04a - THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS BUSI...

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U4_Salaries_2_0809 08/09 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))
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U4_Salaries_2_0809 08/09 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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04a - THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS BUSI...

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