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The sequence of the tax deduction for voluntary contributions and annuity premiums

Employees and self-employed persons are required to make mandatory contributions under the Mandatory Provident Fund Schemes Ordinance. To give planners more options when they retire, they can also make additional tax-deductible voluntary contributions directly to the trustee. Employees and self-employed persons can claim a tax deduction of up to $18,000 per annum on their former mandatory contributions, and from the year of assessment 2019/20 onwards, they can also claim a tax deduction of up to $60,000 per annum on voluntary contributions.

However, the $60,000 cap is combined with the qualifying annuity premiums claimed for the year, i.e., the voluntary contributions and qualifying annuity premiums combined cannot exceed $60,000.

A taxpayer who is eligible for a voluntary contribution tax deduction must be:

• Holders of contribution accounts in MPF ​​schemes

• Holders of individual accounts in MPF ​​schemes

• Members of MPF exempted ORSO schemes

In addition, to protect retirement life, taxpayers will consider purchasing an insurance product called [annuity]. Premiums paid are tax-deductible. If a taxpayer claims a tax deduction for MPF voluntary contributions and qualifying annuity premiums in the same year of assessment, the total of the two cannot exceed the maximum limit of $60,000, and the voluntary contributions must be deducted first, and the voluntary contributions must be deducted from $60,000. The remaining amount is the deduction limit for annuity premiums. If there is no balance, the taxpayer cannot claim the annuity premium tax deduction.

Taxpayers can claim premiums for more than one annuity policy, and there is no limit to the number of policies. If the policy premium is canceled during the cooling-off period and then refunded to the taxpayer, the premium is not tax-deductible. Therefore, the taxpayer must notify the Commissioner of Inland Revenue in writing within 3 months after the refund date, and the Inland Revenue Department will then make a supplementary increase tax assessment.

If the taxpayer fails to notify the Inland Revenue Department, the Inland Revenue Department will consider imposing penalties. In addition, taxpayers are reminded to keep annuity policy documents or premium payment records and MPF trustee documents showing voluntary contributions for review by the Inland Revenue Department upon request.

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

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