The government introduced tax deductions for deferred annuity premiums and Mandatory Provident Fund Tax Deductible Voluntary Contributions (TVC) on 1 Apr 2019 with the maximum deductible amount being capped at $60,000. Let’s take a look at how it works.
1. What is Tax Deductible Voluntary Contributions (TVC)?
TVC aims at encouraging Hong Kong people to save more for their retirement. Employees would need to set up a new TVC account and make voluntary contributions to their TVC account to enjoy the tax deductions.
2. What is the cap for tax deductions?
$60,000. Note that this tax deductions cap applies to both TVC and Qualifying Deferred Annuity Policy (QDAP). For example, if you spend $40,000 on TVC, and $30,000 for QDAP, your tax deduction limit is still $60,000 for the $70,000 you spent on both.
3. Are all Voluntary Contributions (VC) schemes eligible for tax deductions?
No. You can only withdraw your TVC contributions at age 65 or on other statutory grounds. Although employees can make VC not restricted by this requirement, however, these VC would not be tax deductible.
4. In terms of tax deductions, what is the difference between TVC and Mandatory Contributions (MC)? Can I use both?
Before the introduction of TVC, only MC (maximum of $18,000) are tax deductible. With the new policy, tax deductions from TVC will be calculated after your MC tax deductions, but the respective maximum deductions are still $18,000 and $60,000 respectively.
5. When can I apply for TVC?
The new policy will be implemented for the year 2019/20 tax assessment, with the related applications to be submitted in 2020.
Examples of TVC with salary of $15,000, $20,000, $30,000 and $60,000.
| Monthly Income ($) | Original Salaries Tax ($) | MC ($) | TVC ($) | Tax payable after deductions ($) | Amount saved ($) |
|---|---|---|---|---|---|
| 15,000 | 780 | 9,000 | 9,000 | 600 | 180 (-23%) |
| 20,000 | 3,760 | 12,000 | 12,000 | 3,040 | 720 (-19%) |
| 30,000 | 17,700 | 18,000 | 18,000 | 14,880 | 2,820 (-16%) |
| 60,000 | 78,900 | 18,000 | 60,000 | 68,700 | 10,200 (-13%) |
Note: The calculations are based on the Salaries Tax Computation from Inland Revenue Department in 2018/2019. The above examples are for single persons who only enjoy the basic amount of allowance (HK$132,000) and MPF MC tax reduction. For the first three cases, the MC are equal to their TVC, therefore they cannot utilize the $60,000 tax reduction.
The last example is based on the upper limit of $60,000 tax deduction limit, but it doesn’t mean that all taxpayers can enjoy the $10,200 tax deductions.The amount of tax refunds depends on various factors including one’s income, allowances, tax deductions for QDAP and TVCs.
(All currency is in HKD.)
Learn more:
[MPF 101] Voluntary Contributions? – A breakdown of the three types
[MPF 101] MPF – Your hidden millions
[MPF 101] Voluntary contributions – What happens if you contributed more to your MPF?
About Fidelity International
Fidelity International provides world class investment solutions and retirement expertise to institutions, individuals and their advisers – to help our clients build better futures for themselves and generations to come. As a private company we think generationally and invest for the long term. Helping clients to save for retirement and other long term investing objectives has been at the core of our business for 50 years.
FIL Investment Management (Hong Kong) Limited was established in Hong Kong in 1981 and is a subsidiary of Fidelity International. We have been managing retirement assets in Hong Kong since 1989. Fidelity is one of the largest MPF scheme providers in Hong Kong, offering members not only comprehensive product offerings but also competitive fees and professional services. With our outstanding investment capabilities and management quality, Fidelity MPF has captured a number of MPF industry awards over the years.
Today, Fidelity is the largest manager¹ in the ORSO employee choice market and the largest pure investment manager² to offer an MPF scheme.
Source:
¹ Willis Towers Watson “Manager Watch”, as at 31/12/2018.
² Mercer MPF Market Shares Report, as at 31/12/2018.
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