog we will discuss on the topic of salaries tax that are imposed on the husband and wife. We will have discussion on the different allowances such as married person’s allowance, child allowance and single parent allowance that are obtained to one spouse among a married couple living apart. We will talk on property tax and which person is considered as owner of buildings and / or land in Hong Kong. Starting with a formation on how to calculate joint assessment salary tax.
This formation is for the calculation of assessment year 2015 – 16, to compute the salaries tax under joint assessment policy of Hong Kong:
Name of Individual
Assessment year 2015 - 16
Basic period: 1 April 2015 to 31 March 2016
Joint assessment Husband Wife Joint
Assessable income $ X $ X
Less: allowable expenses $ X $ X
Net assessable income (NAI) $ X $ X $ X
Less: concessionary deductions:
Charitable donations that were approved (limited to 35% of NAI
Before the losses b / f and self-education expenses) $ X
Elderly expenses for residential care $ X
Interest for Home Loan $ X
Contribution to recognized retirement scheme $ X
After concessionary deductions NAI is $ X
Less: Personal allowances
Dependent parent allowance $ X
Dependent grandparent allowance $ X
Dependent sister or brother $ X
Basic $ X
Child $ X
Disabled dependent $ X
Net chargeable income $ X
Salaries tax $ X
Less tax reduction (if applicable) $ X
Payable salaries tax $ X
By the nominated partner or the partner ---------Who under separation tax would liable to pay salaries tax
Chargeable Income to One Partner
If husband and wife are living together, and in an assessment year the income of one partner is only allowable to salaries tax then for that assessment year the assessment of a single salaries tax will be applied on that partner, taken from Section 10 (1) of Hong Kong tax law. The same procedure is applicable to the cases where one partner has property or / and business income while other partner has income that is allowable to the salaries tax.
The person as a married individual having his own sole proprietorship HK and also having the income that he earns from working in a company as manager is allowable to salaries tax and would be granted with the married person’s allowance under Section 29 (2).
Charitable Donations that are approved
Under Section 26C (1), the charitable donations of both partners that are approved can be deductible. Discuss an example to understand such scenario, a person named Mr. Chan was working in a company as marketing manager. The annual salary of Mr. Chan is $ 480,000. The quarter as dwelling is provided by his employer having company incorporation HK. Employer was not charging anything for that quarter to Mr. Chan. He was also member of China society of marketing and Hong Kong society of marketing. A bonus of amount $ 50,000 was received by him during the assessment year 2014 to 15. Amounts of $ 1,000 and $ 2,100 were paid by him to the China society of marketing and Hong Kong society of marketing respectively as subscriptions of membership. He also donated an amount of $60,000 to the community chest of Hong Kong. An amount $ 40, 000 was paid by him in respect of fee for master’s degree in marketing. He also made an important contribution to a scheme of mandatory provident fund of amount $ 17,500. Mr. Chan is also married and having one child. The age of his child is almost 8 years. His mother is also part of his family. The age of his mother is 65 years. His wife does not earn salary by working and is a housewife.
The accountability of Mr. Chan who rendering services to Hong Kong company establishment during assessment year 2015 to 16 for the sack of salaries tax is as follow.
Computation of Salaries tax
Assessment year 2014 to 15
Basic period: year ended on 31 March 2015
Salary 12 * $ 40, 000 $ 480,000
Bonus $ 50,000
Add: rental value ($ 530,000 - $ 2,100) * 10 % $ 52,790
Less: Professional subscription $ 2,100
Expense for self-education $ 40,000
Total expenses $ 42,100
Net assessable income (NAI) ($ 582,790 - $ 42,100) $ 540,690
Less: charitable donations:
Charitable donations that were approved (limited to 35% *
$ 540,690 + $ 40,000) $ 60,000
Contribution to mandatory provident fund scheme $ 17,500
After concessionary deductions net assessable income is ($ 540,690 - $ 77,500) = $ 463,190
Less: Personal allowances
Dependent parent allowance $ 40,000
Additional Dependent parent allowance $ 40,000
Child $ 70,000
Allowance of married person $ 240,000
Net chargeable income ($ 463,190 - $ 390,000) $ 73,190
Net income that is taxed at progressive rates:
On balance $ 33,190 at 7 % $ 2,323
On 1st $ 40,000 at 2 % $ 800
After concessionary deductions net assessable income is ($ 540,690 - $ 77,500) $ 463,190
Tax at standard rate $ 463,190 * 15 % $ 69,478
Lower of progressive rates and standard rates $ 3,123
Less $ 20,000 relinquish or 75 % $ 2,342
Payable salaries tax $ 781
Allowance for Married Person
In the case if only one spouse in a married couple earns income from working but other partner has no income and later one is maintained by former one then former partner can claim the married person’s allowance. And this married person’s allowance would be still applicable even though both are living apart. The reference for this statement is taken from Section 29 (4) of Hong Kong tax law. In the proceeding of case Sit Kwok Keung it was observed that, if partners are divorced then no married person’s allowance for the assessment year following the divorce, can be claimed by the partner who was maintaining the other partner before divorce. And this statement would still valid if a partner maintains the other partner after divorce.
In case D 43/08 it was observed that a married couple having names T and madam A were living in Hong Kong. Both were divorced in the assessment year 2005 to 06. For assessment year 2006 to 07 the deductions were claimed by the T of:
Following decision was held by board of revenue.
Allowance for Child
If a child is maintained by a spouse, then he / she as a result of maintaining such child can claim the child allowance. It would be decided by the CIR that how allowance for child would be apportioned between the partners if both spouses contributed in the maintenance of the child. In accordance with the Section 31 (2), the decision would be made by CIR by keeping in view the contribution made by each partner form the education and maintenance of child during an assessment year.
This scenario is different form the position in which husband and wife live together. Under such scenario the claim for child allowance should be done by either wife or husband in respect of all the children they have or they are maintaining.
Allowance for Single Parent
If a partner is not living with his / her partner, then he / she can claim the single parent allowance. And during the assessment year such partner is also allowed to allowance for child and have dominant or sole care of the child. In the proceeding of case Sit Kwok Keung it was observed that, if a partner is made as custodian of a child or children then the partner who is not granted with the custody of the of the child cannot claim such single parent allowance even though he might have contributed in the maintenance of child. As such partner has no legal dominate or sole care of child.
Marriage, Separation, Divorce or Death Year
Year of Marriage
If a couple have income that is allowable to salaries tax but they are not elected for joint assessment, then both of them will be assessed separately. A couple will be considered to be married on 1 April of the relevant assessment year if in a year of marriage, the couple are eligible for joint assessment.
If only one partner rendering services to Hong Kong company establishment and has income that is chargeable to salaries tax in a year of marriage, then with assessable income a full married person’s allowance might be granted to the spouse.
Separation, Divorce or Death Year
There is no criteria or rules defined in the inland revenue ordinance on that how the aggregation of income of both partners is done if they are elected for joint assessment in the year of death, separation or divorce. The common practice in such scenarios is to aggregate the income for full year of both partners. The full married person’s allowance would be granted to partner. The spouse who maintain the other spouse that have no income that can be allowed to salaries tax can claim for the married person’s allowance.
If a person is an owner of any land and / or building that is located in Hong Kong, he / she would be chargeable to property tax for each assessment year. Under Section 5 (1), on the net assessable value of the property that is chargeable, the amount of tax on property is computed.
All buildings and lands that are either for commercial use like for HK company formation or non-commercial use and being held by residents of Hong Kong including the new territories are chargeable to property tax. Piers, landing stages and other structures are included in the buildings and lands. Under Section 7A, buildings include every part of the building. Hence, letting a part of flat or apartment such as room will create an accountability of property tax. The other structures include wall, car parks, dams, roads, bridges, sewers and ponds etc.
Buildings and/or Land Owners
Under Section 2 (1), the owners of buildings and / or land include: