Can Personal Assessment Reduce Your Tax Liability
Personal assessment is not a levy of tax. It is a form of relief if your income is chargeable to profits tax or property tax. Here you can learn about how and what deductions and allowances are allowed under personal assessment, and whether or not it will be advantageous to elect for personal assessment if you own a business or receive rental income.
Personal Assessment, Deductions and Allowances
Sole proprietors and business partners are assessed to profits tax, and property owners who receive rental income are assessed to property tax, both at the standard rate. Under personal assessment, your income chargeable to salaries tax, profits tax and property tax is aggregated. From this total, the following may be deducted:
Interest payable on money borrowed to acquire a property used for letting
Interest you paid during the year on loans borrowed is deductible if the loans were used to produce income chargeable to property tax. However the deduction cannot exceed the net assessable value of each individual property let. Interest payments relating to periods when the property is not let (such as when it is vacant or your family occupies it as a residence) are not deductible.
Approved charitable donations
Donations of money you made to approved charities or to the Government for charitable purposes are deductible. You may also claim approved charitable donations made but not claimed by your spouse.
More on approved charitable donationsElderly residential care expenses
Expenses you paid to a licensed or registered residential care home situated in Hong Kong for the care of an elderly parent or grandparent.
More on deductions for elderly residential care expensesHome loan interest
Interest paid on a home loan is deductible from your aggregate income under certain conditions.
More on deductions for home loan interestHome loan interest additional deductionMandatory employee contributions to Mandatory Provident Fund schemes
Mandatory contributions up to the maximum amount prescribed in the Inland Revenue Ordinance can be deducted.
Contributions to recognised occupational retirement schemes
Contributions to recognised occupational retirement schemes are deductible up to the maximum amount prescribed in the Inland Revenue Ordinance.
More on the deductibility of contributions for mandatory provident fund schemes and recognised occupational retirement schemesQualifying premiums paid under the Voluntary Health Insurance Scheme (VHIS) policy
Commencing on or after 1 April 2019 (i.e. year of assessment 2019/20 onwards), qualifying premiums paid under a Certified Plan of VHIS for yourself and/or your specified relatives are tax deductible.
More on deductions for qualifying premiums paid under the Voluntary Health Insurance Scheme (VHIS) policyQualifying annuity premiums and tax deductible MPF voluntary contributions (TVC)
Commencing on or after 1 April 2019 (i.e. year of assessment 2019/20 onwards), qualifying annuity premiums paid and tax deductible MPF voluntary contributions made are tax deductible.
More on deductions for qualifying annuity premiums and tax deductible MPF voluntary contributionsTax Deduction for Domestic Rents
Commencing on or after 1 April 2022 (i.e. year of assessment 2022/23 onwards), the rent paid by you or your spouse (not living apart) as a tenant under a qualifying tenancy of domestic premises is tax deductible. With effect from year of assessment 2024/25, you may elect to claim additional deduction of domestic rents if specific conditions are met.
More on tax deduction for domestic rentsDomestic rents additional deductionTax Deduction for Assisted Reproductive (AR) Service Expenses
Commencing on or after 1 April 2024 (i.e. year of assessment 2024/25 onwards), the qualifying AR service expenses paid by you and / or your spouse (not living apart) for the qualifying AR services you received or are to receive for medical reasons are tax deductible.
More on tax deduction for assisted reproductive (AR) service expensesBusiness losses incurred in the year of assessment
Losses brought forward from previous years under personal assessment
Personal allowances
If you are assessed to salaries tax or have elected for personal assessment, you are entitled to basic allowance for the relevant year of assessment. You are also eligible to claim other allowances applicable under salaries tax provided the prescribed conditions are satisfied.
More on basic and other allowancesTax Rate
The balance after deducting personal allowances and deductions, if any, will then be taxed at the same rates as those applicable under salaries tax. Credit will be given for any tax already paid on the income included in the assessment. If you have paid more tax than is chargeable under personal assessment, you will be given a refund of the difference.
More on the tax rates of salaries tax and personal assessmentYearly Assessment
Your income and deduction position may differ from one year to another. Election for personal assessment will thus be advantageous in one year but may be disadvantageous in the next. However, you need not worry about this because if election for any year will not result in a tax benefit, the Inland Revenue Department will automatically issue tax demand notes as though you have not elected for personal assessment.
Benefit of Election for Personal Assessment
Whether you may pay less tax through electing personal assessment for a particular year of assessment depends on the amounts of your income and deductions for that year. The following examples show how personal assessment is computed.
Example 1 – Taxpayer subject to property tax
Miss C is single. She received monthly rental of $40,000 from the letting of a property under mortgage during the year of assessment 2023/24. Interest of $42,000 was paid during the year.
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 | 132,000 | 174,000 | |
| Net chargeable income | 210,000 | ||
| Tax thereon (at progressive rates) | 17,700 | ||
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 | ||
| Tax payable | 14,700 | ||
There is a saving of $42,900 (i.e. $57,600 – $14,700) if Miss C elects for personal assessment which enables her to claim deductions for mortgage interest and personal allowance.
(Note) For 2023/24, 100% of the final tax payable under profits tax, salaries tax and tax under personal assessment would be waived, subject to a ceiling of $3,000 per case.
Example 2 – Taxpayer subject to profits tax but has a business loss
Mr L incurred a business loss of $100,000 for the year of assessment 2023/24. He received salary income of $400,000 from employment during the same year.
Personal Assessment Not Elected
|
$ |
|
| Salaries income | 400,000 |
| Less: Basic allowance | 132,000 |
| Net chargeable income | 268,000 |
| Tax thereon (at progressive rates) | 27,560 |
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 |
| Salaries tax payable | 24,560 |
|
$ |
|
| Business profits (loss) | (100,000) |
| Profits tax payable | 0 |
Personal Assessment Elected
|
$ |
|
| Salaries income | 400,000 |
| Business loss | (100,000) |
| Total income | 300,000 |
| Less: Basic allowance | 132,000 |
| Net chargeable income | 168,000 |
| Tax thereon (at progressive rates) | 11,520 |
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 |
| Tax payable | 8,520 |
By electing personal assessment, the tax liability of Mr L is reduced by $16,040 (i.e. $24,560 – $8,520) because his business loss can be utilised to set off against his other assessable income in the year.
(Note) For 2023/24, 100% of the final tax payable under profits tax, salaries tax and tax under personal assessment would be waived, subject to a ceiling of $3,000 per case.
Example 3 – Taxpayer subject to profits tax and has business profit
Mr P is single. His assessable profits from his sole proprietorship business for the year of assessment 2023/24 were $280,000. During the year, Mr P acquired a property that he used as his dwelling. The interest he paid up to 31 March 2024 on a bank loan secured over a mortgage of that dwelling amounted to $60,000.
Personal Assessment Not Elected
|
$ |
|
| Assessable profits | 280,000 |
| Profits tax payable (at standard rate of 15%) | 42,000 |
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 |
| Tax payable | 39,000 |
Personal Assessment Elected
| $ | $ | ||
| Assessable profits | 280,000 | ||
| Less: | Home loan interest | 60,000 | |
| Basic allowance | 132,000 | 192,000 | |
| Net chargeable income | 88,000 | ||
| Tax thereon (at progressive rates) | 3,280 | ||
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 | ||
| Tax Payable | 280 | ||
If Mr P elects for personal assessment, he may claim deductions for home loan interest and personal allowance and get total tax savings of $38,720 (i.e. $39,000 – $280).
(Note) For 2023/24, 100% of the final tax payable under profits tax, salaries tax and tax under personal assessment would be waived, subject to a ceiling of $3,000 per case.
When Will Election for Personal Assessment Not Be Advantageous?
Under personal assessment, tax is calculated at progressive rates on the aggregated income from all sources. As the marginal scale of the progressive rates is higher than the standard rate, it may not be advantageous for larger income taxpayers to elect for personal assessment.
Example 4 – Taxpayer subject to salaries tax and property tax
Continued from Example 1, in addition to income from letting of property Miss C derived income of $500,000 from employment during the year.
Personal Assessment Not Elected
|
$ |
|
| Salaries income | 500,000 |
| Less: Basic allowance | 132,000 |
| Net chargeable income | 368,000 |
| Tax thereon (at progressive rates) | 44,560 |
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 |
| Salaries tax payable | 41,560 |
|
$ |
|
| Property tax payable (see Example 1) | 57,600 |
| Salaries tax payable | 41,560 |
| Total tax payable | 99,160 |
Personal Assessment Elected
| $ | $ | ||
| Salaries income | 500,000 | ||
| Net assessable value (see Example 1) | 384,000 | ||
| Total income | 884,000 | ||
| Less: | Mortgage interest | 42,000 | |
| Basic allowance | 132,000 | 174,000 | |
| Net chargeable income | 710,000 | ||
| Tax thereon (at progressive rates) | 102,700 | ||
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 | ||
| Tax payable | 99,700 | ||
As Miss C’s 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 her to elect for personal assessment. If she has 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 her to elect personal assessment for the relevant year of assessment.
(Note) For 2023/24, 100% of the final tax payable under profits tax, salaries tax and tax under personal assessment would be waived, subject to a ceiling of $3,000 per case.
Example 5 – Taxpayer Subject to Salaries Tax and Profits Tax
Mr J is single. The assessable profits from his sole proprietorship business for the year of assessment 2023/24 were $280,000. For that year, he also received a salary of $360,000 from employment.
Personal Assessment Not Elected
|
$ |
|
| Assessable profits | 280,000 |
| Profits tax payable (at standard rate of 15%) | 42,000 |
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 |
| Tax payable | 39,000 |
| Salaries income | 360,000 |
| Less: Basic allowance | 132,000 |
| Net chargeable income | 228,000 |
| Tax thereon (at progressive rates) | 20,760 |
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 |
| Salaries tax payable | 17,760 |
| Total Tax Payable ($39,000 + $17,760) | 56,760 |
Personal Assessment Elected
|
$ |
|
| Assessable profits | 280,000 |
| Salaries income | 360,000 |
| Total income | 640,000 |
| Less: Basic allowance | 132,000 |
| Net chargeable income | 508,000 |
| Tax thereon (at progressive rates) | 68,360 |
| Less: 100% tax reduction (capped at $3,000) (Note) |
3,000 |
| Tax payable | 65,360 |
Mr J has to pay $8,600 more ($65,360 – $56,760) if he elects for personal assessment because his tax is calculated at progressive rates on income from all sources. As the marginal tax rate is 17%, which is higher than the standard rate of 15%, it is not advantageous to elect for personal assessment.
(Note) For 2023/24, 100% of the final tax payable under profits tax, salaries tax and tax under personal assessment would be waived, subject to a ceiling of $3,000 per case.