[johnnyboy]

Just had lunch with a friend awhile ago and we had an interesting conversation about housing allowance. I am now wanting to share with you(since so many of you are experts AND expats) to see what your thoughts are.

Offer 1
Monthly salary HKD$ 25,000 PLUS HKD$10,000 housing allowance, AND an executive insurance plan paid for by the employer

or

Offer 2
Monthly salary HKD$ 40,000, and an executive insurance plan paid for by the employer, BUT NO housing allowance included.

Consider this:
Monthly rental is HDK $10,000,
No dependants,
No MPF contribution.

Which offer brings in more $$$ to the pocket? How can one know what to look for to decide which is better?

Thanks guys! I appreciate your thoughts.

[freeier]

without going into numbers, gut feel, take the extra 5k
tax savings on 10k rental is probably 1k. u get extra 4k.

[PDLM]

Extra tax on scenario 2 is about 2K but you'd still be 3K better off.

[johnnyboy]

Guys, how did you come up with those numbers? Care to share your calculations?

[beafan]

isnt it the difference between the two amounts (15K) and 17% of that?
i could be totally off whack cuz i havent done my taxes yet.

http://www.ird.gov.hk/eng/ese/ind_stc.htm

[PDLM]

If you get salary of 25K and housing allowance (of whatever amount) which is spent entirely on housing then your salary for tax purposes is 27.5K (25K+10%). See http://www.ird.gov.hk/eng/pdf/pam44e.pdf for details.

Scenario 2 your salary for tax purposes is 40K.

I used flat rate tax (17%) to come up with the difference between the two, but in fact you aren't earning enough to be on flat rate tax, which makes the two scenarios a bit closer.

Doing the calculation using the tax calculator here: http://www.ird.gov.hk/eng/ese/ind_stc.htm
Tax on 27.5K (320K/year) is 31.3K.
Tax on 40K (480K/year) is 61.7K

Cash in hand after rent:
Scenario 1: 320K - 31.3K = 288.7K
Scenario 2: 480K - 120K - 61.7K = 298.3K

So you are 10K per year better off in Scenario 2.

Of course, if your rent (and housing allowance) was 11K or more without any change in salary then you'd be better off under Scenario 1.

[freeier]

in more accurate computation:

to report 10k in rental, you save tax to be paid on 7.5k, which is actually at marginal tax rate of 19%, i.e. close to 1425 per month.

you get extra 5k, after tax = 4050,

so in all you gain 4050-1425 = 2625 after tax, per month.

the tax savings is derived by using 10k versus 10% of the remaining pay. i.e. if your pay is 25k + 10k, the 10k will be taxed as if it is 10% of the 25k, i.e. taxable notional = 2.5k.

[freeier]

pdlm, u did not subtract the 2.5k in scenario A that is tax implied but he did not receive

[PDLM]

Good point - sorry.

So you are HK$35K per year better off under Scenario 2.

(which matches my first go pretty much exactly)

[freeier]

8-) so u shld trust your instinctive computation more than your detailed IRD site assisted one. ahhaa