No Housing but higher Salary - make sense?

[Submariner]

So HR just informed us that my wife will not be on the expat package due to budget constraints. Therefore, the housing allowance that was promised is no longer offered. However, HR did say that they can work with us and raise the salary to make up for this.

My question: Why can't they just reallocate the compensation to offer housing? If she gets a salary of $124,000 USD/year, why not offer her $100,000 + $24,000 in housing? We'd much prefer that as it would save us a bit on taxes.

Are there corporate tax issues that would make a company prefer to compensate everything as salary rather than salary + allowance?

[nina_70]

If you are a US citizen, the housing allowance is no longer a big a benefit as it used to be thanks to a new bill miss-appropriately called Tax
Increase Prevention and Reconciliation Act of 2005...
Basically it reduces significantly the exemption you can take for housing to only US$12K/year and makes it part of your gross income instead.

See more details here:
http://www.geoexpat.com/forum/thread11745.html
and here:
http://amcham.org.hk/taxhike/

The impact on companies is that it also increases their tax burden (if you are tax equalized). So, that's why allot of companies are dropping the housing allowance.

[Submariner]

Well, we're not going to be tax equalized so does that mean there is no additional burden for the company if it divides up the compensation as salary+housing rather than just housing?

[nina_70]

Not entirely sure on that one. I "think" it's equivalent for the company since they are not liable for the additional tax burden. It should just be lumped on as gross income. Then again, there is probably some additional work on the part of the company since they must record the housing as a separate income. You may want to contact someone more versed in the tax law than me.....

[PDLM]

There's more work for the company if they don't already offer Housing allowance to anyone else because for there to be a tax benefit to you your employer has to "exercise control" over the fact that you do actually spend the allowance on Housing - this means record keeping, getting copies of your receipts etc. which a small company might regard as too much hassle.

Note also that if your wife gets a bonus which is generally calculated as a percentage of base salary then you might benefit from having the higher base and no allowance.

[cerberus]

take it, if you have the money then finding housing in HK is a total breeze.

[Submariner]

Ok, so after calculating in HK and US taxes and factoring in the extra bonus that comes with the higher base salary as PDLM mentioned, the advantage of allocating a part of the salary as housing allowance comes to about $1,000 USD/year in tax savings.

So I guess it's not worth trying to get the company to change the structure of the compensation package. However, I still wonder why they can't reallocate a portion of her salary as allowance. It's a big company and the HR manager himself is getting a housing allowance so the infrastructure is in place. Strange.

[cerberus]

give it some time and once you guys are comfortable professionally and locally, ask.

until then, bask in the comfort of having a recruitment/relocation package and rest assured a grand a year is really not that big a deal.

[oliv]

50 000 Hdollars...it's Enought In Hongkong With 2 Adults And 1 Kid ( 4 Years Old ).?
Can I Save 25000 / 30 000 Hdollars /month..?

Thanks For Your Reply....

Oliv

[Mat]

50 000 Hdollars...it's Enought In Hongkong With 2 Adults And 1 Kid ( 4 Years Old ).?
Can I Save 25000 / 30 000 Hdollars /month..?

Thanks For Your Reply....

Oliv

Depends because I think you will have to register for some typing lessons and that might cost a lot...

You wrote 3 lines and my eyes are already bleeding..

Anyway to answer you question, 50.000 is OK. As for saving this is your own business I would say..some will earn 100.000 and piss it all in one month, some will earn 20.000 and still manage to save 6 or 7K.