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Income tax, provisional tax........... Please help, I'm confused!

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  1. #1

    Join Date
    May 2011
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    Income tax, provisional tax........... Please help, I'm confused!

    Hi, just moved to HK and have a few tax related questions.

    Basically if I give a hypothetical example it will highlight my ignorance.

    OK, so Johnny has a new job and is being paid $360,000 per year. He has rented a flat for $10,000/month ($120,000/year) and is enrolled on the rent reimbursement scheme. He started work in August 2011.

    So if he understands correctly he will FIRST hear from the government at the end of the 2011/2012 tax year in early April 2012.

    He will be asked to pay for his tax from August 2011 - April 2012 AND a provisional estimate for the tax year 2012/2013.

    He works this out as
    $360,000 INCOME
    $108,000 personal allowance (he is single and dependentless)
    $120,000 rent reimbursement scheme
    ------------
    $132,000 is total taxable yearly income at 15%
    So in 1 full year (the provisional 2012/2013) he would pay $19,800. And for the Aug 2011 - April 2012 he would pay about $14,850.

    So his total tax bill would be about $34,650.

    This means that his FIRST due date would be January 2013 for 75 % (of $34,650) and in April he would pay the remainder.

    Is this summary just about right? I'm wondering mainly about dates/timings of payments as well as the actual amount of tax to be paid.

    Thanks for your help!

    Steve


  2. #2

    Join Date
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    The timings and percentages are right. In subsequent years you pay any correction for the previous year plus provisional tax for the next year.

    But you have misunderstood the taxing of housing allowance. See here for details: http://www.ird.gov.hk/eng/pdf/pam44e.pdf

    In your example, his taxable income would be (360,000-120,000)*110% = $264,000

    For tax due use the calculator here: Salaries Tax Computation
    (The income should be the income EXCLUDING rent reimbursed, and the value of the place of residence provided should be 10% of that figure, regardless of how much the rental actually was).

    From which the tax due would be $14,520 for a whole year.

    stevo78 likes this.

  3. #3

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    Thanks for the reply.


  4. #4

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    May 2008
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    Oddly enough I was asked to pay provisional tax after my first (partial) year in HK but not in the subsequent years. Any idea why?


  5. #5

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    No idea - what were you asked to pay in subsequent years?


  6. #6

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    May 2008
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    The second year I was asked to pay the tax for that year minus the provisional tax I paid in year 1. For the subsequent years I was just asked to pay the tax for the respective year.


  7. #7

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    I believe you have completely misunderstood your tax assessment (either that or you are granted a completely different system to the rest of us). This is assuming you are paying salaries tax and not tax on your business as a so,le proprietor or company.


  8. #8

    Join Date
    May 2008
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    Yes, it is salaries tax and, no, I did not misunderstand my tax assessment... it's not all that complicated: first year the IRD asked for provisional tax for the following year which they didn't do subsequent years.

    I just gave my tax advisor (Deloitte) a call to ask: apparently it's at the IRD's discretion to demand provisional tax or not.


  9. #9

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    So basically you get a system where you have to pay your tax a year later than everyone else on salaries tax? Sounds strange to me. Please let us know what Deloitte say.


  10. #10

    Join Date
    May 2008
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    Deloitte responded:

    "We have reviewed the Assessment and would like to advise that it has been issued in accordance with your 2009/10 Individual Tax Return filed with the IRD except that the IRD has not assessed you on Provisional Tax for 2010/11."

    "In respect of assessment on provisional tax, it is subject to the IRD’s decision and it may vary depending on the date of issuance of tax assessment."

    My taxes are completely standard except that I benefit from time-apportionment.

    shri likes this.

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