Rental Value Perfect Storm!

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  1. #1

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    Rental Value Perfect Storm!

    I would really appreciate some advise on a tax matter. I pay high rent and have therefore taken advantage of 'rental value' scheme.

    To my surprise (and horror), when the tax bill came last week it was much more than I had expected. Upon further inspection, it became clear that my company had made a mistake. Instead of subtracting the rental value from my salary, they have accidently added it on. They have then projected this into 2010/2011.

    This means my tax bill is nearly DOUBLE what it should have been.

    So, I would normally go down the process of appealing this. However, I have since learnt that I may have some difficulty. The lease agreement is with my ex-girlfriend as I was out of the country at the time of signing and witnessing etc. I have paid the full rent since then (and have bank statements to prove it), and we have the stamped tenancy agreement and all receipts from the beginning).

    My question is: should I go down the process of appeal? Will I still be eligable for the 'rental value' tax break?

    Any advice on this would be much appreciated.


  2. #2

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    You mean Housing Allowance?

    A number of things have to be in place for that:

    1) The Housing Allowance must be defined as such in your contract.
    2) You must actually spend the Housing Allowance on housing
    3) The employer must exercise "effective control" to ensure that this is so (i.e. keep a copy of the lease and original rental receipts)
    4) Your employer must fill in the IR56B return to IRD appropriately.

    In your case, since, as far as anyone can tell, you are using your housing allowance to rent some woman an apartment I think your chances of getting that through are minimal.

    Moreover, even if you did, the scheme isn't that the Housing Allowance is deducted from your salary. What happens is that you are taxed on 110% of your salary excluding the Housing Allowance.

    If I were you I would immediately get the lease assigned into your name (there will be Stamp Duty, at least, to pay on this), and ensure that your contract has the Housing Allowance clearly identified, and talk to your HR department about them implementing the record keeping and reporting.

    But again, I doubt that you will get anything changed retrospectively.


  3. #3

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    Hi PDLM,

    Really appreciate the response. So my work contract has the housing allowance clearly identified. Everything has gone through okay, but the company I work for made a mistake when they filled out the employer return.

    'What happens is that you are taxed on 110% of your salary excluding the Housing Allowance'

    I have been taxed 110% of my salary 'including' the housing allowance.

    So my company has taken my salary and housing allowance combined and then added on top another housing allowance accidently.

    So this mistake on the Employer Return stands to cost me a significant amount as it's then been projected into the 2010/2011 tax year as well as 2009/2010. I arrived in July 09.

    So regarding the legitimacy of the housing allowance. My girlfriend at the time moved into the flat and had the contract. I was out of HK when she saw the apartment and she signed the contract. In December she lost her job. On January 1st I moved in and begun paying the full rent to the landlord.

    Before I did this, I actually went to the inland revenue in Wan Chai to enquire about it. I spoke to them, and told them that I would get a housing allowance through work, that I would pay full rent and that the landlord would provide all the receipts. They were absolutely fine with this and showed me how to fill in rental allowance on my tax return when it came around.

    My companies financial advisor gave me a document: 'How to tax the provision of a place of residence to the employee'.

    Here I read that there was a special case (although it might be investigated):

    'the employee rents the property from some connected person and then claims rental reimbursements from his employer'

    So since January onwards this is what I've paid every month and haven't thought much of it. Everything has gone okay in terms of housing allowance on my tax bill and no questions have been asked. However, because the company I work for filled out the 'employer return' incorrectly I've now been charged almost twice as much.

    Mt thought process is this: if I challenge and they investigate, I can provide everything that I have. Even if the challenge is over-ruled it would still be better than the current state of affairs. Why? Because if they investigate and decide the housing allowance is not eligible - then I will have to pay all my salary in tax. This is better than the current state where I'm paying all my salary (including housing allowance) + my housing allowance again (because of the company mistake).

    Or, they decide it's okay and my tax bill is what I expected it to be . I've been in there today and they say the mistake is a typical and they deal with all the time. They even wanted me to appeal right then and there and were going to get me a case advisor once I filled out the objection form.

    I guess then next, if I'm seriously thinking about an appeal, is to understand if there are any negative implications of appealing and losing.

    Last edited by James_English; 30-11-2010 at 04:01 PM.

  4. #4

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    I would appeal since I dont think you could lose any more than you already have. Worth a shot.


  5. #5

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    OK, with that further detail then it seems clear to me that you should ask for a review of the assessment, but you can only do that when your employer has filed a corrected IR56B (this isn't optional for them - once they are aware of the error they are obliged to correct it).

    The problem is not the assessment as such, it is that your employer made a mistake on the filing, but having said that, didn't IRD query that there was a discrepancy between your personal tax return and the filing made by your employer? I would have thought that would be obvious to the assessor.

    I'm pretty sure you will get the correct assessment in the end, but you should plan to pay what you believe the correct amount to be on the normal schedule so that it is clear to IRD that you are not simply trying to evade payment.

    By the way, your employer should have given you a copy of the IR56B they filed for you back in April/May. Assuming they did that, shouldn't you have spotted the mistake then?

    Last edited by PDLM; 30-11-2010 at 04:09 PM.

  6. #6

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    Your HR cocked this up, they made the mistake, shouldn't they pick up this mess for you? I would complain and escalate till this is sorted out.
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  7. #7

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    Get the triads on your HR manager.

    That should solve the problem.


  8. #8

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    IRD didn't query at all - which is very disappointing. I called them immediately when I got the tax bill and asked them how they have calculated this when my personal tax return was so different. I've asked our financial accountant (who I've only been introduced to this week!!!!) and she says if there's a discrepancy then they lean toward the higher amount. Plus the Employer Return carries a lot more weight with them apparently. Still, you'd have thought that they would have checked.

    I don't recall seeing the IR56B. I know my boss asked me some questions around this time - and it's transpired that he was the one who filled it out and made the mistake.


  9. #9

    Join Date
    Feb 2011
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    8

    What if Housing allowance not mentioned in a contract but over an email

    Hi PDLM,

    Perhaps you can helpme here.

    I signed the employment contract last month and just recently found out about housing allowance.

    I cannot get the contract changed but can have my employer commit over an email to split my salary between income and housing allowance.

    Would that be valid for tax purposes?

    Appreciate your help.

    Thanks





    Quote Originally Posted by PDLM:
    You mean Housing Allowance?

    A number of things have to be in place for that:

    1) The Housing Allowance must be defined as such in your contract.
    2) You must actually spend the Housing Allowance on housing
    3) The employer must exercise "effective control" to ensure that this is so (i.e. keep a copy of the lease and original rental receipts)
    4) Your employer must fill in the IR56B return to IRD appropriately.

    In your case, since, as far as anyone can tell, you are using your housing allowance to rent some woman an apartment I think your chances of getting that through are minimal.

    Moreover, even if you did, the scheme isn't that the Housing Allowance is deducted from your salary. What happens is that you are taxed on 110% of your salary excluding the Housing Allowance.

    If I were you I would immediately get the lease assigned into your name (there will be Stamp Duty, at least, to pay on this), and ensure that your contract has the Housing Allowance clearly identified, and talk to your HR department about them implementing the record keeping and reporting.

    But again, I doubt that you will get anything changed retrospectively.