1. What income is assessable and what deductions (and allowances) can be claimed under Salaries Tax?
The following is only intended to provide an outline of what taxable income, deductions, and allowances are. These terms will be explained further in separate questions and answers in other sub-sections on this website.
According to section 11B of the Inland Revenue Ordinance, the assessable income of a person in any year of assessment shall be the aggregate amount of income accruing to that person from all sources in that year of assessment.
For the purposes of Salaries Tax, the assessable income includes:
ii) Commission, bonus, leave pay, end-of-contract gratuities
iii) Allowances or perquisites
These include cash allowances for food, traveling, housing, cost of living and education benefits.
iv) Tips from any person
v) Salary tax paid by an employer
vi) The ‘rental v alue ' of a place of residence that is either: (a) provided by an employer, or (b) the rent for which is paid or refunded (fully or partially) to the employee by the employer. “Employer” here also includes a corporation associated with the employer
This is taken to be 10% of the income earned from the employer (excluding any lump sum payment or gratuity on termination of employment) after deductions and depreciation allowances (if any) for the period during which the residence is provided.
vii) Share option gain
This refers to the gain realized by the exercise, the assignment, or the release of a right to acquire shares or stock in a corporation.
viii) Back pay, gratuities and any terminal/retirement awards
You may apply to have the whole sum of money related back to the earning period for tax assessment (up to a maximum of 36 months).
ix) Certain p ayments received from Mandatory Provident Fund Schemes (MPF) or Recognized Occupational Retirement Schemes (except for those received due to retirement, death or incapacity) attributable to some voluntary contributions by an employer.
Income not chargeable to Salaries Tax (not required to be reported in tax return) includes:
- fees paid for your having served as a juror;
- severance payment or long service payment payable by the employer on termination of employment under the Employment Ordinance ;
- payments received from MPFS on retirement, death, incapacity or termination of service attributable to mandatory contributions.
b) Deductions and Depreciation Allowances
i) Outgoings and expenses
To qualify for deduction, the relevant outgoing and expense cannot be of a private or domestic nature and must meet the very stringent conditions of being wholly, exclusively, and necessarily incurred in the production of your assessable income.
ii) Expenses of self-education
The maximum amount allowable for deduction (as from the year of assessment 2013/14) is $80,000 per year.
iii) Approved charitable donations
The minimum amount allowable for deduction is $100. The total amount to be deducted for the year should not exceed 35% of your assessable income less the deductions of outgoings and expenses and depreciation allowances.
iv) Mandatory contributions to MPFS or contributions to Recognized Occupational Retirement Schemes
Some of the contributions that you make to a mandatory provident fund (MPF) scheme or a recognised occupational retirement (ROR) scheme can be deducted from your assessable income. Mandatory contributions to MPF schemes are deductible in computing your assessable income as an employee or assessable profits as a self-employed person's own contribution. All contributions other than mandatory contributions are voluntary and are not deductible. The maximum deduction for each year of assessment is :
|Year of assessment||Maximum deduction ($)|
|2009/10 to 2011/12||12,000|
v) Home loan interest (HLI)
You can get deductions of HLI paid on the mortgage of your home. The maximum amount of deduction for each year is $100,000.
With effect from the year of assessment 2012/13, the number of years of deduction for home loan interest is extended from 10 to 15 (not necessarily consecutive) years of assessment, while maintaining the current deduction ceiling of $100,000 a year. The additional 5 years home loan interest deduction is not applicable to the year of assessment prior to the year of assessment 2012/13. However, it will not affect taxpayers’ entitlement (including those who had already got the deduction of home loan interest for 10 years of assessment) of the 5 additional years deduction from the year of assessment 2012/13 and onwards.
Following each HLI deduction, the Commissioner will notify you of the number of years for which deduction has been allowed and your remaining entitlement.
vi) Elderly residential care expenses (ERCE)
You can claim deduction of the ERCE actually incurred by you/your spouse in respect of the residential care for you/your spouse's parent/grandparent who is aged 60 or above at any time in the year of assessment, or who is under 60 but is entitled to claim an allowance under the Government's Disability Allowance Scheme; and is taken care of by a registered residential care home or nursing home situated in Hong Kong .
In respect of the same dependant, you can claim either Dependent Parent Allowance (see “Allowances” below), or ERCE, but not both . If ERCE and DPA are claimed simultaneously for the same dependant, you will only get a deduction for ERCE for that year.
Annual deduction ceiling :
|Year of assessment||Deduction ceiling ($)|
|2009/10 to 2010/11||60,000|
|2012/13 to 2013/14||76,000|
vii) Depreciation allowances on plant & machinery
To qualify for such allowances, you must show that the use of the machinery or plant is essential to the production of your income and produce the relevant receipt for inspection, when required. This kind of de preciation allowance, however, is uncommon for salaries tax.
For details about various kinds of tax deductions, please visit GovHK.
Please visit GovHK for updated allowance figures.