[GoldenDomer]

Hi Folks,

I'm about to sign on the Hong Kong offer letter, but need your wisdom on the housing allowance issue.

My manager told me that part of my income would come in the form of housing allowance (to be exact, US$54000 per year) when we were crunchign numbers, and he gave me one NY offer first ( which listed all my income as base salary + bonus, but no housing allowance), and told me to wait for the Hong Kong offer letter. When the Hong Kong letter came in, I found that they simply converted USD into HKD amount, and forgot the housing allowance part.

I plan to call Hong Kong HR and ask about it. But I'm such a dummy in HK tax and housing, I desperately need some advice/analysis from you guys. My total income is fixed, so its just a game of adding numbers, if they give me some housing allowance, then they'll cut some on my base or bonus, so the final question is, is housing allowance tax-free ? I am in a confusion right now because most people say it is tax-free, but some say no, and the official messages from google tend to say no. Could anybody help ?

BTW, Any NCAA fans ? Especially Fighting Irish fans or haters ? I set up a SlingBox in NY and plan to watch the games in HK, would love to have somebody to share or fight over the game.

[HKFella]

If there's evidential certainty about the housing allowance in your contract actually being spent on accommodation instead of ending in your pocket (e.g direct lease by employer, or reimbursed against receipt), then instead of this amount counting as taxable income, the value of this perk would be counted as ten percent of your base salary. Any part of the allowance above actual accommodation cost (i.e. going into your pocket) is taxable income. Overallocation to housing allowance (in excess of your estimated accomm. costs) will be wasted in the sense of opportunity cost of any base-salary-linked benefits such as retirement etc. If the USD54K is fixed, then less of a decision, but if it's just a max amount then you can work out the allocation that seems best based on what you think you'll need to spend on housing.

The above is gathered from others' discussions. I've never needed to pay close attention to it myself, being on tax-equalized terms from home country. Not do I know if above has changed in the last few years. Other members may be able to verify/modify. And there could be other methods for 'evidential certainty' which they might wish to elaborate on. Anyone?

[GoldenDomer]

Thank you !

My understanding for your input is, if my total income is 1M HKD, and 200K of it is housing allowance, in which I actually spend 100K on rent, then I'll pay tax for 900K HKD, am I right ?

[PDLM]

No, in that scenario you'd pay tax on HK$990K... Effectively 100K of housing allowance (because that's all you spent on housing) meaning your "non-housing" income is 900K and the taxable value of the housing allowance is 10% of your non-housing income so 900+90.

Note though that this tax treatment only applies IF your employer operates a scheme which ensures to the taxman's satisfaction that they do monitor your expenditure on housing. This means that they have to keep copies of your lease and your rental receipts, and the housing allowance must be declared on their employer's tax return (and match what you declare on yours).

Note that your "non-housing income" also includes any bonuses, not just your regular monthly salary.

[Mat]

Originally Posted by PDLM

No, in that scenario you'd pay tax on HK$990K... Effectively 100K of housing allowance (because that's all you spent on housing) meaning your "non-housing" income is 900K and the taxable value of the housing allowance is 10% of your non-housing income so 900+90.

Note though that this tax treatment only applies IF your employer operates a scheme which ensures to the taxman's satisfaction that they do monitor your expenditure on housing. This means that they have to keep copies of your lease and your rental receipts, and the housing allowance must be declared on their employer's tax return (and match what you declare on yours).

Note that your "non-housing income" also includes any bonuses, not just your regular monthly salary.

But if I am correct, the first 100.000 are tax free so in fact if you earn 1M, you pay taxes on 890.000 not 990.000. is that correct?

[PDLM]

That depends - there are two two scales. One is a sliding scale (first $100,000 at 0%, other allowances for married, kids, dependent parents, etc.) then 2% on the next 30K, 7% on the next 30K, 13% on the next 30K and 19% on everything above that. The other is a flat rate of 16% on everything with no allowances. You pay whichever is the lower.

For a single person with no other allowances (excluding housing) then the breakpoint is annual income of HK$350K. If you earn more than that then you'll pay 16% flat on everything (except the housing allowance, which is calculated as above).

See: http://www.ird.gov.hk/eng/pdf/pam61e.pdf for tax bands
and http://www.ird.gov.hk/eng/pdf/pam44e.pdf for treatment of housing allowance.

[Mat]

Originally Posted by PDLM

That depends - there are two two scales. One is a sliding scale (first $100,000 at 0%, other allowances for married, kids, dependent parents, etc.) then 2% on the next 30K, 7% on the next 30K, 13% on the next 30K and 19% on everything above that. The other is a flat rate of 16% on everything with no allowances. You pay whichever is the lower.

For a single person with no other allowances (excluding housing) then the breakpoint is annual income of HK$350K. If you earn more than that then you'll pay 16% flat on everything (except the housing allowance, which is calculated as above).

See: http://www.ird.gov.hk/eng/pdf/pam61e.pdf for tax bands
and http://www.ird.gov.hk/eng/pdf/pam44e.pdf for treatment of housing allowance.

correct forgot the 350K breakpoint..

[PDLM]

Originally Posted by PDLM

For a single person with no other allowances (excluding housing) then the breakpoint is annual income of HK$350K. If you earn more than that then you'll pay 16% flat on everything (except the housing allowance, which is calculated as above).

With apologies, I completely stuffed up that calculation. The breakpoint above which you will pay 16% flat rate as a single person with no allowances/dependents is a shade over HK$983,000 per year. Bleow HK$100,000 you pay no tax and between the two you pay a gradually increasing effective rate.

IRD has a salaries tax calculator here: http://www.ird.gov.hk/eng/ese/st_com..._07/stcfrm.htm

[Sleuth]

Originally Posted by GoldenDomer

BTW, Any NCAA fans ? Especially Fighting Irish fans or haters ? I set up a SlingBox in NY and plan to watch the games in HK, would love to have somebody to share or fight over the game.

On to the important issues of your post.
Can't see why anyone would stay up all night HK just to watch ND lose football games; although I hope they squash Ga Tech.

[GoldenDomer]

Thank you PDLM, your answer is exactly the kind I'm looking for. I googled the rules and docs etc etc, but what I really need is a real number, my brain functions better with solid numbers and equitions.