Raymond Yeung Tax Consultant former Assessor of Inland Revenue Department 前稅局評稅主任楊輝洪

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Tax penalties - Reasonable Excuse


If a taxpayer has a reasonable excuse for his non-compliance with the Inland Revenue Ordinance, he will not be penalized. In some cases, even if the “excuse” cannot exempt him totally from penalty, it will still reduce the penalty considerably.


What is “reasonable excuse”? It is trite to say that it depends on the circumstances of the case. For example, a very small flower shop owner (with a monthly turnover of less than $10,000) fails to  keep a complete set of business accounts: his poor education may be accepted by IRD or the Board as a reasonable excuse or a mitigating factor for the offence. In fact, he may be exempt from tax under Personal Assessment if his taxable profits is less than his personal allowance.  But if such offence is committed by a large flower shop, then the shop owner's poor education will not normally be accepted as a reasonable excuse --- this is because he should hire an accountant to help him do the bookkeeping.      


From time to time, there are a number of Board-of-Review cases on this issue. In D13/85, the Board of Review says reasonable excuse is what one would expect a reasonable person to do in all of the circumstance. A reasonable person is not a perfect person, but an average person using the reasonable skill and care in handling his tax affairs which one would expect to see from an average person. For your reference, I set out below four cases that were accepted by the Board as having a “reasonable excuse” and so, the penalty imposed by CIR was annulled. But I must say that the cases are just for reference and similar cases in future may not be ruled as such.


(a)       D13/85: A medical practitioner failed to disclose certain employment income in his tax return. He contended that the non-disclosure had been a genuine mistake of oversight as a result of change of employment and it had been just a simple slip of mind. The Board believed that he was an honest man and accepted his reasons as a reasonable excuse and hence discharged the tax penalty. It was held that in deciding whether or not a taxpayer had a "reasonable excuse", the Revenue should consider whether the taxpayer had acted as one would expect a reasonable law abiding citizen to do. A reasonable person is not a perfect person, but an average person using the reasonable skill and care in handling his taxation affairs which one would expect to see from such an average person.


(b)       D80/76: A taxpayer failed to disclose profits derived from sale of land.  He was able to convince the Board that he had relied on professional advice and honestly believed that the sales were capital transactions. 


(c)       D129/02: A taxpayer was seconded by a UK company to work for its subsidiary in Hong Kong. She did not report her employment income to IRD. She explained that she had believed the employment only liable to UK tax. The Board accepted her explanation as a reasonable excuse.


(d)       D14/98: A taxpayer had three sources of taxable income under salaries tax. In her tax return, she disclosed two sources correctly but omitted the one for which she had already resigned. The Board accepted the omission as a genuine oversight. They believed the taxpayer had mistaken honestly such income as having been reported by the company already. The Board's decision also relied on the taxpayer's submission that she believed the omitted income as having been “assessed” by a provisional assessment upon her application for holding over of the provisional tax.   


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