Two Examples of Couples Filing Combined: Which one is more beneficial?

Married persons can choose to be “joined assessment” with their spouse or “separately assessed” as an individual. So, which of the two tax assessment methods is right for you? Which one can save more tax? Two examples are provided below to objectively analyze the pros and cons of both.

In Example 1 and Example 2, it is assumed that in the year of assessment 2021/22, the monthly salaries of Mr. Chen and Mrs. Chen are as follows respectively, and they have one child, so they decide that Mr. Chen should apply for the child allowance, what will be the results of the “separate assessment” and “joint assessment”?

Example 1: Mr. income $540,000, wife $420,000

Separate assessments

After deducting their tax-deductible MPF contributions ($18,000), their “Net Total Income” will be:

Mr. Chen: $522,000

Mrs. Chen: $402,000

Furthermore, adding the basic allowance for each taxpayer ($132,000); and the child allowance ($120,000) that Mr. Chan chooses to claim, their “net taxable income” is:

Mr. Chen: $270,000

Mrs. Chen: $270,000

Then, calculate the “net taxable income” of the two persons at the following rates:

First $50,000 @ 2% = ($1,000)

Another $50,000 @ 6% = ($3,000)

Another $50,000 @ 10% = ($5,000)

Another $50,000 @ 14% = ($7,000)

Balance $70,000 @ 17% = ($11,900)

Then, Mr. and Mrs. Chen’s tax for the year will be the sum of the above ( ), which is HK$27,900.

Taking into account the 2021/22-year, profits tax, salaries tax and tax under personal assessment can be reduced by 100%, subject to a ceiling of HK$10,000, which means that the tax payable by the two is actually $17,900 Hong Kong dollar.

Situation of joint assessment

Using the same example to calculate, but Mr. Chen and Mrs. Chen choose the “joint assessment” method of tax assessment, so their “total net income” is combined to calculate:

“Total Net Income” for two persons: $522,000 + $402,000 = $924,000

After that, after the couple applies for the Married Person Allowance ($264,000) and the Child Allowance ($120,000), the “net taxable income” is

Total for two: $540,000

Again by tax rate:

First $50,000 @ 2% = ($1,000)

Another $50,000 @ 6% = ($3,000)

Another $50,000 @ 10% = ($5,000)

Another $50,000 @ 14% = ($7,000)

Balance $340,000 @ 17% = ($57,800)

As a result, the tax for the couple will be HK$73,800. Adding “100% tax relief (up to HK$10,000)”, their tax payable after “joint assessment” is HK$63,800, compared to the tax payable after “separate assessment” of $35,800 ($17,900 x 2), the former is higher.

Example 2: Mr. income $540,000, wife $120,000 income

Separate assessments

 After Mr. Chan deducts tax deductible MPF contributions ($18,000) and Mrs. Chan deducts tax deductible MPF contributions ($6,000), their “net total income” will be:

Mr. Chen: $522,000

Mrs. Chen: $114,000

After deducting the basic allowance ($132,000); and the child allowance ($120,000) claimed by Mr. Chen, their “net taxable income” is:

Mr. Chen: $270,000

Mrs. Chen: $0

Then, calculate the “net taxable income” of the two persons at the following rates:

First $50,000 @ 2% = ($1,000)

Another $50,000 @ 6% = ($3,000)

Another $50,000 @ 10% = ($5,000)

Another $50,000 @ 14% = ($7,000)

Balance $70,000 @ 17% = ($11,900)

As a result, only Chen Xian was required to pay tax in that year. After the “100% tax reduction”, his tax payable was HK$17,900.

Situation of joint assessment

Their “total net income” is calculated together, and the “total net income” of the two is:

$522,000 + $114,000 = $636,000

After that, after the couple applies for the Married Person Allowance ($264,000) and the Child Allowance ($120,000), the “net taxable income” is

Total for two: $252,000

Again by tax rate:

First $50,000 @ 2% = ($1,000)

Another $50,000 @ 6% = ($3,000)

Another $50,000 @ 10% = ($5,000)

Another $50,000 @ 14% = ($7,000)

Balance $340,000 @ 17% = ($8,840)

As a result, the tax for the couple will be HK$24,840 plus “100% tax relief (up to a maximum of HK$10,000)” their tax payable after “joint assessment” will be HK$14,800, which is less than “separate assessment” is less than $17,900 in tax payable.

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