1. What income is assessable and what deductions (and allowances) can be claimed under Salaries Tax?

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.

a) Income

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:

i) Salaries/wages

ii) Commission, bonus, leave pay, end-of-contract gratuities, payment in lieu of notices accrued on or after 1 April 2012 

As a general rule, most forms of income that your employer pays to you are taxable, regardless of when the payments are made (before, during or after a period of employment) and whether the amount was paid according to the terms of employment or in excess of them. Only a few types of payments are exempt. These include, but are not limited to, compensation for injuries and payments specifically exempted under the Inland Revenue Ordinance.

iii) Allowances, perquisites and fringe benefits

These include cash allowances for food, traveling, housing, cost of living, holiday journal and education benefits and liability of employees discharged by employers.

iv) Tips from any person

Examples of tips include those paid by customers to waiters in restaurants and those paid by customers to tour guides.

v) Salaries Tax paid by an employer

The amount, if any, paid by your employer to cover your tax obligations should be reported as assessable income.

vi) Value of a place of residence

The ‘rental value' of a place of residence is taxable where (a) a place of residence is 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 4%, 8% or 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, depending on the type of accommodation provided. For further details, please refer to here.

vii) Share awards and share options gain

This refers to stock awarded to you arising from your employment and 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, deferred pay and pay in arrears

Any income that you have received from your employer as back pay, gratuities, deferred pay and arrears of pay during the course of employment or upon or after cessation of employment are assessable and should be reported on your tax return.

ix) Termination payments and retirement benefits

Termination payments (e.g. salary for the last month of service, and payments in lieu of notice accrued on or after 1 April 2012 and payment in lieu of leave) as well as retirement benefits, including accrued benefits received from recognised occupational retirement schemes or receipts or deemed receipts from mandatory provident fund schemes (with exceptions), should be reported.

For more details relating to retirement benefits, please go to questions 6 and 7 in section C or click here.

x) Pensions

All pensions should be reported as assessable income.

Income not chargeable to Salaries Tax (not required to be reported in Tax Return – Individuals ) 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

You may claim deductions on the following categories, subject to a specified ceiling in relation to each year of assessment.

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. For more information, please refer to the Inland Revenue Department’s Departmental interpretation and Practice Notes No. 9.

ii) Expenses of self-education

Expenses of self-education (including tuition and the related examination fees) paid for a prescribed course of education may be deductible under Salaries Tax. For more information, please click here.

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 (RORS)

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 for the year of assessment 2018/19 is $18,000.

For more information, please click here.

v) Home loan interest

You can get deductions of home loan interest paid on the mortgage of your home. For more information, please click here.

The maximum amount of deduction for the year of assessment of 2018/19 to 2023/24 each year is $100,000 per year.  For the year of assessment of 2024/25 onwards, the maximum additional deduction is $20,000.

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.  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.  With effect from the year of assessment 2017/18, the number of years of deduction for home loan interest is further extended from 15 to 20 (not necessarily consecutive) years of assessment.

Following each home loan interest 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. The annual deduction ceiling for the year of assessment of 2018/19 onwards is $100,000. For more information, please click here. 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.  For example, during the year of assessment 2023/24, you pay $60,000 to a residential care home for your father who is over the age of 60. You can choose to claim the deduction for elderly residential care expenses ($60,000) or the dependent parent allowance ($50,000). By claiming the deduction for the expenses you will be able to obtain more tax benefit.

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 depreciation allowance, however, is uncommon for Salaries Tax.

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 depreciation allowance, however, is uncommon for Salaries Tax.

viii) Qualifying Annuity Premiums and Tax Deductible MPF Voluntary Contributions 

From the year of assessment of 2019/20 onwards, a taxpayer may deduct MPF voluntary contributions made into a tax-deductible MPF voluntary contribution account as well as the qualifying annuity premiums of some qualifying insurance policies. For more details, please refer to here.  

ix) Qualifying Premiums paid under the Voluntary Health Insurance Scheme (VHIS) Policy 

From the year of assessment of 2019/20 onwards, a taxpayer who pays the insurer qualifying premiums for writing or renewing a VHIS insurance policy (i.e. a policy that is in whole or in part issued under an insurance plan that has been certified by the Secretary of Health as complying with the Government's VHIS) for themselves or their specified relatives (i.e. spouse, child, taxpayer’s or his/her spouse’s brother, sister, parent or grandparent, subject to certain additional requirements), is eligible to claim a deduction for that payment. The maximum deduction allowed to any taxpayer for any covered person shall not be greater of the amount of the prescribed maximum deduction or the amount of the qualifying premiums paid, whichever is less.

If an insurance policy covers a certified VHIS policy and a life insurance plan, the life insurance policy's premium is not deductible. The specified maximum deduction is $8,000 for the assessment year 2019/20 and beyond. There is no cap on how many specified relatives a taxpayer may claim. The same insured person may be claimed as a deduction by more than one taxpayer. For more details, please refer to here.

x) Tax deduction for domestic rents

Domestic rents paid by a taxpayer under a qualifying tenancy of domestic property used as the taxpayer's primary residence are deductible effective from the year of assessment of 2022–2023. Starting from the year of assessment of 2024/25, the deduction ceiling for domestic rents is raised from $100,000 to $120,000 for those taxpayers who reside with their child and if the specified conditions are met. For more details, please click here.

xi) Interest payments to produce rental income from properties 

You can deduct interest paid on money borrowed for generating rental income subject to Property Tax if you elect for Personal Assessment. The deduction, however, is limited to the net assessable value of each rental property let. Interest payments made for times the property was not rented out (such as when it was occupied by your family or was vacant) are not tax deductible.

c) Allowances

In every year of assessment, Please visit GovHK for updated allowance figures.

d) Tax Reduction

Since the assessment year 2017/18 and onwards, the Hong Kong government has implemented an annual one-time reduction of the Salaries Tax that is applied in the final assessment to reduce the amount of tax payable, subject to the corresponding ceilings listed below:

For Salaries Tax, the cap is applied to each individual taxpayer; however, for married couples who are jointly assessed, the cap is applicable to each married couple.

For Personal Assessment, the ceiling is applied to each single taxpayer or married person who elects for Personal Assessment separately from his/her spouse. When a taxpayer chooses Personal Assessment jointly with his or her spouse, each married couple is subject to the ceiling.

A taxpayer who is separately chargeable to Salaries Tax and Profits Tax can enjoy tax reduction under each of the tax types. If a taxpayer chooses Personal Assessment and has business earnings or rental income, the reduction will be based on the tax due under Personal Assessment. It might not be the same as the tax reduction the individual would receive if they had not been subject to Personal Assessment. Case by case analysis will be required to determine the actual position.

Only the final tax for the applicable year of assessment will be subject to the tax reduction; the Provisional Tax for the same year will not. As a result, notwithstanding the reduction measure, taxpayers must still pay their Provisional Tax on time. Any excess balance will be refunded.