Deconstructing Hong Kong’s dependent parents and grandparents allowance

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Step-by-Step Guide: How to Claim Dependant Allowances

The process of successfully claiming a dependant allowance is straightforward and integrated into your annual tax return. Follow the steps below to make the claiming process smoother:

1. Step 1: Prepare Supporting Documents
   Collect proof of the dependant's identity (Hong Kong Identity Card), proof of residential status, and evidence of the financial support you provided. Although you may not need to submit these documents when initially filing your tax return, they must be properly prepared for review in the event of an inquiry by the Inland Revenue Department (IRD).
2. Step 2: Complete Tax Return BIR57
   In the designated section, accurately fill in the dependant's details: full name, Hong Kong Identity Card number, relationship to you, and confirm that they meet all eligibility criteria.
3. Step 3: Choose Submission Method
   Submit via the IRD's online platform "eTAX" (recommended for faster processing and an extension of the filing deadline) or use the traditional paper filing method.
4. Step 4: Properly Retain Records
   All supporting documents must be retained for at least 7 years to accommodate potential audits or reviews.

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Calculate Your Actual Tax Savings

Dependent allowances directly reduce your net chargeable income, potentially saving you thousands of dollars in taxes. The calculation is as follows:

*Estimated tax savings are calculated based on Hong Kong's Salaries Tax progressive rates for the 2024/25 year of assessment: 2% on the first HK$50,000, 6% on the next HK$50,000, 10% on the next HK$50,000, 14% on the next HK$50,000, and 17% on the remainder. Actual savings depend on your applicable tax bracket.

Practical Example

Assume your annual income is HK$600,000, and you support a 65-year-old father who resides with you:

• Basic Allowance: HK$50,000 (aged 60 or above)
• Additional Allowance (residing continuously): HK$50,000
• Total Deductions: HK$100,000
• New Net Chargeable Income: HK$500,000 (originally HK$600,000)
• Tax Savings: Approx. HK$17,000

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Special Circumstances: Dependants Not Ordinarily Residing in Hong Kong

Under certain specific conditions, the Inland Revenue Department allows claims for dependants who do not meet the standard "ordinarily resident in Hong Kong" criteria. These special circumstances come with additional requirements:

60-Day Residence Requirement

For certain claims involving dependants who do not ordinarily reside in Hong Kong, the dependant must reside in Hong Kong for at least 60 days, either continuously or intermittently, during the year of assessment. This provision applies to specific situations where the dependant primarily resides overseas but still maintains a connection with Hong Kong.

Stricter Substantiation Requirements

Claims for dependants not ordinarily residing in Hong Kong require particularly detailed evidence of financial support. You may need to prepare the following documents:

• International bank transfer records
• Receipts for expenses paid from Hong Kong
• Proof of remittances providing living expenses for the dependant
• Currency conversion records if expenses are incurred in foreign currencies

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Ongoing Compliance and Annual Requirements

Claiming dependent allowances is not a one-time procedure. You must follow these guidelines to ensure continuous compliance across different years of assessment:

1. Re-claim Annually: You must actively re-claim the allowance on your tax return each year. Past claims will not automatically roll over to a new tax year.
2. Report Changes Promptly: If there is a material change in the dependant's circumstances—such as their income exceeding HK$148,000, a change in residency status, or changes in the financial dependency relationship—you should notify the Inland Revenue Department immediately.
3. Handling Special Situations: If the dependant passes away during the year of assessment, you can still claim for that year as long as they met the eligibility criteria during their lifetime. You should cease claiming and notify the Inland Revenue Department in subsequent years.
4. Keep Records Updated: Update your supporting documentation each year to reflect any changes in the dependant's status.

Supporting aging parents and grandparents in Hong Kong reflects cultural values as well as a financial responsibility. The Inland Revenue Department's "Dependent Parent and Dependent Grandparent Allowance" recognizes this commitment by providing substantial tax relief. By understanding the eligibility criteria, properly maintaining supporting documentation, and following the correct claim procedures, you can maximize your tax savings while ensuring compliance with IRD regulations. Please remember that tax laws are updated from time to time; be sure to verify the latest rates and requirements before filing your annual tax return.