Salaries
Tax - Are expenses deductible?
Section 12 of Inland Revenue Ordinance says all
outgoings and expenses, other than that of a domestic, private or capital
nature, which are wholly, exclusively and necessarily incurred in the production
of assessable income, are deductible.
It should be
noted that the tests of “wholly” and “exclusively” should not be construed
narrowly. In practice, the Revenue accepts reasonable apportionment of
expenses for deduction even if the expenses are not “wholly” and
“exclusively” incurred in the production of assessable income.
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Where the
employer reimburses the expenses incurred by the employee, the Revenue may
accept such reimbursement as non-taxable income. Or else, the employee can
claim a deduction for the expenses allowance.
Where the
employee is required to wear uniform on duty, the Revenue may grant a flat
rate deduction for the laundry expenses incurred by the employee. This flat
rate deduction is usually proposed by the Revenue when the employee claims
the deduction in a tax return or a formal objection to the assessment. The
employee can get a greater deduction if he can substantiate his claim by
documentary proof.
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Where the
employee has part-time jobs, the Revenue may grant a flat rate deduction for
the traveling expenses between the workplaces. This flat rate deduction is
usually proposed by the Revenue if the employee claims the deduction in a
tax return or in a formal objection to the assessment. The employee can get
a greater deduction if he can substantiate his claim by documentary proof.
Where the
employee is a member of a professional body (e.g. law society) and the
membership is relevant to his job, the Revenue may allow a deduction for the
annual membership fee.
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Where the
employee is a sales-person, the Revenue may grant a flat rate deduction for
the commissions, entertainment and traveling expenses incurred by the
employee. The flat rate deduction is usually proposed by the Revenue if the
employee claims the deduction in a tax return or in a formal objection to
the assessment. The employee can get a greater deduction if he can
substantiate his claim by documentary proof.
An employee can claim
deduction for his mandatory contribution to a recognized retirement scheme.
The maximum deduction is $12,000.
Click here for a
study of two important tax cases on expenses deduction.
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