TA_U4_SalariesTax(2) 1BUSI 0018 – Hong Kong Taxation Tutorial Questions Unit 4 – Salaries Tax (2) Answer 10Relevant provisions in the IROThe IRO lays down specific rules for ascertaining the taxability of the following fringe benefits provided by an employer; being free or subsidised accommodation, share options and travel warrants. In brief, the rules can be set out as follows: (1) Accommodation S.9(1)(b)&(c), S.9(1A)&(2)The benefit of rent free or subsidised accommodation provided by an employer or an associated company is taxed based on a rental value calculated at 10% of the employee's income from the employment. The 10% may be reduced to 4% or 8% if the accommodation is hostel or hotel room depending on the number of rooms provided. If a certain portion of rent is borne by the employee, the portion borne/suffered is deducted against the rental value calculated, leaving the balance to be included in the assessable income. (2) Share options S.9(1)(d)Special rules also exist for taxing a gain derived by an employee from a share option scheme set up by an employer. The option is a taxable benefit and tax is imposed on any gain arising from the exercise or assignment or release of the option. In the case of exercise, the gain is calculated based on the market value of the shares acquired under the option as at the time of exercise less the price paid for the shares together with the cost of the option. Any gain or loss arising from subsequent disposal of the shares is not taxable under S.9(1)(d). In the case of assignment or release, the gain is calculated based on the consideration received less the cost paid for the option. (3) Travel warrants S.9(1)(a)(i)(ii)(iii)A holiday or travel warrant/passage provided by an employer to an employee is specifically exempt from tax under the IRO to the extent that it is actually expended and used for travel. From the year of assessment 2003/04 onwards, this exemption has been removed (see further discussion below). General law principlesUnder Section 9(1)(a) of the IRO, subject to the exceptions specified, chargeable income from any office or employment includes any perquisite. The meaning of this term, in the context of the IRO, was considered by the court in the Glynn’s case. The majority held that the term should be given its ordinary meaning and accordingly all benefits derived by an employee from his employment should be charged to salaries tax. The decision of the Privy Council in the Glynn's case reflected the Department's pre-Glynn understanding of what constituted a chargeable perquisite: (1) money which can be obtained from property which is capable of being converted into money; and (2) money which is paid in discharge of a debt of the employee.
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