[lacrosse]

Yup, absolutely right!!! I spend about 30% of my salary towards rental every month. So having this housing allowance really really really helps to free up more cash for me.

So based on your explanations, there is no catch or whatsoever on my side as long as my employer is willing to offer me housing allowance(stating it clearly on the employment contract)

[PDLM]

And your employer must "Exercise Proper Control" (as the Inland Revenue Department puts it) that you do actually spend it on housing. This means that they must take a copy of your Tenancy Agreement and copies or originals of your rental receipts. And they must declare the payments correctly on their employer's tax return to the Inland Revenue, and they must retain the records for when they are tax audited.

[lacrosse]

Thanks again for your advise, PDLM. I am so thankful that my employer was willing to offer me housing allowance of HKD10,000 a month though I'm only making HKD20,000 per month. That really drives down my taxable income

[freeier]

huh? unless u use the full 10k hkd for housing, else u are violating the law.
the housing allowance only applicable to amount you actually spent, not the amount u are allocated under the package. but anything that is remaining goes to your monthly take home.

[lacrosse]

I am indeed using the full HKD10,000(housing allowance) on my rental. I am not doing anything wrong here, right?

[PDLM]

freeier,

I think lacrosse knows that - s/he stated in the first post that s/he was paying rent of 10K per month.

The point is that the difference between getting $30K of salary per month and getting $20K of salary plus $10K of (properly managed, declared, controlled) housing allowance every month (assuming that you do indeed spend $10K on rent) is that your tax bill is reduced by HK$18,240 per year (assuming you are single, no dependents). So this is a very significant increase in the amount of cash in your pocket each month.

lacrosse,

Assuming your employer exercises proper control and does all the things that they are supposed to do then no, you are not doing anything wrong.

[dizzyhytes]

Hi PDLM

Thank you for finally simplifying the computation for us! However I have some follow on questions which I would be grateful if you could help shed some light on.

1. I was told that the grossing up of the taxable income by 10% is only done if the taxpayer is enrolled in the Rental Reimbursement program.
2. If this is true, then it would seem that the RR program is only beneficial if the amount you spend on rental forms a large percentage of your total income (including housing allowance).
3. I spend only a small percentage of my housing allowance on rental (15.7%). In that case if I were to opt out of the RR program, then would I still be subject to the grossing up of my total taxable income by 10%? Or does your income get grossed up regardless of whether you are part of the program? I believe I may be better off opting out.

Not sure if I've understood it correctly and appreciate your help.
Thanks Kathy

[freeier]

if u have substantial bonus (at least 60% of your annual package), then don't use the rental reimbursement program. because they use your total pay for the year to gross up.

else, use it.

and no, if you are paying rent from your base pay and you choose not to opt into the rental reimbursement program, then your taxable income will be your base income minus the deductables. that's all.

[PDLM]

Put simply, if you spend more than 10% of your total annual gross income (including bonuses) on rental then, all other things being equal, you will pay less tax if you get the amount of your rent specified as Housing Allowance (and your employer does all the necessary things). If you spend less than 10% of your total annual gross income on rent then you would actually pay more tax by having it set up as Housing Allowance.

[eyecee]

2 questions directed to PDLM given his/her obvious expertise in this area but anyone can answer!

1) Based on your formula on working out tax with a housing allowance, can you confirm my calc below?
39,500 salary + 11,500 housing allowance = 51,000 total package
Taxable income = (39,500x12months) x110% = 521,400
Plug 521,400 into the "Income for the year of assessment" box on the IRD.gov.hk website and assuming no other deductions or allowances = 69,566 tax to be paid.
Is this correct?

2) I'm considering purchasing an apartment later this year and was wonder what happens to the housing allowance if I purchase the property? Can I still claim the 11,500 as a housing allowance? Or given that I won't have a lease but a mortgage instead, I'd be better to get the housing allowance back as salary and then claim the home loan interest? What's the best option here?

Thanks in advance! eyecee