Elderly Residential Care Expenses Deduction: Application Criteria and Record-Keeping Essentials

The 2025-26 Hong Kong budget, delivered in February 2025, quietly extended a significant tax relief measure for a growing demographic: the elderly residential care expenses deduction. With Hong Kong’s population aged 65 and over projected by the Census and Statistics Department to reach 2.7 million by 2030—a 30% increase from 2021—the financial burden on families placing elderly relatives in care homes has become a central fiscal concern. The deduction, codified under Section 26D of the Inland Revenue Ordinance (Cap. 112), allows taxpayers to claim up to HKD 100,000 per year per eligible parent or grandparent for residential care home fees. However, the Inland Revenue Department (IRD) has intensified its scrutiny of these claims, particularly around the definition of a “residential care home” and the requirement for a “Hong Kong resident” recipient. For the 2025-26 tax year, the deduction remains capped at HKD 100,000 per qualifying relative, but the IRD’s updated guidelines on acceptable proof of payment and care home licensing are stricter than in prior years. Taxpayers who fail to maintain the correct documentation risk having their claims disallowed, potentially triggering back-tax and penalties. This article dissects the eligibility criteria, the specific record-keeping requirements demanded by the IRD, and the practical steps to ensure a valid claim.

Qualifying Relatives and the Residential Care Home Definition

Who Qualifies as an Eligible Relative

The deduction is not available for just any elderly individual. Section 26D(2) of the IRO specifies that the claimant must have maintained a parent or grandparent—natural, adoptive, or step—who is a Hong Kong resident and aged 60 or over. The IRD’s 2024-25 Tax Guide further clarifies that the relative must be “ordinarily resident in Hong Kong” at the time the care is provided. This excludes relatives living permanently in Mainland China, Macau, or overseas, even if they temporarily visit Hong Kong for care. For a taxpayer to claim for a spouse’s parent, the spouse must also be a Hong Kong resident, and the deduction is split 50-50 between the two taxpayers unless one party agrees in writing to forgo their share.

Defining a “Residential Care Home”

The IRO does not define the term “residential care home” exhaustively, but the IRD relies on the Residential Care Homes (Elderly Persons) Ordinance (Cap. 459) for guidance. A qualifying home must be licensed under that ordinance or be a care home for the elderly that the Commissioner of Inland Revenue deems equivalent. This excludes unlicensed boarding houses, private nursing homes without a valid license, and any facility that does not provide 24-hour residential care. The IRD’s Departmental Interpretation and Practice Notes (DIPN) No. 44 (Revised 2020) states that the home must be “primarily for the purpose of providing residential care, including accommodation, meals, and personal care.” Facilities that only offer day care or respite care do not qualify. Taxpayers should verify the license number of the care home against the Social Welfare Department’s online register before filing a claim.

The HKD 100,000 Cap and Apportionment Rules

Annual Ceiling and Per-Relative Limit

The maximum deduction is HKD 100,000 per qualifying relative per year of assessment. This is a per-person cap, not a per-taxpayer cap. If a taxpayer supports two parents in separate care homes, the maximum claim is HKD 200,000. However, the IRD applies a strict apportionment rule when the care home fees are paid jointly by multiple taxpayers (e.g., siblings). Section 26D(4) provides that the total deduction for one relative cannot exceed HKD 100,000, regardless of how many people contribute. Each claimant must file a separate claim, and the IRD will aggregate them. If two siblings each pay HKD 80,000 for the same parent’s care, the IRD will cap the combined claim at HKD 100,000, and each sibling will only receive a proportionate deduction—in this example, HKD 50,000 each. The IRD’s 2025-26 Tax Return Guide advises that claimants must coordinate with other contributors to avoid exceeding the cap.

Partial Year Claims and Moving Between Homes

If the relative moves into a care home partway through the year, the deduction is calculated on a pro-rata basis. For example, if a parent enters a home on 1 October 2024, the claim is limited to fees paid from that date to 31 March 2025 (six months), capped at HKD 50,000 (HKD 100,000 × 6/12). The IRD does not allow a full-year claim if the relative was not in care for the entire assessment period. Similarly, if the relative switches between care homes during the year, only fees paid to licensed homes are deductible. Any period spent in an unlicensed facility must be excluded from the claim.

Record-Keeping Essentials: What the IRD Expects

Proof of Payment and Receipts

The IRD’s 2024-25 Tax Guide explicitly states that “you must keep all receipts, invoices, and payment records for at least six years after the year of assessment to which the claim relates.” This is consistent with the general record-keeping requirement under Section 51C of the IRO. Acceptable forms of proof include bank transfer confirmations, credit card statements showing the payee as the care home, and official receipts on the care home’s letterhead. Cash payments without a receipt are strongly discouraged; the IRD may disallow the entire claim if the only evidence is a handwritten note. For the 2025-26 tax year, the IRD has introduced a new field on the tax return (Box 8.4 in the Salaries Tax Return) requiring taxpayers to declare the care home’s license number and the period of stay. Failure to provide this information can result in a delay in processing the claim.

Care Home License and Certification

Taxpayers must retain a copy of the care home’s valid license under Cap. 459 for the period the relative was resident. The IRD may request this during an audit. If the home lost its license or was operating under a provisional license during the stay, the deduction may be disallowed. The Social Welfare Department publishes a list of licensed homes, updated quarterly, which taxpayers should consult before filing. The IRD has also indicated in its 2025-26 Practice Notes that it will cross-reference claims against the Social Welfare Department’s database of licensed homes, so relying on an unlicensed facility is a high-risk strategy.

Documentation for Joint Claims

When multiple taxpayers claim for the same relative, each must file a separate return, but they must also submit a joint declaration (Form IR1268) specifying the total fees paid and the agreed apportionment. The IRD requires this form to be signed by all claimants and submitted with the first tax return filed. If the declaration is missing, the IRD will treat the claims as if they are from unrelated taxpayers and may cap the total deduction at HKD 100,000, then allocate it arbitrarily—often resulting in a reduced deduction for each claimant. Taxpayers should coordinate with siblings or other contributors early in the tax year to agree on the split.

Common Pitfalls and IRD Audit Triggers

Overclaiming for Non-Residential Care

A frequent error is claiming fees for “home care” services—where a caregiver visits the elderly person at home—as residential care expenses. The IRO Section 26D only covers residential care homes. The IRD’s 2023-24 Tax Return Guide explicitly distinguishes between “residential care” and “domestic care,” and the deduction cannot be claimed for the latter. Taxpayers who mistakenly include home care fees on their return will have those amounts disallowed, and if the error is repeated, the IRD may open a full audit of the taxpayer’s returns for the past six years.

Failure to Report Shared Care Arrangements

The IRD’s data-matching system now cross-references claims by taxpayer ID number against the same care home and relative. If two taxpayers claim for the same parent without filing Form IR1268, the system flags both returns. In 2024, the IRD issued 1,200 such flags, according to its Annual Report 2023-24, and disallowed HKD 18 million in claims. Taxpayers who receive a notice of enquiry must respond within 21 days, providing the joint declaration and proof of payment. Failure to respond results in automatic disallowance of the claim and a potential penalty of up to 10% of the tax undercharged under Section 82A of the IRO.

Claiming for Relatives Who Are Not Hong Kong Residents

The requirement that the relative be “ordinarily resident in Hong Kong” is strictly interpreted. The IRD’s DIPN No. 44 states that a relative who holds a Hong Kong Identity Card but lives permanently in Mainland China does not qualify. Similarly, a relative who is in Hong Kong on a visitor visa and placed in a care home temporarily does not meet the residency test. The IRD may request copies of the relative’s Hong Kong Identity Card, proof of address (e.g., utility bills), and evidence of continuous residence. Taxpayers should retain these documents alongside the care home receipts.

Actionable Takeaways

1. Verify the care home’s license number against the Social Welfare Department’s online register before making any payment, and retain a copy of the license for at least six years.
2. Maintain a dedicated file for each qualifying relative containing all receipts, bank transfer records, and the completed Form IR1268 if multiple taxpayers are contributing.
3. If the relative moves into a home partway through the year, calculate the deduction on a strict pro-rata basis—do not claim the full HKD 100,000 unless the relative was in care for the entire 12 months.
4. Coordinate with siblings or other claimants before filing to agree on the apportionment of the HKD 100,000 cap, and ensure all parties sign the joint declaration.
5. For the 2025-26 tax year onward, ensure that Box 8.4 of the Salaries Tax Return is completed with the care home’s license number and exact period of stay to avoid processing delays.

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This does not constitute tax advice. Consult a licensed CPA or tax advisor for your specific situation.