Individual’s Taxability on Income Sourced from Donation and Commercial Pension
The Announcement of the Applicable Taxable Items of Income for Individual Income Tax (Caishui [2019] No.74) jointly issued by the Ministry of Finance, State Administration of Taxation (hereinafter referred to as the "announcement") on June 13, 2019, modified some applicable taxable items of incomes for individual income tax and abolished some documents or some terms of documents.
1. After the individual income tax law revised in 2018, the item of "other income" has been removed. The announcement clarifies that some income for the item of "other income" has been changed to the item of "contingent income". Contingent income is taxed at 20% which is the same rate as other income. The items of income adjusted to be taxed as contingent income includes:
(1) The individual obtains income by providing a guarantee for the unit or other individuals.
(2) If the owner of the house property gives the house property to others without consideration, the recipient shall calculate and pay individual income tax according to the item of "contingent income". According to article 1 of the Notice of the State Administration of Taxation and the Ministry of Finance on Individual Income Tax Issues Related to Houses Donated to Individuals Without Consideration (Caishui [2009] no. 78), no individual income tax shall be levied on both parties if the following conditions are met:
a. The owner of housing property gives the housing property without consideration to spouse, parents, children, grandparents, maternal grandparents, grandchildren, maternal grandchildren, brothers, and sisters.
b. The owner of house property gives the house property without consideration to the dependent or dependent who assumes direct support or maintenance obligation.
c. The legal heirs, testamentary heirs or legatee who has acquired the house property upon the death of the owner of the house property.
2. The announcement clarified that item of income for pension income has been changed from "other income" to "income from wages and salaries". "Announcement" does not change the tax burden of the pension income, that is, 25% of pension income is tax exemption, the individual income tax for remaining 75% shall be calculated and paid multiply by applicable tax rate of 10%. The actual tax burden is still 7.5%.
3. This announcement shall take effect from January 1, 2019.
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