| Tax Tips |
Contributed by K C Law, tax sub-committee member, ACCA Hong Kong,
and partner, tax services, PricewaterhouseCoopers
Felix Tsang, tax manager, PricewaterhouseCoopers |
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This is the second article in a two-part series on tax advice
Special circumstances entail tax exemptions
Considering the financial woes brought about by the global economic turmoil, the last thing employees want to worry about is their annual tax returns. However, there are ways to minimise the blow.
Eric Poon was made redundant and received compensation from his employer for loss of employment. Is this compensation taxable?
Compensation for loss of employment that does not represent a payment for past, present or future services is generally not taxable. This would typically be a sum paid in consideration of the employee's surrender of his or her rights in respect of the employment. Such payments should be distinguished from termination gratuities that do relate to services previously rendered, which are taxable. The IRD accepts that long service and severance payments made in accordance with the Employment Ordinance are not subject to salaries tax. The IRD also accepts that a payment made in lieu of notice is not subject to salaries tax.
David Cheung took a pay cut of 30 per cent when he changed jobs in April 2009. How can he get some tax relief in respect to this when he submits his 2008/09 tax return?
Mr Cheung should note his changed circumstances, either in the tax return itself or on a separate sheet of paper submitted with the tax return, and request the IRD to take his situation into account when estimating his provisional salaries tax liability for 2009/10. He can take similar action if he was laid off and expects his income, if any, for 2009/10 to be less than 90 per cent of his income for 2008/09. However, Mr Cheung must ensure that any additional information he provides is correct, because penalties may arise if the information is wrong and results in underestimation of his provisional salaries tax.
Sam Tsui works for A Ltd. The company's subsidiary, B Ltd, provides him with a flat to live in. Does this have salaries tax implications for Mr Tsui?
Housing provided or subsidised by an employer or associated corporation is taxable. Mr Tsui's assessable income will include the rental value of the quarters provided to him. The rental value will be reduced by the rent that he pays to his employer or the excess of the rent reimbursement over the actual rent paid. The rental value of the quarters is 10 per cent of Mr Tsui's net income from A Ltd, but this would be reduced to eight per cent if the residence is in a hotel, hostel or boarding house with not more than two bedrooms, and further reduced to 4 per cent if it is a residence with not more than one bedroom.
John Chau's employer is a Hong Kong-based company that has seconded him to work in mainland China. Although Mr Chau occasionally returns to Hong Kong, he and his family will continue to live in mainland China in the foreseeable future. Is Mr Chau subject to Hong Kong salaries tax?
If Mr Chau spent no more than 60 days in Hong Kong, including holidays, between 1 April 2008 and 31 March 2009, his salary for that period will be exempt from tax in Hong Kong. Meanwhile, if he has paid individual income tax on the mainland related to his income for the services he rendered on the mainland, that portion of his income may be excluded when his Hong Kong salaries tax contribution is calculated. To qualify for this exemption, he must submit the relevant mainland tax payment receipts to the Inland Revenue Department (IRD) as proof that he had paid tax on the mainland. Although Mr Chau may not be subject to paying tax in Hong Kong, he still has to to complete his tax return, providing the reasons for exemption.
* Views expressed here cannot be construed as a recommendation by ACCA and ACCA shall not be held liable for damages arising out of any person's reliance upon this information.
Taken from Career Times 29 May 2009
Your comments are welcome at editor@careertimes.com.hk |
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Tax Tips
29 May 2009
Special circumstances entail tax exemptions
22 May 2009
Claiming a tax deduction
23 May 2008
Tax relief
16 May 2008
Nuts and bolts of filing tax returns |
