2011-12 Budget - Tax Relief Measures

To alleviate the burdens of people in supporting their parents and raising their children, the Financial Secretary in his 2011-12 Budget proposed the following tax relief measures:

The Financial Secretary has on 2 March 2011 further announced adjustments to the 2011-12 Budget, including the proposal of:

Reducing salaries tax and tax under personal assessment for the year of assessment 2010-11 by 75%, subject to a ceiling of $6,000.

You may click the following links to calculate your tax amount and read about the implementation details.

Increasing Dependent Parent/Grandparent Allowance and the Deduction Ceiling for Elderly Residential Care Expenses

The Financial Secretary proposed to increase the allowance for maintaining dependent parents/grandparents by 20 per cent. The allowance for maintaining dependent parents/grandparents aged 60 or above will be increased from the present $30,000 to $36,000. The additional allowance for taxpayers residing with these parents/grandparents throughout the year will also be increased from $30,000 to $36,000. The allowance for maintaining dependent parents/grandparents aged 55 to 59 will be increased from the current $15,000 to $18,000. The same increase applies to the additional allowance for taxpayers residing with these parents/grandparents throughout the year, i.e. from $15,000 to $18,000.

For taxpayers whose parents/grandparents are admitted to a residential care home, the deduction ceiling for elderly residential care expenses will be raised from the current $60,000 to $72,000.

This measure will be effective from the year of assessment 2011-12, and is estimated to benefit about 510 000 taxpayers and cost the Government $570 million a year.

For more details of Dependent Parent/Grandparent Allowances, please click here.

For more details of the Elderly Residential Care Expenses, please click here.

Increasing Child Allowance

The Financial Secretary proposed to raise both the child allowance and the additional one-off child allowance in the year of birth by 20 per cent from $50,000 to $60,000 respectively for each child.

This measure will be effective from the year of assessment 2011-12, and is estimated to benefit about 300 000 taxpayers, costing the Government $650 million a year.

For more details of the Child Allowance, please click here.

Reducing salaries tax and tax under personal assessment for the year of assessment 2010-11 by 75%, subject to a ceiling of $6,000

The Financial Secretary proposed a reduction of 75% of the 2010-11 final tax in respect of salaries tax and tax under personal assessment, subject to a ceiling of $6,000 per case.

Under salaries tax, the ceiling of $6,000 per case is applied on individual taxpayer basis. For couples electing to be jointly assessed under salaries tax, the ceiling is applied on each couple. Under personal assessment, single taxpayers will each be subject to the ceiling. Married couples must make their personal assessment election together and the ceiling will therefore apply to each couple.

The tax reduction will be reflected in the tax bill for the coming year. Taxpayers will file their tax returns - individuals for 2010-11 as usual which will be issued starting from May 2011. They need not make any application on the reduction.

The proposed reduction will only apply to the 2010-11 final tax, but not to the provisional tax of the same year. For most taxpayers, the second instalment of their 2010-11 provisional tax will fall due in April 2011, which should be paid on time despite the proposed reduction. The provisional tax paid will, in accordance with the Inland Revenue Ordinance, be applied in payment of the final tax for 2010-11 and provisional tax for 2011-12. Excess balance, if any, will be refunded.

This proposal will benefit 1.5 million taxpayers and reduce government revenue by about $5.3 billion.

Individuals subject to Profits Tax or Property Tax

Individuals having business profits or rental income, if eligible, can enjoy the reduction by electing personal assessment. They can make the election when completing their 2010-11 tax returns. The Department will check in each case if the personal assessment election, with the tax reduction, will reduce the amount of tax payable, and assess each taxpayer in the way most advantageous to him.

Individuals having salaries income only, but no business profits and rental income, are not required to elect personal assessment.

Tax Calculator

To facilitate ready calculation of your 2010-11 and 2011-12 salaries tax and tax under personal assessment under the above proposals, we have uploaded the relevant tax computation program. The program can be used to calculate both your final and provisional tax liability.

Time Schedule for Implementation of the Proposed Measures

The relevant legislation was passed by the Legislative Council on 8 June 2011 and gazetted on 17 June. The Inland Revenue Department will effect the reduction in the final assessment for 2010-11, and adopt the increased allowances (if applicable) to compute the 2011-12 provisional salaries tax for taxpayers. Taxpayers are only required to complete the 2010-11 tax returns as usual. Most salaries tax taxpayers will receive their tax bills, with the new measures duly reflected, starting from the third quarter of 2011 and the due date for payment will generally fall in January 2012.

2010-11 tax bills issued before enactment of the relevant legislation will not reflect the tax reduction. The Inland Revenue Department will revise them after the enactment. Excess tax paid will be refunded from late July 2011 onwards. Taxpayers are not required to apply for such refund or make phone enquiry in this regard.

A New Ground for Holding Over of Provisional Salaries Tax

If the parent or grandparent lives in a residential care home, application can be made for holding over the 2011-12 provisional salaries tax on the ground that elderly residential care expenses actually paid or expected to be paid in 2011-12 exceed $60,000. The application should be lodged not later than 28 days before the due date for payment of the provisional tax, or 14 days after the date of issue of the notice for payment of the provisional tax, whichever is the later. Please refer to the legislative amendment for further details.

To make it more convenient, taxpayers can state the full amount of elderly residential care expenses paid in the 2010-11 tax returns if the amount paid exceeded $60,000. The Inland Revenue Department will make reference to this figure when computing the 2011-12 provisional tax so that the taxpayer will not be required to make a separate application for holding over of the provisional tax.

For more details on holding over of provisional tax, please click here.