I purchased a computer in the year of assessment 2020/21 for HKD10,000. Can I have this expense to be split in to two parts and claim tax deduction in two years of assessment? Therefore HKD5,000 in the year of assessment 2020/21 and other HKD5,000 in the year of assessment 2021/22.

First of all, according to the Inland Revenue Ordinance section 16 (1),

“In ascertaining the profits in respect of which a person is chargeable to tax under this Part for any year of assessment there shall be deducted all outgoings and expenses to the extent to which they are incurred during the basis period for that year of assessment by such person in the production of profits in respect of which he is chargeable to tax under this Part for any period, including—”

we should understand that the section has clearly stated the expense should only be related to the year of assessment when the expense occurred.

There are basically 5 method of deduction mentioned by the Inland Revenue Ordinance.

  • Enhanced deduction – section 16B (R&D type B)
  • Full deduction – section 16B (R&D type A), Section 16C, section 16E, section 16G, section 16I
  • Deduction 20% p.a. – section 16A, section 16 EA, section 16F, section 16I
  • Maximum $18,000 p.a – Section 16AA
  • Maximum 35% – section 16D
  • Depreciation allowance – section 16G, Inland Revenue Rule 2 (details of assets of prescribed assets)

In the case of a computer, when we look at section 16G(6) which defines “prescribed fixed asset”, b and c parts mentioned that computer hardware, other than that which is an integral part of any machinery or plant; or computer software and computer systems.

In this sense, a computer is a prescribed fixed asset and the method for the tax deduction is “full deduction”. Therefore the answer to the above question is “no”, it cannot be split into two parts and should be fully deducted in the year of assessment 2020/21.

The above information is for reference only. If in doubt, we welcome your tax inquiries

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