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How can I take advantage of the qualifying deferred annuity tax deduction? How do I know if an annuity policy is eligible?

At present, the life expectancy of Hong Kong people is close to 85 years old. Coupled with the rising price of goods and the budget of medical expenses, many people will plan their life after retirement. Among the many financial products, the Qualified Deferred Annuity Policy is one of the items that can be deducted from tax. It is widely welcomed by Hong Kong people. How can this product continue to reduce your tax burden on the premise of planning for savings for the second half of your life? The following article will deconstruct it for you.

Background of “Qualifying Deferred Annuity Deduction”

Due to the ever-changing social and economic environment in Hong Kong and the increasingly serious problem of aging population, the Hong Kong government announced the launch of a new round of preferential tax policies in 2019, the “Tax and MPF Scheme Legislation 2019”, to provide incentives for citizens to increase their retirement reserves., which includes making deferred annuity premiums tax-deductible and MPF voluntary contributions tax-deductible.

On March 29 of that year, the above proposal was officially gazette into law, which was implemented as a tax deduction for all eligible annuity premiums for the years of assessment after 2019/20. Since then, “Qualified Deferred Annuity” (QDAP) has become synonymous with self-made long grain and tax deduction.

How do I know if a deferred annuity is eligible?

If you are interested in taking out a deferred annuity policy and want to claim it as a tax deduction, you need to know which annuity policy payments are eligible. The so-called “qualified” is based on the deferred annuity policy certified by the Insurance Authority and the net amount paid to the insurer responsible for the above policy.

These policies have the following characteristics:

• Under the policy, the annuity recipient receives regular payments during the annuity period;

• Certified by the IA as meeting the specified criteria.

(Applicants can go to the website of the Insurance Authority and click the “Products” and “Insurers” columns to find eligible deferred annuity policies and products that are no longer certified by the Inland Revenue Department.

How can I take advantage of the deferred annuity tax deduction?

The permissible tax deduction for the year of assessment is HK$60,000 for each taxpayer who is insured with a qualifying deferred annuity policy. The deduction is calculated based on the total amount of the qualifying annuity premiums and tax-deductible MPF voluntary contributions.

If a taxpayer has more than one Qualifying Deferred Annuity Policy, he can claim a deduction for the premiums paid for more than one Qualifying Policy when applying for tax deduction, with no upper limit.

The general principle of the deferred annuity deduction is that the deductible amount is the net amount of the premiums paid less the premiums refunded. As some policy products allow the policyholder to refund the premium after tax deduction, it is reasonable for the taxpayer to notify the Commissioner of Inland Revenue within 3 months after the premium is refunded, so that the Assessor may make an additional tax assessment. Under reasonable excuse, it is likely to face penalties such as imposition of fines and additional taxes.

In addition, since deferred annuity premiums and MPF voluntary contributions are combined to calculate the deduction limit, according to the information on the Inland Revenue Department’s website, the bureau will prioritize “tax-deductible MPF voluntary contributions”; “Qualifying annuity premiums”” is the order after which the deduction is calculated.

Is there a tax deduction for insuring your spouse?

Married taxpayers who are insured eligible for deferred annuity, if the policyholder, contributor, and annuity recipient are themselves, their spouse, or both, the married person can claim for himself or his living spouse Eligible annuity premiums are deducted, but the same amount cannot be deducted for two persons at the same time.

In other words, married taxpayers may have to agree with their spouses on how to share the total deductions so that both parties can enjoy the most tax benefits.

The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.

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