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Pros and Cons of electing rental reimbursement scheme

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  1. #1

    Join Date
    Jun 2011
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    Hong Kong Island
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    25

    Cool Pros and Cons of electing rental reimbursement scheme

    Hi all,

    I was recently offered a job in HK and will be moving in with my wife end of this year. Firstly, I am wondering if HKD 38,000 per month is enough to sustain a decent living in HK? To add, company will be providing for my housing which is around HKD 20K per month and return flights for my family back to my country every 6 months.

    Secondly, I was given a choice to take up the rental reimbursement scheme. What are the pros and cons of this feature? Under what circumstances should i take up this scheme?

    Thanks.


  2. #2

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    The pro would be that it saves you some tax. The only con would be that if the alternative was to have a higher base salary AND you get a significant bonus which is defined as a %age of your base salary then the reduction in bonus might be greater than the tax saving.

    HK$38K plus 20K for housing is plenty for a couple with no kids to have a decent standard of living, although you might not get as big a place to live in as you would expect in your home country.

    Last edited by PDLM; 11-07-2011 at 02:24 PM.

  3. #3

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    Jun 2011
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    Hong Kong Island
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    Thanks PDLM, I am well prepared for a smaller space in HK . Is HKD20K enough for a stay at The Merton in Kennedy Town? Would you also be able to provide some calculation examples for the alternative scenario mentioned in your first para?

    Cheers.


  4. #4

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    With no bonus you get taxed on HK$58K/month if you don't join the rental reimbursement scheme, but on $41.8K/month if you do, for the same amount of gross income ($58K), so that's a no brainer. (Net income as a couple with no kids is $54954)

    But if your bonus is defined as, say, 50% of salary and if you don't join the rental reimbursement scheme then your salary is deemed to be $58K, but if you do then it's deemed to be $38K, then your gross income out of the rental scheme would be $87K and you'd be taxed on all of it (leaving a net income as a married couple with no kids of $76.27K), whereas in the rental scheme your gross income would be $77K and you'd be taxed as if it were $62.7K (leaving a net income of $70.4K).

    Tax calculator here: Salaries Tax Computation
    If you're in a rental reimbursement scheme then you enter the total amount of salary and bonuses EXCLUDING housing allowance in the income box, and 10% of that amount in the "Value of Place of Residence provided" box (yes, this calculation is independent of the actual value of the housing allowance, provided that you spend at least as much as the allowance on housing). If you're not on a rental reimbursement scheme then you enter the total amount INCLUDING your housing allowance in the Income box and 0 in the "Value of Place of Residence" box

    new2Hkong likes this.

  5. #5

    Join Date
    Jul 2011
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    Quote Originally Posted by PDLM:
    With no bonus you get taxed on HK$58K/month if you don't join the rental reimbursement scheme, but on $41.8K/month if you do, for the same amount of gross income ($58K), so that's a no brainer. (Net income as a couple with no kids is $54954)

    But if your bonus is defined as, say, 50% of salary and if you don't join the rental reimbursement scheme then your salary is deemed to be $58K, but if you do then it's deemed to be $38K, then your gross income out of the rental scheme would be $87K and you'd be taxed on all of it (leaving a net income as a married couple with no kids of $76.27K), whereas in the rental scheme your gross income would be $77K and you'd be taxed as if it were $62.7K (leaving a net income of $70.4K).

    Tax calculator here: Salaries Tax Computation
    If you're in a rental reimbursement scheme then you enter the total amount of salary and bonuses EXCLUDING housing allowance in the income box, and 10% of that amount in the "Value of Place of Residence provided" box (yes, this calculation is independent of the actual value of the housing allowance, provided that you spend at least as much as the allowance on housing). If you're not on a rental reimbursement scheme then you enter the total amount INCLUDING your housing allowance in the Income box and 0 in the "Value of Place of Residence" box
    Thanks for the clarification PDLM, I'm working my own example at the moment, so if you could confirm that I'm doing it correctly...

    Annual Salary including bonuses:
    1,145,640
    Total permissable for rental reimbursement:
    334,800
    Total reckonable for tax:
    1,145,640 - 334,800 = 810,840
    Tax for married person with dependant (as per online tax calculator) 92707 paer annum

    Does this seem right to you? just seems a little low for a salary of 1.1m HKD

    Thanks for your help!
    doncas

  6. #6

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    Thanks for helping me gain insight into the RR scheme PDLM!


  7. #7

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    Quote Originally Posted by doncas:
    Annual Salary including bonuses:
    1,145,640
    Total permissable for rental reimbursement:
    334,800
    Total reckonable for tax:
    1,145,640 - 334,800 = 810,840
    Tax for married person with dependant (as per online tax calculator) 92707 paer annum

    Does this seem right to you? just seems a little low for a salary of 1.1m HKD
    No in addition to your taxable salary of $810,840 you have the taxable value of the place of residence provided at 10% of that, i.e. $81,084, which makes your tax as a married person (spouse with no income) $102,907.

    But note that this is dependant upon the following ALL happening:
    1) The housing allowance is defined in your contract of employment
    2) You do actually spend at least the amount of your housing allowance on rental
    3) Your employer "exercises control" to ensure this is so - means that they hold a copy of the lease and the original rental receipts from your landlord
    4) They file the appropriate returns to IRD.
    doncas likes this.

  8. #8

    Join Date
    Jul 2011
    Posts
    6

    Ah, I see,

    Yes, my employer is exercising full control, and has requested the documents you have described as follows,
    1. Housing allowance is mentioned in my contract as rental reimbursment
    2. We will be spending the full amount on rental
    3. As mentioned ny employer is exercising control and has requested all documentation
    4&5. A reputable company that should file everything correctly!

    Many thanks PDLM!