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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 2014/15.)

 

Property Tax payable

$

Rental income ($40,000 x 12)

480,000

Less: 20% allowance for repair and outgoings

(96,000)

Net assessable value

384,000

Property tax payable (at standard rate 15%)

57,600

 

 Personal Assessment Not Elected

$

Net assessable value ($40,000 x 12 x 80%)
 
384,000
 
Property tax payable (at standard rate of 15%)
 
57,600 
 

 

 Personal Assessment Elected
 
  $
 
$
 
Net assessable value
 
  384,000
 
Less:
 
Mortgage interest
 
42,000
 
 
  Basic allowance
 
120,000 
 
162,000
 
Net chargeable income
 
  222,000
 
Tax thereon (at progressive rates)
 
  25,740
 
Less: 75% tax reduction (capped at $20,000) (Note)
 
  19,305
 
Tax payable
 
  6,435
 


There is a saving of $51,165 (i.e. $57,600 – $6,435) if you elect for personal assessment which enables you to claim deductions for mortgage interest and personal allowance.

 

(Note) For 2014/15, 75% of the final tax payable under profits tax, salaries tax and tax under personal assessment would be waived, subject to a ceiling of $20,000 per case.

 

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 (17%) is higher than the standard rate (15%), 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:

 

Salaries Tax payable

$

Salaries income

500,000

Less : Basic allowance

(120,000)

Net chargeable income

380,000

 

Personal Assessment Not Elected
 

$
 

Salaries income
 
500,000
 
Less: Basic allowance
 
120,000
 
Net chargeable income
 
380,000
 
Tax thereon (at progressive rates)
 
52,600
 
Less: 75% tax reduction (capped at $20,000) (Note)
 
20,000
 
Salaries tax payable
 
32,600
 
   
 

$

Property tax payable
 
57,600
 
Salaries tax payable
 
32,600
 
Total tax payable
 
90,200
 

 

Personal Assessment Elected
 
  $
 
$
 
Salaries income
 
  500,000
 
Net assessable value
 
  384,000
 
Total income
 
  884,000
 
Less:
 
Mortgage interest
 
42,000
 
 
  Basic allowance
 
120,000
 
162,000
 
Net chargeable income
 
  722,000
 
Tax thereon (at progressive rates)
 
  110,740
 
Less: 75% tax reduction (capped at $20,000) (Note)
 
   20,000
 
Tax payable
 
  90,740
 

As your income is chargeable to salaries tax at the marginal rate of 17%, any property income required to be aggregated under personal assessment will also be charged at 17%. Hence, it is not advantageous for you to elect for personal assessment.

 

If you have elected for personal assessment, the Inland Revenue Department will issue a salaries tax assessment and property tax assessment separately and will, by way of an Assessor’s note in the respective notices of assessment, advise that it is not advantageous for you to elect personal assessment for the relevant year of assessment.

 

(Note) For 2014/15, 75% of the final tax payable under profits tax, salaries tax and tax under personal assessment would be waived, subject to a ceiling of $20,000 per case.

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