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Deducting rent from salary to save on income tax

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  1. #21

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    Of course there is a benefit for the employer - happier employees. Any business that ignores such an obvious benefit is missing a trick.


  2. #22

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    Quote Originally Posted by bdw:
    Basically it doesnt matter if you pay the rent to the landlord directly, or if the company pays for you. Also it doesnt matter if the tenancy agreement is between you privately and the landlord, or between your company and the landlord. In all cases, you can still claim the rent paid as a deduction off your income and you can enjoy significant tax savings.
    If the tenancy agreement is signed by the employer with the landlord, it is clearly the liability of the employer (not the employee) to pay the rent. The refund of rent must be non-taxable (i.e. a real reimbursement).

    However, if the employee signs the tenancy agreement with the landlord privately, the rent is, in most cases, paid by the employee (as it is the employee's liability to pay the rent under the tenancy agreement lawfully). The rent paid is then refunded by the employer without any control over the use of the refund. The refund may be considered by the IRD as cash allowances (i.e. an additional amount to taxable amount of salaries of the employee).

    You may refer to the pamphlet issued by IRD (P. 8) :

    http://www.ird.gov.hk/eng/pdf/pam44e.pdf

    "However, if the employer does not control how the employee would spend the money or has not exercised proper control over the expenditures, the Assessor will regard the reimbursements as cash allowance and include the full amount as income in the Assessable Income."

    That 's why not many employers are willing to arrange a rental refund to the employees (i.e. an expat). The employer has to implement the following proper controls, for example:

    - a clearly defined system is in place, under which the ranks of those officers who are entitled to rental reimbursements and the limit of their respective entitlements are clearly laid down;

    - the mode of housing benefit entitled by the employee and the limit of rental reimbursement are clearly specified in the contract of employment; and

    - the employer will examine the tenancy agreement and rental receipts and verify the actual payment of rent against the tenancy agreement at regular intervals, and also retain the relevant documents for record purpose.

    Such arrangements may add unnecessary costs to the employer's operations.

    You're right in that the information in Individual Tax Return (Form BIR60) filled by the expat as the taxpayer (i.e. employee) must be consistent with the information in Form IR56B filled by the employer in April. Of course, in most cases, the employer will fill in both forms and ask the employee to sign on Form BIR60 for submission.
    Last edited by cadelite; 10-04-2012 at 07:28 PM.

  3. #23

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    Quote Originally Posted by Oldtimer:
    There is no benefit for the Employer. There is no tax effect for Employer. Their tax does not change. The employee gets the tax benefit.
    There is a benefit to the employer, but not tax related.

    When calculating relevant income for Mandatory Provident Fund (MPF) contribution, the relevant income is mostly the actual salary paid (i.e. not including the rental refund from the employer to the employee). As a result, the employer's contribution to MPF will be less than the case without the arrangement of rental refund to the employees for their residence but paying full amount of salaries to the employee.

    If the salary has already reached the maximum (i.e. HK$20,000 currently or HK$25,000 after 31 May 2012) for contribution even without the rental refund, there is no effect to the employer.
    Last edited by cadelite; 10-04-2012 at 07:48 PM.

  4. #24

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    Quote Originally Posted by cadelite:
    If the tenancy agreement is signed by the employer with the landlord, it is clearly the liability of the employer (not the employee) to pay the rent. The refund of rent must be non-taxable (i.e. a real reimbursement).

    However, if the employee signs the tenancy agreement with the landlord privately, the rent is, in most cases, paid by the employee (as it is the employee's liability to pay the rent under the tenancy agreement lawfully). The rent paid is then refunded by the employer without any control over the use of the refund. The refund may be considered by the IRD as cash allowances (i.e. an additional amount to taxable amount of salaries of the employee).

    You may refer to the pamphlet issued by IRD (P. 8) :

    http://www.ird.gov.hk/eng/pdf/pam44e.pdf

    "However, if the employer does not control how the employee would spend the money or has not exercised proper control over the expenditures, the Assessor will regard the reimbursements as cash allowance and include the full amount as income in the Assessable Income."

    That 's why not many employers are willing to arrange a rental refund to the employees (i.e. an expat). The employer has to implement the following proper controls, for example:

    - a clearly defined system is in place, under which the ranks of those officers who are entitled to rental reimbursements and the limit of their respective entitlements are clearly laid down;

    - the mode of housing benefit entitled by the employee and the limit of rental reimbursement are clearly specified in the contract of employment; and

    - the employer will examine the tenancy agreement and rental receipts and verify the actual payment of rent against the tenancy agreement at regular intervals, and also retain the relevant documents for record purpose.

    Such arrangements may add unnecessary costs to the employer's operations.

    You're right in that the information in Individual Tax Return (Form BIR60) filled by the expat as the taxpayer (i.e. employee) must be consistent with the information in Form IR56B filled by the employer in April. Of course, in most cases, the employer will fill in both forms and ask the employee to sign on Form BIR60 for submission.
    THis is utter crap. Provided that the employer sees the lease agreement and properly reviews the amounts being paid under the lease, this is perfectly acceptable. All our employees operate like that and have done for over 5 years.

  5. #25

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    Quote Originally Posted by bdw:
    Thats why there are 4 separate boxes on the tax return you fill out each year. Something like "Rent paid to landlord by employer", "Rent paid to LL by employee", "Rent refunded to employee", etc... All of these are still classed as a "Place of residence provided by employer" and still able to claim a 100% tax deduction of the rent.
    What you said about the four separate boxes are related to the Rental Value (RV) of place of residence provided by the employer (i.e Box 4.2 of this sample Individual Tax Return: http://www.ird.gov.hk/eng/pdf/ind_ctre_demo.pdf )

    You may refer to the pamphlet issued by the IRD:

    http://www.ird.gov.hk/eng/pdf/pam44e.pdf

    Quote Originally Posted by Trebor:
    Sorry to revive this but..............would my rent be considered wholly and necessarily in terms of deduct-ability?

    This is taken from the Practice notes;

    The basic test is whether the expenditure is vital to the employment to the extent that it would not be possible for the taxpayer to produce the income from the employment without incurring that expenditure.
    However, what Trebor and I said are about "deductible outgoings and expenses" in Box 4.3 (1) (you may read more in GovHK: Deductions for more details)

    The deductibility of outgoings and expenses is stated in Section 12(1)(a) of Inland Revenue Ordinance (IRO) and DIPN 9:

    http://www.ird.gov.hk/eng/pdf/e_dipn09.pdf

    They are completely different things in fact.

  6. #26

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    Quote Originally Posted by MovingIn07:
    THis is utter crap. Provided that the employer sees the lease agreement and properly reviews the amounts being paid under the lease, this is perfectly acceptable. All our employees operate like that and have done for over 5 years.
    Yes but they are requirements under the laws (i.e. the Inland Revenue Ordinance and related cases), no matter you like it or not. If the employer has done all these "control" measures, everything is lawful.

    However, I believe that the employer may only implement these measures for Senior Management Staff and I believe that you are one of them enjoying these

    Frankly speaking, not many employers in Hong Kong are willing to do these arrangement for their Junior or Middle Level Staff.
    Last edited by cadelite; 10-04-2012 at 10:44 PM.

  7. #27

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    Quote Originally Posted by cadelite:
    Yes but they are requirements under the laws (i.e. the Inland Revenue Ordinance and related cases), no matter you like it or not. If the employer has done all these "control" measures, everything is lawful.

    However, I believe that the employer may only implement these measures for Senior Management Staff and I believe that you are one of them enjoying these

    Frankly speaking, not many employers in Hong Kong are willing to do these arrangement for their Junior or Middle Level Staff.
    I second MIN07, this is complete crap. I work for the largest employer in HK and they do this for ALL staff regardless of seniority.

  8. #28

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    Quote Originally Posted by bdw:
    Cadelite, Im sorry but I think you are not quite correct and spreading false information.
    If I am doing what you said, I believe the moderator will not approve my posts

    Besides, what I said included links from Inland Revenue Department and the laws. You may ignore what I said but it is quite unreasonable to say that the information from Inland Revenue Departments and the laws that I spread are "false" while the truth is not the case

  9. #29

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    Quote Originally Posted by bibbju:
    I second MIN07, this is complete crap. I work for the largest employer in HK and they do this for ALL staff regardless of seniority.
    I understood your grievance of knowing the truth. But please spend some time to read the pamphlet from Inland Revenue Department (IRD) that is actually written for you, as either an employer or an employee.

    By the way, your employer is only one of the numerous employers in Hong Kong. What I said is mainly the small and medium-sized companies and I believe that the number of these small and medium-sized companies is far more than that of "large companies" in Hong Kong.

    I just express my opinion based on my experience in handling these tax cases for small and medium-sized companies. If you do not agree, I would be much appreciated if you would express yours, instead of keeping saying the opinion as "crap".

    In reality, the IRD will only write to your company to request more information and documents only if they sample your company for investigation. In most cases, you can do what you did in the past, no matter it is lawful or not, IMHO.

    By the way, the employer may have already implemented these controls without the employee knowing about these. There is no meaning to argue if what Inland Revenue Department requires in her pamphlet are craps or not.
    Last edited by cadelite; 10-04-2012 at 11:12 PM.

  10. #30

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    Quote Originally Posted by bibbju:
    I work for the largest employer in HK and they do this for ALL staff regardless of seniority.
    Ah, government employee.