Personal assessment in the Hong Kong tax system

What Is Personal Assessment

Personal assessment is an optional election under the Hong Kong Inland Revenue Ordinance (Cap. 112). It allows an individual to aggregate all types of personal income, salaries, property rental, and business profits, into a single tax calculation rather than being assessed separately under salaries tax, property tax, and profits tax. The election is made to the Inland Revenue Department on Form BIR60, the individual tax return, for the relevant year of assessment.

Personal Assessment Hong Kong

In Hong Kong, personal assessment is not a separate tax but a method of computing tax payable. An individual with income chargeable to more than one of the three heads, salaries tax, property tax, or profits tax, may find that personal assessment produces a lower total liability. The Inland Revenue Department will apply the election to the aggregated income, deduct the available allowances and reliefs, and charge tax at the progressive rates that apply to salaries tax, subject to a maximum rate equal to the standard rate applied to total net income.

Hong Kong Personal Tax Assessment

Under a standard Hong Kong personal tax assessment, each type of income is taxed in its own silo. Salaries tax is computed on employment income, property tax on rental income, and profits tax on business profits. Losses in one silo cannot offset profits in another. Personal assessment changes this. The individual's total income from all sources is combined, losses from one type of income reduce the aggregate, and the progressive tax rates are applied to the net figure. The result is compared to the tax that would have been payable under separate assessments, and the lower figure is charged.

Opting for Personal Assessment

An individual opting for personal assessment must meet two conditions. First, the individual must be aged 18 or over, or married and not living apart from a spouse. Second, the individual must have income that is chargeable to at least one of the three heads, salaries tax, property tax, or profits tax. The election is made on the tax return for the year of assessment. Once made, it applies to that year only; a fresh election is needed each year. Married couples who both have income must elect jointly if they wish to aggregate their combined income under personal assessment.

Personal Assessment Tax Calculation

The personal assessment tax calculation begins with the aggregation of all assessable income. From that total, the individual deducts any allowable outgoings and expenses, and then deducts the allowances and deductions that would normally apply under salaries tax, for example, the basic allowance, the married person's allowance, child allowance, and the self-education allowance. The resulting net chargeable income is taxed at the progressive rates for salaries tax. The tax payable is capped at the standard rate applied to the total net income, so the individual pays the lower of the progressive calculation and the standard rate calculation. Any losses from an unincorporated business or from property can be set against other income in the same year, and losses not used may be carried forward to a future year of assessment.