Tax cases

Reducing profits tax, salaries tax and tax under personal assessment for the year of assessment 2018/19

The Financial Secretary proposed a one-off reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2018/19 by 75%, subject to a ceiling of $20,000 per case. On 15 August 2019, the Financial Secretary proposed to increase the one-off reduction of profits tax, salaries tax and tax under personal assessment for the year of assessment 2018/19 to 100% while retaining the ceiling of $20,000 per case. The relevant legislation for the tax reduction was passed by the Legislative Council and gazetted on 15 November 2019.

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 (i.e. capped at $20,000 in total). For personal assessment, the ceiling is applied to each single taxpayer or married person who elects for personal assessment separately from his/her spouse. If a taxpayer elects for personal assessment jointly with his/her spouse, the tax reduction is capped at $20,000 for the couple.

The 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.

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 2018/19. Individuals having salaries income only, but no business profits and rental income, need not elect for personal assessment.

The reduction will reduce taxpayers’ amount of tax payable for the year of assessment 2018/19. Taxpayers should file their profits tax returns and tax returns for individuals for the year of assessment 2018/19 as usual. The Inland Revenue Department will effect the reduction in the final assessment. For any final assessment for 2018/19 issued before the enactment of the law, the Inland Revenue Department will make a reassessment. Taxpayers are not required to make any applications or enquiries to the Department.

The tax reduction will only be applicable to the final tax for the year of assessment 2018/19, 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 2018/19 and the provisional tax for the year of assessment 2019/20. Excess balance, if any, will be refunded.