ACT505 Chap.5 Salaries Tax Deductions and Rates
Salaries Tax Deductions and Rates
Keep deductions and allowances separate
The 2025/26 course table publishes deduction maxima, personal allowances, progressive bands and the standard rate. A maximum is not automatic entitlement.
Show actual payment, cap and claim for deductions, and connect each allowance to the family, age, study, disability or maintenance fact supporting it.
Calculate two rate routes where required
Progressive rates apply to successive slices of net chargeable income, not to the whole amount at the highest band reached.
After the band calculation, complete the standard-rate comparison on the prescribed base where applicable. Select the final liability only after both routes are visible.
Build a deduction control table
Use three numerical columns: actual qualifying payment, published maximum and amount claimed. Add a reason column identifying the relevant category.
Charitable donations need both qualification and a percentage-limit base, while MPF, self-education, home-loan interest and other listed deductions have their own maxima. The lower supported amount moves into the computation.
Test allowances person by person
List each spouse, child, parent, grandparent or other dependant once.
Beside the name, record age, full-time study, residence, maintenance and disability facts supplied by the question. Then state which allowance follows and whether an additional allowance is supported.
This prevents double claims and makes missing eligibility evidence visible.
Reconcile both rate routes
The progressive ledger should show the income slice, marginal rate and tax in each band, with slices adding back to net chargeable income. The standard-rate route should identify its own base.
Compare the two final amounts only after each route reconciles, and keep the year of assessment beside the rate table throughout.
What this chapter covers
- 01
Deduction payment and published cap
- 02
Personal allowance eligibility facts
- 03
Four progressive 50,000 bands
- 04
Remainder taxed at 17%
- 05
Standard rate comparison
- 06
Rate table matched to year
Worked example · free
Apply every progressive band once
- 4Allocate income across the four 50,000 bands.
- 2Apply 17% to the remaining 30,000.
- 2Add the band taxes and reconcile to the base.
Key terms
- Deduction Cap
- The published maximum limiting a qualifying payment, distinct from actual payment and the final claim.
- Personal Allowance
- A reduction supported by personal or family eligibility facts rather than by a business expense.
- Marginal Band
- A slice of income to which one progressive rate applies without changing the rate on earlier slices.
- Net Chargeable Income
- The amount remaining after the relevant deductions and allowances, used for the progressive calculation.
- Standard-rate Comparison
- The separately calculated ceiling route compared with the progressive result where the rules require it.
Salaries Tax Deductions and Rates FAQ
How do progressive bands work?
Apply each percentage only to the slice inside its band. Reaching a higher band does not re-tax the earlier slices at the higher percentage, so preserve every marginal slice. Draw one row for every band used, record the amount of income falling within that row, then multiply by that row's rate. Sum the slice tax and compare the result with the standard-rate route using the same supported base.
This layout exposes a missing band, a repeated slice or an incorrect ceiling without requiring the whole computation to be reconstructed.
Can I claim the maximum deduction automatically?
No. The table supplies a ceiling, while the facts must establish a qualifying payment and actual amount. Show payment, cap and claimed amount separately for review.
Why write the year beside the rate table?
The folder contains more than one assessment-year table. Matching the year protects an otherwise neat computation from using stale allowances, limits or rates in the answer.
Exam move
Create a blank band ledger with income slice, rate and tax columns. Practise filling it for amounts below, inside and above the fourth band. Maintain a separate eligibility checklist for deductions and allowances. Before accepting the result, reconcile income slices, claimed deductions and the year printed on the table. Recalculate the band taxes in reverse order as an arithmetic control.
For every capped deduction, show payment, maximum and claim. For allowances, make one row per person and explain eligibility in words before copying any amount.
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