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1. Who are eligible to choose Personal Assessment?
With reference to section 41 of the Inland Revenue Ordinance, an individual (but not a corporation or limited company) may select Personal Assessment if:
- the person is 18 years of age or over, or under that age if both of his/her parents are deceased; and
- the person is or, if he/she is married, his/her spouse is a permanent or temporary resident in Hong Kong.
(Note: In respect of a partnership business, each partner must choose Personal Assessment individually.)
For the purpose of Personal Assessment:
- "permanent resident" means an individual who ordinarily resides in Hong Kong;
- "temporary resident" means an individual who stays in Hong Kong for a period or a number of periods amounting to more than 180 days during the year of assessment in respect of which the election of Personal Assessment is made or for a period or periods amounting to more than 300 days in 2 consecutive years of assessment, one of which is the year of assessment in respect of which Personal Assessment is chosen .
Selection of Personal Assessment must be made in writing. It can be made by completing the relevant section in the Tax Return.
2. If I received monthly rental of $40,000 from letting a property under mortgage (interest of $42,000 was paid during the year), can I pay less tax under Personal Assessment? When will the selection of Personal Assessment not be advantageous?
(Note: The following calculation is based on the tax rates for the year of assessment 2005/06.)
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Property Tax payable
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HK$
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Rental income ($40,000 x 12)
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480,000
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Less: 20% allowance for repair and outgoings
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(96,000)
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Net assessable value
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384,000
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Property tax payable (at standard rate 16%)
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61,440
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Tax payable under Personal Assessment
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HK$
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Net assessable value
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384,000
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Less: Mortgage interest
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(42,000)
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Basic allowance
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(100,000)
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Net chargeable income
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242,000
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Tax payable (at progressive rate):
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2% on first 30,000
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600
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8% on next 30,000
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2,400
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14% on next 30,000
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4,200
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20% on the remain 152,000
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30,400
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37,600
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There is a saving of $23,840 if you elect Personal Assessment which enables you to claim deductions for mortgage interest and personal allowance.
When will the selection of Personal Assessment not be advantageous?
Under Personal Assessment, tax is calculated at progressive tax rates on the aggregated income from all sources. As the marginal scale of the progressive rates (20%) is higher than the standard rate (16%), it may not be advantageous for larger income taxpayers to elect Personal Assessment.
Suppose you also earned a salary of $500,000 in addition to your rental income during the year:
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Salaries Tax payable
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HK$
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Salaries income
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500,000
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Less : Basic allowance
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(100,000)
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Net chargeable income
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400,000
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Tax payable at progressive rate:
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First 90,000 x (2% - 14%)
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7,200
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Balance 310,000 x 20%
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62,000
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69,200
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Total tax payable under separate assessments
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HK$
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Property tax payable (see above)
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61,440
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Salaries tax payable
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69,200
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Total tax payable
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130,640
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Tax payable under Personal Assessment
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HK$
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Salaries income
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500,000
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Net assessable value (see above)
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384,000
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Chargeable income
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884,000
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Less: Mortgage interest
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(42,000)
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Basic allowance
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(100,000)
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Net chargeable income
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742,000
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Tax payable at progressive rate:
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First 90,000 x (2% - 14%)
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7,200
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Balance 652,000 x 20%
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130,400
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137,600
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If you have elected Personal Assessment but the tax payable is higher than that under separate assessments, the Inland Revenue Department will issue you a Salaries Tax assessment and a Property Tax assessment separately, and will (by way of an Assessor's note in the respective tax demand notes) advise that it is not advantageous for you to elect Personal Assessment for the relevant year of assessment.
3. If I suffered a business loss of $100,000 but received salaries income of $400,000 from a separate employment, can I pay less tax under Personal Assessment?
(Note: The following calculation is based on the tax rates for the year of assessment 2005/06.)
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Salaries Tax payable
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HK$
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Salaries income
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400,000
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Less: Basic allowance
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(100,000)
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Net chargeable income
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300,000
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Tax payable at progressive rate:
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First 90,000 x (2%-14%)
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7,200
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Balance 210,000 x 20%
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42,000
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49,200
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Profits Tax payable
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HK$
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Business profits (or losses)
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(100,000)
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Tax payable
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0
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Tax payable under Personal Assessment
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HK$
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Salaries income
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400,000
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Business losses
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(100,000)
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Chargeable income
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300,000
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Less: Basic allowance
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(100,000)
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Net chargeable income
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200,000
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Tax payable at progressive rate:
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First 90,000 x (2%-14%)
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7,200
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Balance 110,000 x 20%
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22,000
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29,200
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By choosing Personal Assessment, your tax liability is reduced by $20,000 because your business loss can be set off against your other assessable income for the year.
4. The profit of my sole-proprietorship business was assessed at $360,000. My wife received a monthly rent of $10,000 from a property under mortgage. She paid mortgage interest of $56,000 during the year. How is Personal Assessment applied to a married couple?
(Note: The following calculation is based on the tax rates for the year of assessment 2005/06.)
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Tax payable under Personal Assessment
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HK$
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Your business profits
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360,000
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Your wife's property income:
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$
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Net assessable value ($10,000 x 12 x 80%)
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96,000
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Less: Mortgage interest
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(56,000)
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40,000
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Chargeable income
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400,000
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Less: Married person's allowance
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(200,000)
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Net chargeable income
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200,000
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Tax payable (at progressive rate)
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29,200
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Your share of tax payable
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($29,200 x 360,000 / 400,000)
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26,280
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Your wife's share of tax payable
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($29,200 x 40,000 / 400,000)
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2,920
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You and your wife will each receive notice of assessment and a demand for payment.
Separate taxation for husband and wife is not applicable under Personal Assessment. The total income of an individual, as appropriately reduced, will be aggregated with that of his/her spouse to arrive at the joint total income of the couple for assessment purposes. Normally, the tax payable on the Joint Assessment is proportionally allocated to the husband and the wife on the basis of their respective reduced total income, and a notice of assessment will be issued to each of them.
5. Is there a time limit for selecting Personal Assessment?
Personal Assessment must be selected:
- not later than 2 years after the end of the year of assessment in respect of which the election is to be made (e.g. election of Personal Assessment for the year of assessment 2002/03 has to be made not later than 31 March 2005), OR
- 2 months after the issue of a notice of assessment, or a notice of additional assessment to tax, for the year of assessment in respect of which the election is made, whichever is the later.
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