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Examples which illustrate the calculation of Profits Tax under the two-tiered profits tax rates regime and the comparison of tax payable under Personal Assessment. Tax rates for the years of assessment 2018/19 and 2019/20 are assumed to be the same and the one-off reduction of the Profits Tax by 100% for the year of assessment 2018/19 announced in 2019-20 Budget is not included.
1.
Q:
Corporation with assessable profits below $2,000,000
A:
Corporation A declares assessable profits of $1,500,000 for the year of assessment 2018/19. Since Corporation A has no connected entity, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 1,500,000 | 1,500,000 | ||
| Tax on | $1,500,000 @16.5% | 247,500 | ||
| $1,500,000 @16.5% | _______ | 247,500 | ||
| 247,500 | 247,500 | 495,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 1,500,000 | 1,500,000 | ||
| Tax on | $1,500,000 @8.25% | 123,750 | ||
| $1,500,000 @8.25% | _______ | 123,750 | ||
| 123,750 | 123,750 | 247,500 | ||
| Assessable profits should be charged at 8.25%. | ||||
|
The tax savings of Corporation A resulting from charging two-tiered profits tax rates for final tax 2018/19 and provisional tax 2019/20 will be $247,500. |
2.
Q:
Corporation with assessable profits above $2,000,000
A:
Corporation B declares assessable profits of $2,500,000 for the year of assessment 2018/19. Since Corporation B has no connected entity, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 2,500,000 | 2,500,000 | ||
| Tax on | $2,500,000 @16.5% | 412,500 | ||
| $2,500,000 @16.5% | _______ | 412,500 | ||
| 412,500 | 412,500 | 825,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | |||
| (Final) | (Provisional) | Tax Payable | |||
| $ | $ | $ | |||
| Assessable Profits | 2,500,000 | 2,500,000 | |||
| Tax on | First $2,000,000 | @8.25% | 165,000 | ||
| Remainder $500,000 | @16.5% | 82,500 | |||
| First $2,000,000 | @8.25% | 165,000 | |||
| Remainder $500,000 | @16.5% | _______ | 82,500 | ||
| 247,500 | 247,500 | 495,000 | |||
| Assessable profits of first $2,000,000 should be charged at 8.25% and the remainder of $500,000 should be charged at 16.5%. | |||||
|
The tax savings of Corporation B resulting from charging two-tiered profits tax rates for final tax 2018/19 and provisional tax 2019/20 will be $330,000. |
3.
Q:
Corporation with connected entity charged at two-tiered rates
A:
Corporation C declares assessable profits of $1,500,000 for the year of assessment 2018/19. Since assessable profits of a connected entity are charged at the two-tiered rates, the Profits Tax of Corporation C should be charged at 16.5% as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 1,500,000 | 1,500,000 | ||
| Tax on | $1,500,000 @16.5% | 247,500 | ||
| $1,500,000 @16.5% | _______ | 247,500 | ||
| 247,500 | 247,500 | 495,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 1,500,000 | 1,500,000 | ||
| Tax on | $1,500,000 @16.5% | 247,500 | ||
| $1,500,000 @16.5% | _______ | 247,500 | ||
| 247,500 | 247,500 | 495,000 | ||
|
As Corporation C was not eligible for two-tiered profits tax rates, there is no tax savings under the two-tiered profits tax rates regime. |
4.
Q:
Partnership with assessable profits below $2,000,000
A:
Partnership D declares assessable profits of $1,500,000 for the year of assessment 2018/19. Since Partnership D has no connected entity and all its partners are individuals, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 1,500,000 | 1,500,000 | ||
| Tax on | $1,500,000 @15% | 225,000 | ||
| $1,500,000 @15% | _______ | 225,000 | ||
| 225,000 | 225,000 | 450,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 1,500,000 | 1,500,000 | ||
| Tax on | $1,500,000 @7.5% | 112,500 | ||
| $1,500,000 @7.5% | _______ | 112,500 | ||
| 112,500 | 112,500 | 225,000 | ||
| Assessable profits should be charged at 7.5%. | ||||
|
The tax savings of Partnership D resulting from charging two-tiered profits tax rates for final tax 2018/19 and provisional tax 2019/20 will be $225,000. |
5.
Q:
Partnership with assessable profits above $2,000,000
A:
Partnership E declares assessable profits of $2,500,000 for the year of assessment 2018/19. Since Partnership E has no connected entity and all its partners are individuals, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 2,500,000 | 2,500,000 | ||
| Tax on | $2,500,000 @15% | 375,000 | ||
| $2,500,000 @15% | _______ | 375,000 | ||
| 375,000 | 375,000 | 750,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | |||
| (Final) | (Provisional) | Tax Payable | |||
| $ | $ | $ | |||
| Assessable Profits | 2,500,000 | 2,500,000 | |||
| Tax on | First $2,000,000 | @7.5% | 150,000 | ||
| Remainder $500,000 | @15% | 75,000 | |||
| First $2,000,000 | @7.5% | 150,000 | |||
| Remainder $500,000 | @15% | _______ | 75,000 | ||
| 225,000 | 225,000 | 450,000 | |||
| Assessable profits of first $2,000,000 should be charged at 7.5% and the remainder of $500,000 should be charged at 15%. | |||||
|
The tax savings of Partnership E resulting from charging two-tiered profits tax rates for final tax 2018/19 and provisional tax 2019/20 will be $300,000. |
6.
Q:
Partnership with connected entity charged at two-tiered rates
A:
Partnership F declares assessable profits of $1,500,000 for the year of assessment 2018/19. Since assessable profits of a connected entity are charged at two-tiered rates and all its partners are individuals, the Profits Tax of Partnership F should be charged at 15% as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 1,500,000 | 1,500,000 | ||
| Tax on | $1,500,000 @15% | 225,000 | ||
| $1,500,000 @15% | _______ | 225,000 | ||
| 225,000 | 225,000 | 450,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 1,500,000 | 1,500,000 | ||
| Tax on | $1,500,000 @15% | 225,000 | ||
| $1,500,000 @15% | _______ | 225,000 | ||
| 225,000 | 225,000 | 450,000 | ||
|
As Partnership F was not eligible for two-tiered profits tax rates, there is no tax savings under the two-tiered profits tax rates regime. |
7.
Q:
Partnership with corporate partner
A:
Partnership G declares assessable profits of $5,000,000 for the year of assessment 2018/19. Partnership G has one corporate partner and two individual partners sharing 20% and 80% of the profits or loss respectively. Since Partnership G has no connected entity, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 5,000,000 | 5,000,000 | ||
| Tax on | $1,000,000 @16.5% | 165,000 | ||
| $4,000,000 @15% | 600,000 | |||
| $1,000,000 @16.5% | 165,000 | |||
| $4,000,000 @15% | _______ | 600,000 | ||
| 765,000 | 765,000 | 1,530,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||||
| (Final) | (Provisional) | Tax Payable | ||||
| $ | $ | $ | ||||
| Assessable Profits | 5,000,000 | 5,000,000 | ||||
| Corporate partner | Non-corporate partners | |||||
| Tax on | First $2,000,000 | $400,0001@8.25% | $1,600,0002@7.5% | 153,000 | ||
| Remainder $3,000,000 | $600,000@16.5% | $2,400,000@15% | 459,000 | |||
| First $2,000,000 | $400,0001@8.25% | $1,600,0002@7.5% | 153,000 | |||
| Remainder $3,000,000 | $600,000@16.5% | $2,400,000@15% | _______ | 459,000 | ||
| 612,000 | 612,000 | 1,224,000 | ||||
|
Notes: 1. Threshold of corporate partner 2. $2,000,000 less threshold of corporate partner |
||||||
|
The tax savings of Partnership G resulting from charging two-tiered profits tax rates for final tax 2018/19 and provisional tax 2019/20 will be $306,000. |
8.
Q:
Partnership with partner electing for Personal Assessment
A:
Partnership H declares assessable profits of $3,500,000 for the year of assessment 2018/19 with losses of $700,000 brought forward. It has five individual partners sharing profits or losses equally and one individual partner elects for Personal Assessment. Since Partnership H has no connected entity, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 3,500,000 | 3,500,000 | ||
| Less: Loss set off | 700,000 | |||
| Assessable Profits after loss set off | 2,800,000 | |||
| Assessable Profits transferred to PA | 560,000 | |||
| Tax on | $2,800,000 @15% | 420,000 | ||
| $3,500,000 @15% | _______ | 525,000 | ||
| 420,000 | 525,000 | 945,000 | ||
| Less: Tax related to Assessable Profits transferred to PA ($420,000÷5) | 84,000 | |||
| Less: Tax held over ($525,000÷5) | _______ | 105,000 | ||
| 336,000 | 420,000 | |||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | |||
| (Final) | (Provisional) | Tax Payable | |||
| $ | $ | $ | |||
| Assessable Profits | 3,500,000 | 3,500,000 | |||
| Less: Loss set off | 700,000 | ||||
| Assessable Profits after loss set off | 2,800,000 | ||||
| Assessable Profits transferred to PA | 560,000 | ||||
| Tax on | First $2,000,000 | @7.5% | 150,000 | ||
| Remainder $800,000 | @15% | 120,000 | |||
| First $2,000,000 | @7.5% | 150,000 | |||
| Remainder $1,500,000 | @15% | _______ | 225,000 | ||
| 270,000 | 375,000 | 645,000 | |||
| Less: Tax related to Assessable Profits transferred to PA ($270,000÷5) | 54,000 | ||||
| Less: Tax held over ($375,000÷5) | _______ | 75,000 | |||
| 216,000 | 300,000 | ||||
|
The tax savings of Partnership H resulting from charging two-tiered profits tax rates for final tax 2018/19 and provisional tax 2019/20 will be $300,000. |
9.
Q:
Qualifying corporate treasury centre charged at half rate
A:
Corporation J, a qualifying corporate treasury centre, declares assessable profits of $4,000,000 for the year of assessment 2018/19 and makes an election to have its qualifying profits of $1,000,000 charged at half rate. Since Corporation J has elected to have its qualifying profits assessed at half rate, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 4,000,000 | 4,000,000 | ||
| Tax on | $1,000,000 @8.25% | 82,500 | ||
| $3,000,000 @16.5% | 495,000 | |||
| $1,000,000 @8.25% | 82,500 | |||
| $3,000,000 @16.5% | _______ | 495,000 | ||
| 577,500 | 577,500 | 1,155,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 4,000,000 | 4,000,000 | ||
| Tax on | $1,000,000 @8.25% | 82,500 | ||
| $3,000,000 @16.5% | 495,000 | |||
| $1,000,000 @8.25% | 82,500 | |||
| $3,000,000 @16.5% | _______ | 495,000 | ||
| 577,500 | 577,500 | 1,155,000 | ||
|
As Corporation J's qualifying profits has been charged at half rate, two-tiered profits tax rates is not applicable to Corporation J and there is no further tax savings under the two-tiered profits tax rates regime. |
10.
Q:
Corporation with profits derived from qualifying debt instruments
A:
Corporation K declares assessable profits of $4,000,000 for the year of assessment 2018/19, including assessable profits of $1,000,000 derived from qualifying debt instruments. Since Corporation K has no connected entity, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 4,000,000 | 4,000,000 | ||
| Tax on | $1,000,000 @8.25% | 82,500 | ||
| $3,000,000 @16.5% | 495,000 | |||
| $1,000,000 @8.25% | 82,500 | |||
| $3,000,000 @16.5% | _______ | 495,000 | ||
| 577,500 | 577,500 | 1,155,000 | ||
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 4,000,000 | 4,000,000 | ||
| Tax on | $1,000,000 @8.25% | 82,500 | ||
| $2,000,000 @8.25% | 165,000 | |||
| $1,000,000 @16.5% | 165,000 | |||
| $1,000,000 @8.25% | 82,500 | |||
| $2,000,000 @8.25% | 165,000 | |||
| $1,000,000 @16.5% | _______ | 165,000 | ||
| 412,500 | 412,500 | 825,000 | ||
| Assessable profits of $1,000,000 derived from qualifying debt instruments should be charged at half rate and remaining assessable profits of $3,000,000 should be charged at 8.25% up to $2,000,000 and with the excess charged at 16.5%. | ||||
|
The tax savings of Corporation K resulting from charging two-tiered profits tax rates for final tax 2018/19 and provisional tax 2019/20 will be $330,000. |
11.
Q:
Sole proprietorship business with assessable profits above $2,000,000
A:
Sole proprietorship business A ("A Co.") declares assessable profits of $2,500,000 for the year of assessment 2018/19. Since A Co. has no connected entity, its Profits Tax should be calculated as follows:
Before implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | ||
| (Final) | (Provisional) | Tax Payable | ||
| $ | $ | $ | ||
| Assessable Profits | 2,500,000 | 2,500,000 | ||
| Tax charged on $2,500,000 @15% | 375,000 | 375,000 | ||
| Less: 2018/19 Provisional Tax Paid | 300,000 | _______ | ||
| Balance Payable | 75,000 | 375,000 | 450,000 | |
After implementation of the two-tiered profits tax rates regime
| 2018/19 | 2019/20 | Total | |||
| (Final) | (Provisional) | Tax Payable | |||
| $ | $ | $ | |||
| Assessable Profits | 2,500,000 | 2,500,000 | |||
| Tax charged on | First $2,000,000 | @7.5% | 150,000 | 150,000 | |
| Remainder $500,000 | @15% | 75,000 | 75,000 | ||
| Less: 2018/19 Provisional Tax Paid | 300,000 | _______ | |||
| Balance Payable / (Repayable) | (75,000) | 225,000 | 150,000 | ||
| Assessable profits of first $2,000,000 should be charged at 7.5% and the remainder of $500,000 should be charged at 15%. | |||||
|
The tax savings of A Co. resulting from charging two-tiered profits tax rates for final tax 2018/19 and provisional tax 2019/20 will be $300,000. |
12.
Q:
Sole proprietorship with assessable profits below $2,000,000 and it is disadvantageous for election of Personal Assessment after the implementation of the two-tiered profits tax rates regime
A:
Mr. Chan is married. He receives salaries income of $332,000 from his employment and the assessable profits of his wife, Mrs. Chan's sole-proprietorship business (B Co.) are assessed as $200,000 for the year of assessment 2018/19. The couple elects for Personal Assessment and has not paid any provisional tax for the year of assessment 2018/19.
Mrs. Chan declares in her 2018/19 Tax Return – Individuals that B Co. is chargeable at two-tiered profits tax rates as no other connected entity has elected two-tiered profits tax rates for the year of assessment 2018/19.
Comparison of tax payable for the year of assessment 2018/19 before and after implementation of the two-tiered profits tax rates regime (with election for Personal Assessment)
| Salaries tax payable of Mr. Chan | $ | $ |
| Salaries income | 332,000 | |
| Less: Married person's allowance | 264,000 | |
| Net chargeable income | 68,000 | |
| Tax payable at progressive rates | ||
| First $50,000 @2% | 1,000 | |
| Remainder $18,000 @6% | 1,080 | |
| Total tax payable | 2,080 |
| Before implementation of the two-tiered profits tax rates regime |
After implementation of the two-tiered profits tax rates regime |
||
| $ | $ | $ | |
| Profits tax payable of Mrs. Chan | |||
| Assessable profits of B Co. | 200,000 | ||
| Tax payable at standard rate 15% | 30,000 | ||
| Tax payable at two-tiered rates, $200,000 @7.5% |
15,000 | ||
| Total tax payable of Mr. Chan and Mrs. Chan under Schedular Basis | |||
| Salaries tax payable | 2,080 | 2,080 | |
| Profits tax payable | 30,000 | 15,000 | |
| Total tax payable | 32,080 | 17,080 | |
| Tax payable of Mr. Chan and Mrs. Chan under Personal Assessment (Note 1) | ||
| $ | $ | |
| Salaries income | 332,000 | |
| Assessable profits of B Co. | 200,000 | |
| Total income | 532,000 | |
| Less: Married person's allowance | 264,000 | |
| Net chargeable income | 268,000 | |
| Tax payable at progressive rates | ||
| First $50,000 @2% | 1,000 | |
| Next $50,000 @6% | 3,000 | |
| Next $50,000 @10% | 5,000 | |
| Next $50,000 @14% | 7,000 | |
| Remainder $68,000 @17% | 11,560 | |
| Total tax payable | 27,560 | |
| Note1: | Implementation of the two-tiered profits tax rates regime will not affect the calculation of tax payable under Personal Assessment. |
|
Before implementation of the two-tiered profits tax rates regime, it is advantageous for the couple to elect for Personal Assessment (total tax payable under Personal Assessment: $27,560 is less than total tax payable under Schedular Basis: $32,080). However, it is NOT advantageous for them to elect for Personal Assessment after implementation of the two-tiered profits tax rates regime and charging assessable profits of B Co. at two-tiered rates (total tax payable under Personal Assessment: $27,560 is more than total tax payable under Schedular Basis: $17,080). The tax savings for the couple will be $10,480 (Before: $27,560 under Personal Assessment – After: $17,080 under Schedular Basis = Tax savings $10,480). |
13.
Q:
More than one sole proprietorship businesses and it is disadvantageous for election of Personal Assessment after the implementation of the two-tiered profits tax rates regime
A:
Mr. Leung, single, receives salaries income of $150,000 from an employment and the assessable profits of Mr. Leung's two sole-proprietorship businesses (C Co. and D Co.) are assessed at $380,000 and $30,000 respectively for the year of assessment 2018/19. Mr. Leung elects for Personal Assessment and has not paid any provisional tax for the year of assessment 2018/19.
Mr. Leung declares in his 2018/19 Tax Return – Individuals that C Co.is chargeable at two-tiered profits tax rates as no other connected entity has elected two-tiered profits tax rates for the year of assessment 2018/19.
Comparison of tax payable for the year of assessment 2018/19 before and after implementation of the two-tiered profits tax rates regime (with election for Personal Assessment)
| Salaries tax payable | $ | $ |
| Salaries income | 150,000 | |
| Less: Basic allowance | 132,000 | |
| Net chargeable income | 18,000 | |
| Tax payable at progressive rates | ||
| $18,000 @2% | 360 | |
| Before implementation of the two-tiered profits tax rates regime |
After implementation of the two-tiered profits tax rates regime |
||
| $ | $ | $ | |
| Profits tax payable | |||
| Assessable profits of C Co. | 380,000 | ||
| Tax payable at standard rate 15% | 57,000 | ||
| Tax payable at two-tiered rates, $380,000 @7.5% |
28,500 | ||
| Assessable profits of D Co. | 30,000 | ||
| Tax payable at standard rate 15% | 4,500 | 4,500 | |
| Total tax payable | 61,500 | 33,000 | |
| Note: It is advantageous for Mr. Leung to elect two-tiered profits tax rates for C Co. because the assessable profits of C Co. are higher than that of D Co. | |||
| Total tax payable under Schedular Basis | |||
| Salaries tax payable | 360 | 360 | |
| Profits tax payable | 61,500 | 33,000 | |
| Total tax payable | 61,860 | 33,360 | |
| Tax payable under Personal Assessment (Note 1) | ||
| $ | $ | |
| Salaries income | 150,000 | |
| Assessable profits of C Co. and D Co. | 410,000 | |
| Total income | 560,000 | |
| Less: Basic allowance | 132,000 | |
| Net chargeable income | 428,000 | |
| Tax payable at progressive rates | ||
| First $50,000 @2% | 1,000 | |
| Next $50,000 @6% | 3,000 | |
| Next $50,000 @10% | 5,000 | |
| Next $50,000 @14% | 7,000 | |
| Remainder $228,000 @17% | 38,760 | |
| Total tax payable | 54,760 | |
| Note1: | Implementation of the two-tiered profits tax rates regime will not affect the calculation of tax payable under Personal Assessment. |
|
Before implementation of the two-tiered profits tax rates regime, it is advantageous for Mr. Leung to elect for Personal Assessment (total tax payable under Personal Assessment: $54,760 is less than total tax payable under Schedular Basis: $61,860). However, it is NOT advantageous for him to elect for Personal Assessment after implementation of the two-tiered profits tax rates regime and charging assessable profits of C Co. at two-tiered rates (total tax payable under Personal Assessment: $54,760 is more than total tax payable under Schedular Basis: $33,360). The tax savings for Mr. Leung will be $21,400 (Before: $54,760 under Personal Assessment – After: $33,360 under Schedular Basis = Tax savings $21,400). |
14.
Q:
Sole proprietorship with assessable profits below $2,000,000 and it is advantageous for election of Personal Assessment after the implementation of the two-tiered profits tax rates regime
A:
Mr. Ho is a married person with 2 children. Mr. Ho and Mrs. Ho report their incomes and expenses in their 2018/19 tax returns as follows:
| Mr. Ho | Mrs. Ho | |
| $ | $ | |
| Salaries income | 380,000 | 288,000 |
| Assessable profits from Sole Proprietorship Business G Co. | 120,000 | - |
| Rental income | 480,000 | - |
| Mortgage interest paid for the letting property | 120,000 | - |
The couple elects for personal assessment and has not paid any provisional tax for the year of assessment 2018/19.
Mr. Ho declares in his Tax Return – Individuals that G Co. is chargeable at two-tiered profits tax rates as no other connected entity has elected two-tiered profits tax rates for the year of assessment 2018/19.
Comparison of tax payable for the year of assessment 2018/19 before and after implementation of the two-tiered profits tax rates regime (with election for Personal Assessment)
| Salaries tax payable of Mr. Ho and Mrs. Ho | ||
| Mr. Ho | Mrs. Ho | |
| $ | $ | |
| Salaries | 380,000 | 288,000 |
| Less: Allowances | ||
| Basic allowances | 132,000 | 132,000 |
| Child allowances | 240,000 | - |
| Net chargeable income | 8,000 | 156,000 |
| First $50,000 @2% | 160 | 1,000 |
| Next $50,000 @6% | - | 3,000 |
| Next $50,000 @10% | - | 5,000 |
| Remainder $6,000 @14% | - | 840 |
| Tax thereon | 160 | 9,840 |
| Property Tax payable of Mr. Ho | ||
| Net Assessable Value (Rental Income x 80%) | 384,000 | - |
| Tax payable at standard rate @15% | 57,600 | - |
| Profits tax payable of Mr. Ho | ||||
| Before implementation of the two-tiered profits tax rates regime |
After implementation of the two-tiered profits tax rates regime |
|||
| $ | $ | $ | $ | |
| Assessable Profits of G Co. | 120,000 | 120,000 | ||
| Tax payable at standard rate @15% | 18,000 | |||
| Tax payable at two-tiered rates: $120,000 @7.5% | 9,000 | |||
| Total tax payable of Mr. Ho and Mrs. Ho under Schedular Basis | ||||
| Before implementation of the two-tiered profits tax rates regime |
After implementation of the two-tiered profits tax rates regime |
|||
| $ | $ | |||
| Salaries tax payable: | ||||
| - Mr. Ho | 160 | 160 | ||
| - Mrs. Ho | 9,840 | 9,840 | ||
| Profits tax payable | 18,000 | 9,000 | ||
| Property tax payable | 57,600 | 57,600 | ||
| Total | 85,600 | 76,600 | ||
| Tax payable of Mr. Ho and Mrs. Ho under Personal Assessment (Note 1) | ||
| $ | $ | |
| Salaries income | ||
| - Mr. Ho | 380,000 | |
| - Mrs. Ho | 288,000 | |
| Total Salaries income | 668,000 | |
| Net assessable value | 384,000 | |
| Assessable profits of G Co. | 120,000 | |
| Total income | 1,172,000 | |
| Less: Deduction | ||
| Mortgage interest paid | 120,000 | |
| Reduced total income | 1,052,000 | |
| Less: Allowances | ||
| Married person's allowance | 264,000 | |
| Child allowance | 240,000 | |
| Net chargeable income | 548,000 | |
| Tax at progressive rates | ||
| First $50,000 @2% | 1,000 | |
| Next $50,000 @6% | 3,000 | |
| Next $50,000 @10% | 5,000 | |
| Next $50,000 @14% | 7,000 | |
| Remainder $348,000 @17% | 59,160 | |
| Total tax payable | 75,160 | |
| Note1: | Implementation of the two-tiered profits tax rates regime will not affect the calculation of tax payable under Personal Assessment. |
|
It is advantageous for the couple to elect for Personal Assessment before implementation of the two-tiered profits tax rates regime (total tax payable under Personal Assessment: $75,160 is less than total tax payable under Schedular Basis: $85,600). After implementation of the two-tiered profits tax rates regime and charging assessable profits of G Co. at two-tiered rates, it is still advantageous for the couple to elect for Personal Assessment (total tax payable under Personal Assessment: $75,160 is still less than total tax payable under Schedular Basis: $76,600). |