2. If I received monthly rental of $40,000 from letting a property under mortgage (interest of $42,000 was paid during the year), can I pay less tax under Personal Assessment? When will the selection of Personal Assessment not be advantageous?
(Note: The following calculation is based on the tax rates for the year of assessment 2022/23.)
| Property Tax payable | $ |
| Rental income ($40,000 x 12) | 480,000 |
| Less: 20% allowance for repair and outgoings | (96,000) |
| Net assessable value | 384,000 |
| Property tax payable (at standard rate 15%) | 57,600 |
| Personal Assessment Not Elected | $ |
| Net assessable value ($40,000 x 12 x 80%) | 384,000 |
| Property tax payable (at standard rate of 15%) | 57,600 |
| Personal Assessment Elected | $ | $ | |
| Net assessable value | 384,000 | ||
| Less: | Mortgage interest | 42,000 | |
| Basic allowance | 132,000 | 174,000 | |
| Net chargeable income | 210,000 | ||
| Tax thereon (at progressive rates) | 17,700 | ||
| Less: 100% tax reduction (capped at $6,000) (Note) | 6,000 | ||
| Tax payable | 11,700 | ||
There is a saving of $45,900 (i.e. $57,600 – $11,700) if you elect for Personal Assessment which enables you to claim deductions for mortgage interest and personal allowance.
(Note) For 2022/23, 100% of the final tax payable under Profits Tax, Salaries Tax and tax under Personal Assessment would be waived, subject to a ceiling of $6,000 per case.
When will the selection of Personal Assessment not be advantageous?
Under Personal Assessment, tax is calculated at progressive tax rates on the aggregated income from all sources. As the marginal scale of the progressive rates (17%) is higher than the standard rate (15%), it may not be advantageous for larger income taxpayers to elect Personal Assessment.
Suppose you also earned a salary of $500,000 in addition to your rental income during the year:
| Salaries Tax payable | $ |
| Salaries income | 500,000 |
| Less : Basic allowance | (132,000) |
| Net chargeable income | 368,000 |
| Personal Assessment Not Elected | $ |
| Salaries income | 500,000 |
| Less: Basic allowance | 132,000 |
| Net chargeable income | 368,000 |
| Tax thereon (at progressive rates) | 44,560 |
| Less: 100% tax reduction (capped at $6,000) (Note) | 6,000 |
| Salaries tax payable | 38,560 |
| $ | |
| Property tax payable | 57,600 |
| Salaries tax payable | 38,560 |
| Total tax payable | 96,160 |
| Personal Assessment Elected | $ | $ | |
| Salaries income | 500,000 | ||
| Net assessable value | 384,000 | ||
| Total income | 884,000 | ||
| Less: | Mortgage interest | 42,000 | |
| Basic allowance | 132,000 | 174,000 | |
| Net chargeable income | 710,000 | ||
| Tax thereon (at progressive rates) | 102,700 | ||
| Less: 100% tax reduction (capped at $6,000) (Note) | 6,000 | ||
| Tax payable | 96,700 | ||
As your income is chargeable to Salaries Tax at the marginal rate of 17%, any property income required to be aggregated under Personal Assessment will also be charged at 17%. Hence, it is not advantageous for you to elect for Personal Assessment.
If you have elected for Personal Assessment, the Inland Revenue Department will issue a Salaries Tax assessment and Property Tax assessment separately and will, by way of an Assessor’s note in the respective notices of assessment, advise that it is not advantageous for you to elect Personal Assessment for the relevant year of assessment.
(Note) For 2022/23, 100% of the final tax payable under Profits Tax, Salaries Tax and tax under Personal Assessment would be waived, subject to a ceiling of $6,000 per case.
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