Inland Revenue Department Hong Kong
DEPARTMENTAL INTERPRETATION AND PRACTICE NOTES
NO. 36
CONCESSIONARY DEDUCTIONS : SECTION 26D
ELDERLY RESIDENTIAL CARE EXPENSES
These notes are issued for the information and guidance of taxpayers
and their authorised representatives. They have no binding force and do not
affect a person’s right of objection or appeal to the Commissioner, the Board of
Review or the Courts.
SIN LAW Yuk-lin, Agnes
Commissioner of Inland Revenue
January 2000
Our web site : http://www.ird.gov.hk
DEPARTMENTAL INTERPRETATION AND PRACTICE NOTES No. 36 CONTENT Paragraph
Background
1
Basic principles
2
Residential care expenses
4
Residential care homes
7
Qualifying dependants
10
Expenses paid by taxpayer or spouse
14
Expenses paid in the year
16
Maximum allowable deduction
17
Deduction only allowable to one person
18
More than one parent or grandparent in residential care
21
Dependent parent and grandparent allowance
22
BACKGROUND
The mental or physical condition of aged parents and grandparents
may on occasions render it either impractical or inappropriate for their
relatives to provide them, within a domestic environment, with the level of care
needed in the particular circumstances. The 1998/99 Budget introduced a
concessionary deduction for expenses paid by children and grandchildren in
providing residential care in Government approved facilities for their aged
parents and grandparents. The relevant legislation, contained in section 26D of
the Inland Revenue Ordinance, Cap 112 (the Ordinance), was enacted by the
Inland Revenue (Amendment) Ordinance 1998. In section 26D, the term
“parent or grandparent” in relation to any person means a parent or a
grandparent of the person or a parent or a grandparent of the person’s spouse.
BASIC PRINCIPLES
2.
The basic principles governing the allowance of a deduction for the
cost of providing residential care for aged persons are • The care is residential care
• The care is provided in a residential care home
• The recipient of the care is a parent or grandparent of the person
or his or her spouse
• The payment for the care was made by the person or his or her
spouse
• The payment was made in the year of assessment
• The deduction allowable cannot exceed the maximum prescribed
amount
• Only one taxpayer may claim the deduction for any one aged
relative
• A deduction is allowable for each aged relative receiving
residential care
• The deduction is allowed in lieu of the granting of a dependant
parent or dependant grandparent allowance.
3.
Unlike the allowances for dependant parents and dependant
grandparents, a deduction for residential care expenses for the qualifying
elderly persons may be allowed to all taxpayers under salaries tax and personal
assessment. Subject to meeting the entitlement criteria for the deduction,
taxpayers chargeable to tax at the standard rate are also allowed to claim a
deduction for residential care expenses in computing their incomes chargeable
to tax.
RESIDENTIAL CARE EXPENSES
4.
The deduction is allowable for residential care expenses. The term
“residential care expenses” is defined to mean any expenses payable in respect
of the residential care received at a residential care home (section 26D(5)). The
deduction covers only the cost of care provided to persons who are resident in a
residential care home. The cost of care provided to persons attending a home
on a non-residential basis (including an out-patient basis) is not deductible as
residential care expenses because the “residential” requirement is not satisfied.
5.
Section 26D does not limit the nature of expenses incurred by
residential care homes that qualify for the deduction. Rather, it allows
taxpayers a deduction for fees paid to the home for providing the residential
care. The amounts paid by taxpayers must nevertheless be in respect of the
provision of residential care. Residents’ private expenses initially met by the
home on their residents’ behalf and then recovered from the persons
responsible for the settlement of individual residents’ accounts through the
billing system are not residential care expenses. For example, cash advances
made by homes to their residents to enable the residents to meet personal
expenditure needs are not expenses in respect of residential care received at a
residential care home. The amount of any such advances recovered by the
residential care home from the family member responsible is not deductible
under section 26D as residential care expenses.
6.
Residential care expenses may be paid either directly to the home
providing the residential care or to a third party (or agent) specified by the
home. When a residential care home appoints a management agent or
collection agent to receive fees on its behalf, the amounts paid in accordance
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with the home’s instructions are, subject to the other provisions of the section
being satisfied, an allowable deduction (section 26D(5)).
RESIDENTIAL CARE HOMES
7.
Organisations or institutions providing residential care for the elderly
are regulated by either the Residential Care Homes (Elderly Persons)
Ordinance (Cap 459) (RCHO) or the Hospitals, Nursing Homes and Maternity
Homes Registration Ordinance (Cap 165) (HNMHO). A residential care home
is defined (section 26D(5)) as being any premises that is ­
•
•
•
•
licensed under section 8 of the RCHO
exempted from registration under section 7 the RCHO
not covered by the RCHO because of section 3 of that Ordinance
a nursing home registered under the HNMHO.
8.
The majority of residential care homes will hold a current licence
issued under section 8 of the RCHO. However, section 7 of the RCHO allows
the Director of Social Welfare to exempt a residential care home from holding
a licence. It is understood that exemption certificates are issued for a limited
duration only to allow homes to make minor design or structural modifications
to satisfy the conditions for licensing. The number of homes falling within the
“exempted” category is understood to be small. Section 3 of the RCHO
provides that the RCHO does not apply to homes maintained and controlled by
the Government or the Housing Authority, or any home used or intended for
use solely for the purposes of medical treatment.
9.
The Director of Health is authorised, under section 3 of the HNMHO
to register hospitals and nursing homes. Any nursing home registered under
section 3 of the HNMHO is a residential care home for the purposes of the
elderly residential care expenses deduction.
QUALIFYING DEPENDANTS
10.
A deduction for residential care expenses may be claimed in respect
of persons who, in relation to the claimant, are a parent or a grandparent
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(section 26D(1)). As noted above, the term “parent or grandparent” has had its
meaning extended to include not only the claimant’s parents and grandparents
but also the parents and grandparents of his or her spouse (section 26D(5)). The
general definitions of the “parent” and “grandparent”, as they apply to both the
taxpayer and his or her spouse, are set out in section 2. These same definitions
apply to dependent parent allowance and dependent grandparent allowance.
11.
The scope of definitions of “parent” and “grandparent” are wide.
They embrace not only a person’s natural parents and grandparents but also
any adoptive and step parents and grandparents. In the case of a deceased
spouse, the relationship of the deceased spouse’s parent or grandparent with the
surviving spouse is preserved so that notwithstanding that a person may have
predeceased his or her parents or grandparents, a deduction for residential care
home expenses in respect of the deceased person’s parents and grandparents
may be allowed to the surviving spouse if they have been paid by that
surviving spouse.
12.
To qualify for the deduction for residential care expenses, the parent
or grandparent in respect of whom the expenses are paid must be 60 years of
age or more at any time in the year of assessment. In the year that a parent or
grandparent attains the age of 60 years, the maximum deduction for residential
care expenses (refer paragraph 16) is still allowable. It is not apportioned on a
time basis by reference to the periods prior to, and after, the person’s 60th
birthday. Provided that the dependant was aged 60 or more at any time within
the year of assessment, then subject to the amount of the maximum deduction
not being exceeded, the full amount of the residential care expenses paid in that
year is allowable as a deduction.
Example 1
Mr A’s mother commenced residing in a residential care home on 1 May 1998.
The mother turned 60 years of age on 1 January 1999. Mr A paid $55,000 in
residential care expenses to the home between 1 May 1998 and 31 March
1999. Because the mother attained the age of 60 years during the 1998/99
year of assessment, a deduction for $55,000 (the full amount paid) is
allowable to Mr A.
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13.
As is the case with the allowances for dependent parents and
grandparents, special provisions apply to disabled parents and grandparents
under 60 years of age. When such persons are receiving residential care and
are eligible to claim an allowance under the Government’s Disability
Allowance Scheme, a deduction for residential care expenses paid by the
taxpayer or his or her spouse is allowable (section 26D(1)).
EXPENSES PAID BY TAXPAYER OR SPOUSE
14.
If a husband and wife are not living apart from each other, the
entitlement to claim the deduction for residential care expenses is not restricted
to the spouse responsible for making payment to residential care home. A
husband may claim a deduction for payments made by his wife, and vice versa.
The only restriction on claiming the deduction is that, for any one dependent
parent or grandparent, the full entitlement must be claimed by one person. The
deduction cannot be divided between the husband and wife such that each
claims a part of the overall deduction allowable (see paragraph 18).
15.
When more than one parent or grandparent of a married couple is
residing in a residential care home, each spouse may claim a deduction for the
residential care expenses paid for a different parent or grandparent. Equally,
there is no requirement, on an ongoing basis, for the same spouse to claim the
residential care expenses deduction for the same parent or grandparent every
year. Each year is viewed on a standalone basis and the spouses are free, from
year to year, to determine who will claim the deduction for that year.
EXPENSES PAID IN THE YEAR
16.
The allowance of the concessionary deduction is based on payments
made within the year of assessment. The deduction is allowed in the year of
assessment in which payment is made and not, where the liability was incurred
in an earlier year of assessment, the year of assessment in which liability for the
expense actually arose. Where an expense is incurred in one year of
assessment but not paid until the subsequent year, the deduction can only be
allowed in the year of payment.
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Example 2
Mrs B’s grandfather (aged 80 years) entered a residential care home on 1
February 1999. The monthly fee for his care and maintenance of $8,000 is
payable monthly in arrears. The fees for February 1999 and March 1999 were
paid on 1 March 1999 and 1 April 1999 respectively. Since only $8,000 was
paid in the 1998/99 year of assessment, only this amount may be claimed as a
deduction by Mrs B in 1998/99.
MAXIMUM ALLOWABLE DEDUCTION
17.
Taxpayers are only entitled to claim a deduction for their actual
expenditure paid in the year of assessment for the residential care of qualifying
dependants. The maximum deduction that may be allowed in any year for each
qualifying parent or grandparent is specified in Schedule 3C (section 26D(3)).
For the 1998/99 year of assessment and subsequent years, the maximum
deduction is specified as $60,000.
DEDUCTION ONLY ALLOWABLE TO ONE PERSON
18.
In respect of any particular parent or grandparent, a residential care
expenses deduction can only be allowed to one person in any year of
assessment (section 26D(4)(a)). It is not possible, for example, for several
brothers and sisters to apportion the deduction for any one parent or
grandparent between themselves as multiple claimants even though the amount
claimed, in aggregate, does not exceed either the expenditure actually incurred
or the maximum permitted deduction. Where more than one person who is
entitled to claim the deduction contributes to the payment of the residential care
expenses of a parent or grandparent, it is necessary for the persons who have
contributed to agree amongst themselves as to which of them will claim the
residential care expenses for the year of assessment in question.
19.
Two or more individuals (other than a husband and wife not living
apart from each other) may each partially contribute to the maintenance of a
parent or grandparent by way of the payment of separate invoices issued by the
home providing the care. The individual whom they have jointly agreed may
6
claim the deduction for that year is only entitled to claim a deduction for the
amount actually paid by him or her and his or her spouse. The amounts
individually paid to the home by the other joint contributors were not paid by
either the individual making the claim or his or her spouse and the individual
claiming the deduction cannot include such amounts in his or her claim.
Where only a single invoice or account is issued by the residential care home to
one person and one or more other persons also contribute to its payment, the
person with legal responsibility for the payment (the person named in the
invoice or account) will be regarded as the person who made the payment.
Subject to the maximum deduction not being exceeded, that person (or his or
her spouse) will be entitled to claim a deduction for the total amount paid.
20.
Sections 33(2) to (4), dealing with allowances granted under Part V
of the Ordinance, contain supplementary provisions to enable the
Commissioner to resolve situations where two or more persons are claiming, or
have been allowed, an allowance in respect of the same person, or it appears to
the Commissioner that two or more persons are eligible to claim an allowance
for the same person for that year. These supplementary provisions, suitably
modified, also apply to the residential care home expenses deduction (section
26D(4)(b)). Where two or more persons are claiming, or have been allowed, a
deduction for residential care home expenses, the Commissioner will invite
them to agree amongst themselves as to which of them will claim the
deduction. In the event that they are unable to agree, the Commissioner will
consider the deduction in a manner that, having regard to the information
available to him, is just in the circumstances. This may include withdrawing
the deduction already granted until the matter has been resolved by the
competing claimants.
MORE THAN ONE PARENT OR GRANDPARENT IN RESIDENTIAL
CARE
21.
The deduction for residential care expenses is allowable in respect of
each parent or grandparent receiving residential care in a residential care home.
A taxpayer may be allowed a deduction in respect of each parent or
grandparent for whom he or she has paid residential care expenses (section
26D(2)).
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DEPENDENT PARENT AND GRANDPARENT ALLOWANCE
22.
The deduction for elderly residential care expenses is allowed in
respect of aged parents and grandparents who are unable to live independently
with financial support provided from within the family or to be provided with
care and support within a family environment. The deduction for residential
care expenses is allowed as an alternative to the granting of a dependent parent
allowance or a dependent grandparent allowance for the aged person
concerned. The allowance of a deduction for residential care home expenses
takes precedence over the granting of an allowance under Part V. When a
deduction for residential care expenses has been allowed in respect of a parent
or grandparent, no person can be granted a dependent parent allowance or
dependent grandparent allowance (sections 30(5) and 30A(5)).
23.
Situations may arise where a taxpayer’s parent or grandparent is
residing in a residential care home but the home’s fees charged are fully met by
that parent’s or grandparent’s allowance under the Comprehensive Social
Security Assistance Scheme. The taxpayer has, however, still contributed
money towards the maintenance of the parent during the year. In such
circumstances, the taxpayer is not entitled to a residential care expenses
deduction because he has not paid for any such expenses. However, he may
claim dependent parent allowance or dependent grand parent allowance in
respect of his parent or grandparent provided all the relevant conditions are
satisfied. This includes making a contribution of not less than $12,000 in
money during the year of assessment towards the maintenance of the parent or
grandparent concerned.
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