VHIS

VHIS Tax Deductions: 7 Keys to get the most tax deduced

According to the Inland Revenue Ordinance, VHIS policyholders are eligible for annual tax deductions of up to HK$8,000. Before you file your taxes, here is what you need to know about VHIS tax deductions. (Last updated April 2021)
Author Bowtie Team
Date 2021-06-16
Updated on 2021-08-11
Menu
1. How are VHIS tax deductions calculated?2. How do you apply for VHIS tax deductions?3. Which documents should I retain for tax deduction purposes?4. What is the definition of ‘Specified Relative’?5. How much taxes can I save if I purchase VHIS for my family?6. Only Certified Plans under VHIS are eligible for tax deductions7. How ‘Premium Grace Period’ affects Tax Deductions

One of the selling points of VHIS (Voluntary Health Insurance Scheme) is that the premiums are tax-deductible.

Tax returns are usually sent out in early May. Before you fill out and submit your tax returns, here are the 7 key points to take note of:

  • Calculation of VHIS tax deductions 
  • Procedure for VHIS tax deductions
  • Supporting documents you should retain
  • Eligibility of ‘specified relatives’ for VHIS tax deductions
  • Calculation of VHIS tax deductions for specified relatives
  • Tax-deductible insurance products
  • Impact of ‘Premium Grace Period’ on tax deductions

1. How are VHIS tax deductions calculated?

As outlined in the Inland Revenue Ordinance, VHIS policyholders can claim deductions up to HK$8,000 for qualifying premiums paid. According to a study by the insurance comparison site imSure, 81% of respondents do not have a clear understanding of VHIS tax policy, including a common misconception that VHIS tax deductions meant direct tax savings of HK$8,000.

Here is how the tax deduction is calculated:

VHIS Premium x Tax Rate = Tax Deduction

If you paid HK$5,000 for premium and the tax rate is 2%, the tax-deductible amount would be HK$100. If the tax rate for your income level is 17%, the tax-deductible amount would be HK$850.

Your tax allowance determines your tax savings

How Salaries Tax is calculated: Salaries Tax payable = ( Total Income – Deductions – Allowances ) x Tax Rate

For example, if your annual income is HK$180,000 with a tax allowance of HK$132,000^ and VHIS tax deduction of HK$5,000, then your salaries tax payable for year 2020/21 would be:

(HK$180,000 – $5,000 – 132,000)X 2% = HK$860

  • ^Assuming the individual tax allowance for the year 2020/21 is HK$132,000

2. How do you apply for VHIS tax deductions?

Starting from the tax year 2019/20, married persons could claim the tax deductions for qualifying premiums paid by him/her or spouse. 

If you are filing your tax return through eTAX online platform, remember to check the box for ‘Qualifying Premiums Paid under Voluntary Health Insurance Scheme Policy’ that comes after the Salaries Tax part (circled in red in below screenshot).

VHIS tax deduction

If you are claiming for yourself only, you only need to complete item (1) Qualifying premiums paid for self (circled in red in the below screenshot).

If you paid the premiums for your relatives, you need to complete item (2) Qualifying premiums paid for specified relative(s) (circled in blue in the screenshot below).

In the event you forget to file a claim for your VHIS tax deductions in your tax returns in May, you can submit form IR1121 for Application for Holdover of Provisional Tax after receiving your Tax Payment Notice.

VHIS tax deduction

3. Which documents should I retain for tax deduction purposes?

When you file your tax return, you do not need to attach documents to support your claim. However, you should retain documentary evidence (e.g. Premium receipts and annual premium statement) for 6 years after the expiration of the relevant year of assessment for verification when required.

4. What is the definition of ‘Specified Relative’?

The ordinance states that only the qualifying premiums for specified relatives are eligible for tax deductions. Therefore, it is important to understand the definition of a ‘specified relative’ which includes:

  • spouse and children of the taxpayer
  • siblings, parents, and grandparents of the taxpayer
  • siblings, parents, and grandparents of the spouse of the taxpayer

The older the insured person, the higher the tax-deductible amount. This is because the premiums for older persons are higher, therefore tax deductions are also higher. Hence, it is important to discuss with your siblings who should purchase VHIS for your parents and who will be claiming the tax deductions to avoid filing a duplicate claim.

5. How much taxes can I save if I purchase VHIS for my family?

According to a media report, the Food and Health Bureau announced on March 29, 2019, that the average premium for VHIS Standard is HK$4,000, which is 20% lower than the estimated HK$4,800 in 2017. 

Age Average Annual Premium
0 to 4 years HK$2,600
20 to 24 years HK$2,000
40 to 44 years HK$3,900
60 to 64 years HK$9,800

If you purchase VHIS for yourself only, you would not reach the tax deduction limit. If you want to save more on taxes, you can purchase VHIS for your specified relatives and the premiums for each relative are eligible for tax deductions. There is no limit on the number of specified relatives.

If you purchased VHIS for yourself and three specified relatives, your tax deductions can be up to HK$8,000 x 4 = HK$32,000. 

In a family of 8 including the husband and wife who are both 40 years of age, their parents who are above 60 years of age, and 2 children approximately 20 years of age, they have a total household income of HK$960,000.

According to information from the Inland Revenue Department, Married Person’s Allowance is HK$264,000, Child Allowance is HK$120,000 each, and Dependent Parent Allowance is HK$50,000 each. 

Case 1: No family member has purchased VHIS*

Net Chargeable Income: 

HK$960,000 – HK$264,000 – HK$120,000 X 2 – HK$50,000 X 4 = HK$256,000

Tax payable for the first HK$200,000 is HK$16,000

Tax payable for the remaining is HK$56,000 X 17% = HK$9,520

Case 2: Only the husband/father has purchased VHIS and no other family member has VHIS

VHIS Tax Deduction: HK$3,900 (based on the above average premiums)

Net Chargeable Income: 

HK$960,000 – HK$264,000 – HK$120,000 X 2 – HK$50,000 X 4 – HK$3,900 = HK$252,100

Tax payable for the first HK$200,000 is HK$16,000

Tax payable for the remaining is HK$52,100 X 17% = HK$8,857

Case 3: Husband/father purchased VHIS for the entire family (all 8 members)*

VHIS Tax Deduction: HK$3,900 X 2 + HK$2,000 X 2 + HK$8,000 X 4 = HK$43,800 (based on above average premiums)

Net Chargeable Income:

HK$960,000 – HK$264,000 – HK$120,000 X 2 – HK$50,000 X 4– HK$43,800 = HK$212,200

Tax payable for the first HK$200,000 is HK$16,000

Tax payable for the remaining is HK$12,200 X 17% = HK$2,074

Case No VHIS VHIS for self only VHIS for the whole family of 8
Taxes HK$25,520 HK$24,857 HK$18,074
Tax Savings HK$0 HK$663 HK$7,446

As illustrated above, the tax savings can reach above HK$7,400 if the entire family purchased VHIS. This is equal to an 83% discount on the VHIS premiums!

  • *The above case does not account for tax Deductions for Expenses of self-education, Elderly Residential Care Expenses, Properties Interest Payments, Mandatory Provident Fund (MPF) contributions, and approved charitable donations.

6. Only Certified Plans under VHIS are eligible for tax deductions

VHIS was launched on April 1, 2019, and insurance companies need to clearly state which products are Certified Plans under VHIS. There are 2 types of Certified Plans, namely Standard Plan and Flexi Plan. Currently, only these 2 plans are eligible for tax deductions.

Insurance companies may try to sell you a package that includes their Flexi Plan with another insurance product. If you purchase the package, it is important to take note that only the premiums for the Flexi Plan are eligible for tax deductions. Below is a table to help outline the case:

Insurance Product Tax Deduction
VHIS Standard (Annual Premium HK$3,000) HK$3,000
VHIS Flexi (Annual Premium HK$9,000) HK$8,000 (reached maximum limit)
VHIS Flexi + Home Insurance

(Annual Premium HK$7,000 + $1,000)

HK$7,000

Since Home Insurance is not a Certified Plan under VHIS approved by the Food and Health Bureau, the premiums for this product are not tax-deductible. 

7. How ‘Premium Grace Period’ affects Tax Deductions

Most insurance companies offer a 30-day ‘Premium Grace Period’. If the policyholder misses a monthly payment, the policy will still be in effect if the premium is paid within the Grace Period.  

If you paid your premiums for the past 11 months but did not pay the premium for March and instead paid premiums for both March and April at the same time in mid April, you would be able to claim for only the premiums paid prior to March 31 since that is the tax year cut-off date. The premiums paid in April will be applied to the following tax year.

If the monthly premiums is HK$200, the tax deduction would be HK$2,200 ( HK$200 x 11 months ).

If you have uncertainties about the tax deductions from your VHIS premiums, it is recommended to request for an annual premium statement from your insurance provider as supporting document for your claim.

Lastly, Bowtie team would like to remind you that the intended purpose of VHIS is to provide protection for unexpected medical expenses. Apart from tax savings considerations, it is important to consider whether or not the protection is suitable for you before purchasing.

Share

Related Articles

Bowtie Voluntary Health Insurance Scheme + BowtieCash for colonoscopy: a chance of full claim! Bowtie Voluntary Health Insurance Scheme + BowtieCash for colonoscopy: a chance of full claim!
VHIS

Bowtie Voluntary Health Insurance Scheme + BowtieCash for colonoscopy: a chance of full claim!

Benefits of Voluntary Health Insurance Scheme covering Benefits of Voluntary Health Insurance Scheme covering
VHIS

Benefits of Voluntary Health Insurance Scheme covering "unknown pre-existing conditions" and "congenital conditions"

Conversation with Bowtie Co-Founders and Medical Director on Voluntary Health Insurance Scheme (VHIS) Conversation with Bowtie Co-Founders and Medical Director on Voluntary Health Insurance Scheme (VHIS)
VHIS

Conversation with Bowtie Co-Founders and Medical Director on Voluntary Health Insurance Scheme (VHIS)

Bowtie VHIS Family Promotion — Earn $5,000 BowtieCash per person!
Quote Now
Want to know more?
Contact us via the form.

Other Topics

Email

General Enquiry
hello@bowtie.com.hk
Media Enquiry
media@bowtie.com.hk
Partnership
partner@bowtie.com.hk

© 2021 Bowtie Life Insurance Company Limited. All rights reserved.

Your Browser is outdated. To have a better user experience, please upgrade or change another browsers. OK