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Unformatted text preview: U4_Salaries_2 1 THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS BUSI 0018 – Hong Kong Taxation Unit 4 – Salaries Tax (2) Coverage 1 Assessable income under the IRO 2 Specific income excluded under the IRO 3 Common law income principles 4 Perquisites - fringe benefits 5 Housing accommodation 6 Share option 7 Retirement benefit Learning Objectives After completing this unit, you should be able to: • list the income specifically included and excluded as assessable income under the IRO • explain and apply the general principles from case law of what constitutes assessable income • determine the salaries tax treatment of various fringe benefits, including housing accommodation, share option and retirement scheme 1 ASSESSABLE INCOME UNDER THE IRO • General coverage: S.9(1)(a) - “Income from employment includes wages, salaries, leave pay, fees, commission, bonus, gratuity, perquisite (i.e. fringe benefit), allowance, whether derived from employer or others” • Specific coverage: - Housing accommodation – see section 5 below - Gain from share option – see section 6 below - Retirement benefit – see section 7 below - Any other benefits capable of being converted into money (S.9(2A)(a)) - Education benefits paid for employee’s child paid by employer (S.9(2A)(b)) - Any amount paid by the employer in connection with a holiday journey [w.e.f. 1.4.2003] (S.9(2A)(c)) U4_Salaries_2 2 2 INCOME EXCLUDED UNDER THE IRO • General exemptions – S.8(1A)(c), S.8(2) & S.87 – refer to Unit 3 • Specific exemptions – ♦ Value of holiday warrant or passage or allowance for the purchase of such provided that it is expended for that purpose [S.9(1)(a)(i) and (ii)], and any allowance for transportation of personal effects in connection with such journey [S.9(1)(a)(iii)] - Exemption abolished from the year of assessment 2003/04 onwards ♦ Refund by employer or associated corporation of rent paid by employee, but “rental value” to be assessed (see section 5 below) – S.9(1A) ♦ Subject to exceptions (see section 4.1 below), payments made by employer to discharge employer’s own sole and primary liability that is not subject to any person’s surety – S.9(1)(a)(iv) 3 COMMON LAW INCOME PRINCIPLES • S.9(1)(a) does not provide an exhaustive list of definition of “income”, (note the wording “includes” ) • Reference is made to common law principles in determining whether a receipt is an “income” under S.9 of the IRO and hence taxable • Pre-requisite for being assessable: - arises from office or employment; - for services, whether past, present or future, rendered in performing duties of the office or employment; and - in money or money’s worth • Not taxable if simply a gift of exceptional kind Examples: ♦ Ex-gratia gift - non-taxable if paid as a token of personal esteem - taxable if paid for recognition of past services ♦ Compensation for loss of office or terminal payments - non-taxable if genuinely paid for compensation of termination or...
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