[Jakeharp]

Hello,

I have a question regarding taxes for my housing allowance versus my salary.

I am relocating to Hong Kong in January with my wife. I was told by my employer that I could increase my housing allowance (and decrease my salary) so that my housing allowance covered the cost of my apartment 100%. I was also told that I do not have to pay taxes on my housing allowance. If this is true, than obviously it makes sense to increase my housing allowance (and decrease my salary) so the cost of my apartment is covered 100% by my housing allowance...

Can someone tell me if this is accurate? Are there any resources online that could verify if this is true? How can I calculate how much tax I will be paying?

Any advice or comments would be greatly appreciated.

Thanks & best regards,

Jake

[freeier]

yes, u can increase your housing allowance to cover your full rental.

no, but you cannot be totally taxed free.
e.g. your original pay = 40,000, your actual rental = 10,000
you can split yoru pay into 30,000 + 10,000 rental

then you will pay tax for 30,000 * 10% extra, = 33,000

the 10% extra on your base pay is like your rental in lieu.

[Jakeharp]

Thanks for the quick reply!

Best regards,

Jake

[freeier]

and of cos, everything has to be properly documented and your HR has to agree to the arrangement. audit/documentation trail properly set up (keeping the original rental contract, etc).

[blueyme]

Originally Posted by freeier

yes, u can increase your housing allowance to cover your full rental.

no, but you cannot be totally taxed free.
e.g. your original pay = 40,000, your actual rental = 10,000
you can split yoru pay into 30,000 + 10,000 rental

then you will pay tax for 30,000 * 10% extra, = 33,000

the 10% extra on your base pay is like your rental in lieu.

does it mean that if housing allowance is not taxed, the basic salary*110% will be subjected to 16% tax? By the way, is housing allowance tax deductible? MPF is 5 or 10%? subject to an income cap of HKD20,000/mth? is bonus subjected to mpf?

Eg if basic is 25,000 and allowance is 20,000

[philippe]

Originally Posted by freeier

yes, u can increase your housing allowance to cover your full rental.

no, but you cannot be totally taxed free.
e.g. your original pay = 40,000, your actual rental = 10,000
you can split yoru pay into 30,000 + 10,000 rental

then you will pay tax for 30,000 * 10% extra, = 33,000

the 10% extra on your base pay is like your rental in lieu.

Freeier, I was under the impression that the gov't scrapped this and the holiday allowance after 1997.

Any tax expert here to enlight us?

[PDLM]

KIA

Could we make a sticky on this or something?

http://www.ird.gov.hk/eng/pdf/pam44e.pdf contains full details of the tax treatment of housing provided by the employer, either directly or in the form of housing allowance. Freeier's description is correct.

[blueyme]

Thanks! the pdf is very helpful.. but one more thing.. if there is no control and the housing allowance is taxed at 16%, is the actual rental expense considered deductible?

[PDLM]

You have obviously misread the PDF. The housing allowance is NOT taxed at 16%. Nor is the expense regarded as deductible. Whatever the amount of your housing allowance, provided that your employer "execrises proper control" that you do actually spend it on housing (i.e. they should keep copies of your rental agreement and monthly receipts on file) then a taxable value of 10% of the remainder of your salary package is added to your salary for tax purposes. Any portion of your "housing allowance" which is NOT spent on housing is taxed as income in the normal way.

The actual tax you pay on any level of income is a sliding scale up to a maximum flat rate of 16%, which you hit on annual income of about HK$1M. The Inland Revenue has a tax calculator here: http://www.ird.gov.hk/eng/ese/st_com..._07/stcfrm.htm but this does not deal with housing, whose taxable value you need to calculate as per the PDF.

[blueyme]

Originally Posted by blueyme

Thanks! the pdf is very helpful.. but one more thing.. if there is no control and the housing allowance is taxed at 16%, is the actual rental expense considered deductible?

What i am refering to is if the co does not exercise control, the housing allowance will be treated as cash allowance which will be taxed at the normal way. In this way, would the rental expense be considered deductible as it can fall into the expense category which is necessary in earning the income in Hong Kong?