Tax time is upon us: tips from a certified accountant

This write-up is brought to you as a paid partnership with K.F.Lam & Co, certified public accountant firm
 
Did you know that the Inland Revenue Department (IRD) usually issues and send your tax return form late May/early June? That leaves us two months from now to work on a strategy on how to best fill your form. And with this year announcements on tax reductions, we thought you might a little refresher and help on how to best fill your form. We’ve partnered with certified public accountant firm K.F.Lam & Co to bring you the dos and don’ts plus a few handy tips on how to get it done quickly, painlessly and more importantly with minimising, wherever possible, the amount you will have to pay.
 
 
How are your taxes calculated?

Your taxes are based on your net chargeable income which is your income before MPF deductions but after deductions and allowances. Your net income is taxed at a progressive rate, starting at 2% and going up to 17%, based on the annual income level.
 
The IRD’s Tax Calculator is an easy tool to get a better idea of your tax liabilities.
 
But let’s not forget provisional taxes are also part of the equation. Because yes, here in Hong Kong we pay part of our taxes a year ahead with the government assuming that your salary will be similar the following year. It is most of the time a rather seamless process. But, sometimes your salary can be less the year after be it because you are taking a career break, are changing job, are receiving a lower bonus … Not too mention new deductions might also be applied to your taxes in a near future: cue in an upcoming marriage or child birth.
 
If you already know, or have reason to think, that your taxes should be less next year, you can apply for holding over your provisional taxes.
 
 
Which deductions are you entitled to?

The first deduction you should apply to your net income when filling you tax return form is the MPF deduction. Whether you are employed by a company, or self-employed, you contribute monthly 5% of your income (cap at HKD 1,500 per month) to the MPF. The annual contribution is to be deducted from your taxable income.
 
Other deductions you may be able to claim are family deductions: married person’s allowance, child allowance, dependent sibling allowance, dependent parents allowance, single parent allowance and more. K.F.Lam & Co can provide more info about the full list of allowances available and can help you check what you are eligible for.
 
 
Other actions you can take to minimise your taxes
 
Ask your company about the Rental Reimbursement scheme
 
Did you know that what you pay as a rent every month could be deducted from your taxes? For this deduction to apply, your company has to have a rental reimbursement scheme in place. In short, it basically consists to your company giving you a housing allowance as part of your salary. This measure doesn’t cost anything to your company, it is just about how they declare the salary to the IRD. The part of your salary that is declared as an housing allowance (no more than 10% of your total salary) is not taxable and will be deducted from your tax liabilities. This deduction is capped at HKD 100,000 per tax year.
 
Make MPF voluntary contributions
 
On top of your mandatory 5% monthly MPF contribution, it is possible for you to make voluntary contributions by opening a Tax Deductible MPF Voluntary Contribution Account (HSBC, AXA, Fidelity and more) . Unlike the mandatory MFP, this account doesn’t require the participation of your employer but the same withdrawal restrictions apply to mandatory and voluntary contributions. Any contribution, capped at HKD 60,000 per tax year, you make to your voluntary account will be deductible when you report your taxable income.
 
Donate to charities
 
On top of providing people in need with much-needed help, your donations, of HKD 100 and more, to registered charities are deductible from your taxable income. Check out the list of registered charities here.
 
Learn new skills and self-educate yourself
 
If you decide to join a course at a recognised institution, with the objective to gain or maintain qualifications related to your employment, the tuition fee and related examination fee paid are deductible from your taxes (provided that this fees are not paid by your employer). You must claim such deductions for the year of assessment during which the education payments were made.
 
Tips from the pro: for all deductions claim you make, always make sure to keep receipts. If such receipts are not to be submitted with you tax form, the IRD often conducts audit at random and you might be required to provide those receipts. You should retain those receipts for a period of six years.
 
Any question about tax deductions? Do not hesitate to reach out to Raymond, at K.F.Lam & Co (details at the end of this article) for more info and support.
 

What do I do if I think my taxes are wrong?
 
When you tax bill arrives, you have a month to dispute it in writing. This is where the help of a pro, with a track record on handling the tax investigation and tax appeal, could prove more than useful.
 
One last tip from the pro: Go paperless and register to online taxes. It will save you from the stress of not receiving your green envelopes in due time, from the hassle of having to let the IRD know whenever you are moving to a new place and will also allow you to save your work and change things before submitting the form if there is anything you are not sure about and want to double check.