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Tax Deduction for Qualifying Premiums Paid under the Voluntary Health Insurance Scheme (VHIS) Policy
Deduction Claim for more than 1 insured person
1.
Q:
Taxpayer purchased VHIS policies and paid qualifying premium for himself, his spouse and his child in the amounts of $10,000, $6,000 and $2,000 respectively during the year of assessment 2023/24. Can he make deduction claim for more than one insured person?
A:
Yes. Taxpayer can make deduction claim for more than one insured person in respect of qualifying premiums paid. However, the maximum deduction allowable is capped at $8,000 for each insured person.Taxpayer can claim a total deduction of $16,000 (capped at $8,000 for his own VHIS policy, $6,000 and $2,000 for his spouse and his child’s VHIS policies respectively) for the year of assessment 2023/24.
More than 1 taxpayer claims deduction for the same insured person
2.
Q:
Taxpayer and his brother each purchased one VHIS policy for their father in the amount of $10,000 and $2,000 respectively during the year of assessment 2023/24. Can they both lodge deduction claim for qualifying premiums paid for their father in the same year of assessment?
A:
Yes. There is no limit on the number of taxpayers who can make a claim for tax deduction for the same insured person. However, the maximum deduction allowable to a taxpayer for each insured person is capped at $8,000. Taxpayer and his brother can claim a deduction of $8,000 (cap) and $2,000 for the year of assessment 2023/24 respectively.
Policy with more than 1 holder
3.
Q:
Taxpayer and his brother purchased a VHIS policy together for their father in the amount of $12,000 during the year of assessment 2023/24. Both of them are the policy holders. Taxpayer has paid $8,000 and his brother has paid $4,000. Can they both lodge deduction claim for the qualifying premiums paid in the same year of assessment?
A:
Yes. If there is more than one policy holder for a VHIS policy, the qualifying premiums paid under the policy are taken as paid by all of the policy holders in equal shares. Taxpayer and his brother can each claim a deduction of $6,000 in year of assessment 2023/24.
Deduction claim of premiums paid and allowance claim for the same specified relatives
4.
Q:
Further to Q3, the taxpayer’s brother has claimed dependent parent allowance in respect of their father for the year of assessment 2023/24. In this regard, who can lodge deduction claim for the qualifying premiums paid?
A:
There is no direct relationship between the deduction claim of qualifying premiums paid for a specified relative and the allowance claim in respect of the same specified relative. Despite dependent parent allowance in respect of an insured person claimed by one taxpayer (regardless this taxpayer is one of the policy holders or not), the other policy holder(s) can still lodge deduction claim for qualifying premiums paid in respect of the same insured person for the same year of assessment. As such, both the taxpayer and the taxpayer’s brother can lodge deduction claim for qualifying premiums paid for the year of assessment 2023/24.
More than 1 policy for the same insured person
5.
Q:
Taxpayer purchased three VHIS polices for his mother during the year of assessment 2023/24. Can he make deduction claim for qualifying premiums paid for all the VHIS policies?
A:
Yes. If a taxpayer has procured more than one VHIS policy for the same insured person, the taxpayer may still claim deduction for the various premiums paid, subject to the $8,000 cap for each insured person.
Not a policy holder
6.
Q:
Taxpayer purchased a VHIS policy for his mother during the year of assessment 2023/24. His sister is not a policy holder but has paid part of the premiums. Can the taxpayer’s sister make deduction claim for premiums paid by her?
A:
No. Only the taxpayer as policy holder or his spouse is eligible to lodge deduction claim.
Deduction claimed by married taxpayers
7.
Q:
Taxpayer has paid qualifying premiums for his child during the year of assessment 2023/24. Taxpayer’s spouse is not a policy holder and did not pay any premiums. Can taxpayer’s spouse lodge deduction claim in respect of premiums paid by the taxpayer?
A:
Yes. Deduction claim can be lodged by a married person or the person’s spouse (not being a spouse living apart from the taxpayer) or both in respect of the qualifying premiums paid by either or both of them as policy holder(s) during a year of assessment for an insured person so long as –
| (a) | the insured person must be taxpayer or a specified relative of taxpayer; |
| (b) | the deduction allowed to each of them for the insured person does not exceed the limit of $8,000; and |
| (c) | the total deduction allowed to them does not exceed the qualifying premiums paid. |
8.
Q:
Taxpayer purchased a VHIS policy for his son and paid qualifying premiums of $14,000 during the year of assessment 2023/24. What is the allowable deduction for taxpayer and his spouse?
| Scenario 1: | Taxpayer had chargeable income but his spouse had no income chargeable to tax. (i.e. salaries income, rental income and business income). |
| Scenario 2: | Both taxpayer and his spouse had chargeable income. Taxpayer claimed deduction of $9,000 and his spouse claimed deduction of $7,000. |
A:
Scenario 1:
As the spouse had no income chargeable to tax (i.e. salaries income, rental income and business income), the couple could not be assessed under joint assessment or personal assessment jointly. Therefore, the maximum amount of deduction allowable to the taxpayer in respect of each insured person is restricted to the individual limit of $8,000.
Scenario 2:
Deduction claim can be lodged by taxpayer and/or his spouse but the deduction allowed to each of them for the son should not exceed the limit of $8,000; and the total deduction allowed to them should not exceed the qualifying premiums paid of $14,000. Therefore, the couple have to agree how to divide the amount of deduction, like taxpayer and his spouse may claim deductions of $8,000 and $6,000 respectively or each may claim $7,000.
9.
Q:
Taxpayer has separated with his spouse. His spouse has paid qualifying premiums for their child during the year of assessment 2023/24. The taxpayer is not a policy holder and did not pay any premiums. Can the taxpayer lodge deduction claim in respect of the qualifying premiums paid by his spouse?
A:
No. Taxpayer cannot make deduction claims for premiums paid by a spouse who is living apart.
Refund of qualifying premiums paid
10.
Q:
Taxpayer paid qualifying premiums in the amount of $5,000 during the year of assessment 2023/24. Subsequently, taxpayer received a refund of $1,000 from the insurance company. What should taxpayer do if he received a refund of qualifying premium under the VHIS policy before he claims the deduction? What should taxpayer do if he received a refund after the deduction is claimed?
A:
The qualifying premiums paid are taken to be reduced by the amount of the refund. If the refund is received before the deduction is claimed, taxpayer should only claim a deduction of $4,000 in the tax return. If taxpayer received a refund of premiums after the deduction is claimed, he must notify the Commissioner in writing of the refund within 3 months after the date of refund. If the deduction has been allowed, an assessor may, having regard to the reduction, make an additional assessment.
Others
11.
Q:
Can a taxpayer claim the deduction if his tax is assessed at the standard rate?
A:
Yes. Deduction of qualifying premiums paid for a VHIS policy is a ‘concessionary deduction’ under Part 4A of the Inland Revenue Ordinance, which means that the net sum of premiums paid will be deducted from taxpayer’s assessable income under salaries tax, or from total income under personal assessment. The balance will then be subject to progressive tax rates (after deducting personal allowances) or standard rate. That is to say, a person taxed at standard rate is also eligible to claim deduction of qualifying premiums paid for a VHIS policy.
12.
Q:
Taxpayer purchased a VHIS policy with premiums payment of $8,000 due on 30 March 2024. Taxpayer paid the qualifying premiums on 2 April 2024. Can he claim deduction of $8,000 in year of assessment 2023/24?
A:
No. Taxpayer cannot claim deduction in the year of assessment 2023/24 because he did not pay any qualifying premiums during that year. Therefore, taxpayer should claim deduction in respect of the premiums paid in the year of assessment 2024/25.