Provisional Legislative Council

PLC Paper No. CB(1) 1323
(These minutes have been
seen by the Administration)

Ref : CB1/BC/10/97/2

Bills Committee on
Inland Revenue (Amendment) Bill 1998

Minutes of meeting held on Monday, 23 March 1998, at 9:30 am in Conference Room B of the Legislative Council Building

Members present :

Hon IP Kwok-him (Chairman)
Hon WONG Siu-yee
Hon NG Leung-sing
Hon Eric LI Ka-cheung, JP
Hon LEE Kai-ming
Hon CHAN Yuen-han
Hon CHAN Kam-lam
Hon Ambrose LAU Hon-chuen, JP

Members absent :

Hon Henry WU
Hon Ronald ARCULLI, JP
Hon MA Fung-kwok
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon Bruce LIU Sing-lee

Public officers attending :

Mr Martin Glass,
Deputy Secretary for the Treasury

Mr Alan SIU,
Principal Assistant Secretary (Treasury) (Revenue)

Miss Vivian SUM,
Assistant Secretary (Treasury) (Revenue)

Mr WONG Ho-sang,
Commissioner of Inland Revenue

Mrs Agnes SIN,
Deputy Commissioner of Inland Revenue (Technical)

Assistant Commissioner, Inland Revenue Department

Ms Sherman CHAN,
Senior Assistant Law Draftsman, Department of Justice

Clerk in attendance :

Ms LEUNG Siu-kum,
Chief Assistant Secretary (1)2

Staff in attendance :

Ms Bernice WONG,
Assistant Legal Adviser 1

Miss Becky YU,
Senior Assistant Secretary (1)3

I Meeting with the Administration

(Provisional Legislative Council Brief Ref: FIN SCR 7/2201/97 (Part)

PLC Paper Nos. LS 118 and CB(1) 1117)

The Chairman informed members that the Bills Committee had received two submissions on the Bill: one from a Ms MAK Yau-kay and the other from the Hong Kong Society of Accountants. The Administration's response to the former was circulated to members vide PLC Paper No. CB(1) 1175 and the latter tabled at the meeting. A set of Committee stage amendments to the Bill was also tabled for members' consideration.

Submission from Ms MAK Yau-kay
(PLC Paper Nos. CB(1) 1175)

2. Members noted the Administration's response to Ms MAK Yau-kay that the owners of a property held and occupied on a joint tenant or tenant in common basis would be jointly subject to the maximum deduction of $100,000 for that property per year in any five years of assessment, regardless of the relationship between the co-owners. However, if a couple could prove to the satisfaction of the Commissioner of Inland Revenue (C of IR) that, despite being married, each of the husband and wife needed to have a separate home as his or her principal place of residence, then each of them could be eligible for a maximum mortgage interest deduction of $100,000 a year. A member enquired about the types of evidence which would be accepted as proof for such a need. The Principal Assistant Secretary for Treasury (PAS for Tsy) advised that there was no hard and fast rule in this respect in view of the numerous scenarios which might occur. He nevertheless assured members that all cases would be considered according to their individual circumstances.

Submission from the Hong Kong Society of Accountants

Deduction for contributions to the Mandatory Provident Fund (MPF) in self-employment cases

3. A member shared the Society's view that the spouse of a self-employed person who was also an employee of the self-employed business would be deprived of the tax relief if his or her contribution paid to a MPF scheme, which was mandatory by law, was not regarded as employee contribution nor self-employed contribution. C of IR clarified that under the new section 16AA, the spouse of a self-employed person was allowed a deduction for his or her contribution paid to a MPF scheme if the spouse concerned was a partner of the business, thereby also a self-employed person. He added that it was a long-standing tax principle that in computing the profits or losses of a person carrying on a trade, profession or business expenses, the salaries and other remuneration of the person's spouse, or in the case of partnership, any partner's spouse, were not deductible. The same would apply to contributions paid to a MPF scheme in respect of a spouse or a partner's spouse. This was also consistent with the provisions of the Employment Ordinance (Cap. 57), under which a spouse of an employer or of a partner in partnership was not normally regarded as an employee and contributions to a MPF scheme in respect of the spouse as an employee were thus not necessary.

Home loan interest

4. On the definition of "principal place of residence", C of IR considered that there should not be any confusion in respect of the phrase as no persons could have two or more places of residence, being equally "a principal place of residence" at any one time. As to whether the Administration would allow taxpayers who had more than one residences to nominate their principal places of residence, C of IR cautioned that if this was the case, taxpayers would naturally select the premises for which a higher interest was payable for claiming the deduction, irrespective of whether the premises were genuinely used as the principal place of residence.

5. A member questioned the rationale for restricting the right to nominate taxable spouses to claim home loan interest under salaries tax to owners of properties with no chargeable income as there might be situations where owners with chargeable income might wish to nominate their spouses to claim the deduction. While remaining of the view that the restriction was reasonable, C of IR advised that a person could elect joint assessment if the deduction was in excess of his or her assessable income so as to ensure that he or she could enjoy the full benefit of the deduction allowed.

6. Members then proceeded to examine the Committee stage amendments.

Clause 3. Interpretation
Clause 11. Deductions not allowed

7. DS for Tsy advised that these were consequential amendments after the enactment of the Provident Fund Schemes Legislation (Amendment) Ordinance.

Clause 12. Part IVA added

8. DS for Tsy advised that in the light of members' views expressed at the last meeting, the Administration had proposed to:

  1. delete the reference to "in the opinion of the Commissioner" in section 26E to provide a neutral form of wording;

  2. add "an employer of the person" to the definition of "home loan interest" in section 26E(9) so that home loan interests paid to employers would be eligible for deduction; and

  3. provide that the revocation made under section 26E(6)(a) should be made by the taxpayer by notice in writing to C of IR.

Clause 18. Calculation of total income

9. DS for Tsy explained that the purpose of the amendment was to ensure that there was equal treatment in respect of Part IVA deductions under personal assessment and salaries tax and to continue to allow business losses, which had not been set off, to be carried forward for set-off in future years of assessment under personal assessment.

New consequential amendment

10. DS for Tsy advised that this was to take account of the enactment of the Provident Fund Schemes Legislation (Amendment) Ordinance.

II Any other business

11. Although members were generally supportive of the Bill, they needed time to study the Committee stage amendments as these were only made available at the meeting. The Chairman advised that subject to members' views, the Bills Committee would submit a report to the House Committee on 27 March 1998 and recommend that the Second Reading debate on the Bill be resumed on 7 April 1998.

12. There being no other business, the meeting ended at 10:15 am.

Provisional Legislative Council Secretariat
28 May 1998