Salaries tax

  1. s8(1): Charge of salaries tax
    • Salaries tax is imposed on a person's income arising in or derived from Hong Kong from the following sources
    • (a) Any office;
    • (b) Employment;
    • (c) Any pension.
  2. s8(1A)(a): An extended charge on employment income which covers income for services rendered in HK from a foreign employment.
    Includes all income derived from services rendered in Hong Kong, including leave pay attributable to such services.
  3. s8(1A)(b): Exemption section
    Excludes income derived from services rendered by a person who: (i) is not employed by the government or as master or member of the crew of a ship or as commander or member of the crew of an aircraft, and (ii) renders outside Hong Kong all the services in connection with his employment. --> exempt from Salaries Tax
  4. s8(1A)(c): Exemption section
    Excludes income derived by a person from services rendered by him in any tenitory outside Hong Kong where the person is chargeable to, and has paid tax of substantially the same nature as, sala1ies tax in Hong Kong. ---> A way to eliminate double taxation
  5. s8(1B): Exemption section
    In detennining whether or not all services are rendered outside Hong Kong for the purposes of s.8(1A)(b)(ii), no account shall be taken of services rendered in Hong Kong during visits not exceeding a total of 60 days in the basis period for the year of assessment. -+ exempt from Salaries Tax
  6. s8(2)(ca): Benefits specifically excluded from salaries tax
    Pension received (other than HK Government employee) attributable to services outside HK is exempt from HK salaries tax.
  7. s8(2)(i): Benefits specifically excluded from salaries tax
    Payment in nature of alimony or maintenance by a person from his or her spouse or former spouse.
  8. s8(2)(j): Exemption for seafarers and aircrew
    Income of seafarers and aircrew will be exempted from HK salaries tax if the taxpayer was present in HK for not more than: (a) a total of 60 days in the basis period; and (b) a total of 120 days for 2 consecutive years of assessment, one of which is that year of assessment.
  9. s9(1 )(a): income chargeable to salaries tax
    Any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance, whether derived from the employer or others.
  10. s9(1 )(a)(iv): benefits specifically excluded from salaries tax
    Subject to subsection (2A), any amount paid by the employer to or for the credit of a person other than the employee in discharge of a sole and p1imaiy liability of the employer to that other person, not being a liability for which any person was surety.
  11. s9(1)(b): income chargeable to salaries tax
    The rental value of any place ofresidence provided rent-free by the employer or an associated company.
  12. s9(1)(c): income chargeable to salaries tax
    The excess of the rental value over the rent paid for a place of residence provided by the employer or an associated company at a rent less than the rental value.
  13. s9(1)(d): income chargeable to salaries tax
    Any gain realised by the exercise of, or by_the assignment or release of, a right to acquire shares or stock in a corporation obtained by a person as the holder of an office or an employee of that or any other corporation.
  14. s9(2A) (a)-(c): Benefits specifically chargeable to salaries tax
    • Specifically states that the following items are included from income from any office or employment:
    • - any -benefit capable of converted into money.
    • - amount paid by an employer in connection with the education of a child of an employee.
    • - any amount paid by an employer in connection with a holiday journey.
  15. s9(1A)(a)-(b): Accommodation benefits
    Where an employer or associated corporation (i) pays all or part of the rent payable by the employee; or (ii) refunds all or part of the rent paid by the employee. Such payment or refund shall not be deemed to be income. Instead, the rental value of such accommodation is chargeable to salaries tax.
  16. s9(2): rental value calculation
    • Rental value shall be deem.ed to be 10% of the income as desc1ibed in s.9(1)(a) derived from the employer for the period during which a place ofresidence is provided after deducting the outgoings expenses (s.12(l)(a)) and depreciation allowance (s.12(I)(b)). Taxable stock option gains and lump sum gratuity are not included as income for the purposes of calculating the rental value. Alternatively, the ratable value of the accommodation may be elected as the rental value under s.9(2)(b).
    • If place ofresidence is a hotel, hostel or boarding house, rental value is:
    • (i) 4% if not more than 1 room;
    • (ii) 8% if not more than 2 rooms.
  17. s9(4): share option gain calculation
    (a) Exercise of option: market value at the time of exercise the shares over the cost of the option and shares; (b) Assignment/Release of option: consideration received for assignment/release of options less relevant cost of option.
  18. s9(4)(a): Share option: permanently departure from HK
    A taxpayer planning to leave HK permanently may elect to have the notional share option gain assessed before his/her departure or within 3 months from the date of his/her departure. In this case, the share option is deemed to be exercised on the notional exercise date, which is any day within 7 days prior to the election or the departure date if the election was made after the departure. (DIPN 38 refers)
  19. s9(6): Definition of associated corporation
    • "Associated corp" means:
    • (a) a corp. over which the employer has control:
    • (b) if the employer is a corp-
    • - a corp. which has control over the employer; or
    • - a corp. which is under the control of the same person as is the employer.
  20. s11D(a): Ascertainment of assessable income
    Income accrues to a person when he becomes entitled to claim payment thereof. Income accrued but not received is to be deferred until the income is received (i.e. Will not be included in his assessable income for that year of assessment). Income is treated as received when it has been made available to the taxpayer or has been dealt with according to his instructions. When income is received, it is assessed in the year which it accrued, not the year in which the income is actually received.
  21. s11D(b): Ascertainment of assessable income
    Payments received after cessation of an employment are deemed to have accrued on the last day of that employment. (this section is NOT applicable to share option gain)
  22. s11D(b)(i): Lump sum payment on cessation of employment / deferred pay
    • A taxpayer, within 2 years after the end of the year of assessment in which a lump sum payment on cessation of office/employment, termination of employment contract or deferred pay was received, application in writing can be made to have that lump sum payment related back for a period of:- 36 months; or- actual period of employment;whichever is the shorter.
    • The lump sum payments that may be related back are as follows:- lump sum payment or gratuity granted upon retirement or termination of office/employment or contract of employment; or - lump sum payment of deferred pay or arrears of pay.
  23. s12(1)(a): Allowable deductions
    All outgoing and expenses, other than expenses of a domestic or private nature and capital expenditure,wholly, exclusively and necessarily incurred in the production of assessable income.
  24. s12(1)(b): Allowable deductions
    Depreciation allowances on machinery or plant which is essential to the production of assessable income.
  25. s12(1)(c): Allowable deductions
    Loss brought forward.
  26. s12(1)(d): Allowable deductions
    Excess of allowable deductions under s12(1)(a), (b) and (c) of a spouse under joint assessment.
  27. s12(1)(e): Allowable deductions
    • Self-education expenses mean expenses paid by the taxpayer as: (i) fees, including tuition and examination fees, in connection with a prescribed course of education undertaken by the taxpayer; or (ii) fees in respect of an examination set by an education provider, or by a trade, professional or business association for its members, and undertaken by the taxpayer to gain or maintain qualifications for use in any employment.
    • "Prescribed course of education" means: a course undertaken to gain or maintain qualifications for use in any employment and being:(i) a course of education provided by an education provider; (ii) a training or development course provided by a trade, professional or business association; or (iii) a training or development course accredited/recognised by an institution specified in Schedule 13 ofIRO.
    • "Education provider" means: (i) a university, university college or technical college; (ii) a place of education to which the Education Ordinance does not apply by virtue of s.2 of that Ordinance; (iii) a school registered under s13(a) of the Education Ordinance; (iv) a school exempted from registration under s.9(1) of the Education Ordinance; (v) an institution approved by the Commissioner for the purposes of s.16C; or (vi) an institution approved by the Commissioner.
    • --> max. deduction is $80,000 for 2014/15 and 2015/16.
  28. s26C: Approved charitable donations
    • - not less than $100;
    • - paid to approved charitable institution;
    • - limited to 35% of assessable income - outgoing exp - depreciation allowance.
  29. s26D: Elderly residential care expense
    • filly residential care expenses paid by a person in respect of a parent/grandparent of his/her spouse are allowable under salaries tax if the parent/grandparent who at any time in that year of assessment is - age 60 or above; or - eligible to claim an allowance under the Government Disability Allowance Scheme.
    • --> max. deduction is $80,000 (2014/15 and 2015/16 ).
    • However, the person claiming for elderly residential care expense should not be entitled to a
    • dependent parent/grandparent allowance in respect of the same parent or grandparent.
  30. s26E: Home loan interest
    • Where a person pays during any year of assessment any home loan interest for the purpose of a home loan obtained in respect of a dwelling which is used by the person exclusively/partly as his place of residence, a deduction in respect of the home loan interest shall be allowable to that person for that year of assessment. "Dwelling" means any building or any part of a building that is designed and constructed for use exclusively or partly for residential purposes.
    • "Home loan" means a loan of money which is:(i) applied wholly or partly for the acquisition of a dwelling which:- is held by the person as a sole owner, a joint owner or a tenant in common; and - is used by the person exclusively or partly as his place of residence; and (ii) secured by a mortgage or charge over that dwelling or any other HK property.
    • "Home loan interest" means interest paid by the person as a sole owner, or as a joint tenant or tenant in common of the dwelling for the purposes of a home loan to:- the government; - a financial institution; - a credit union; - a money lender; - the Hong Kong Housing Society; - an employer of the person; or - any recognised organization or association,
    • Home loan interest (max $100,000, the deduction period is extended to 15 years).
  31. s26F: Nomination for purpose of s26E (Home loan int)
    If the person entitled to the deduction of home Joan interest has no income, property or profits chargeable to tax under IRO for that year of assessment, his/her spouse may be nominated to claim the deduction for that year of assessment.
  32. s26G: Contributions to recognised retirement schemes
    Amount of contribution by the taxpayer as an employee (ORSO scheme) or amount of mandatory contribution(MPF scheme);-> max $17,500 (2014/15) and $18,000 (2015/16)
  33. s41(1): Eligibility criteria for elect Personal Assessment
    • An individual can elect for PA if he/she is:
    • - of or above the age of 18 years or under the age of 18 if both his/her parents are dead; and
    • - either a permanent or temporary resident in Hong Kong or, if he or she is married, whose spouse is either a permanent or temporary resident.
  34. s41(4): Definition of "permanent resident" and "temporary resident"
    • "Permanent resident" means: an individual who ordinarily resides in Hong Kong.
    • "Temporary resident" means: an individual who is in Hong Kong for more than: - 180 days during the year of assessment in respect of which the election is made, or - 300 days in two consecutive years of assessment, one of which is the year for which an election is made.
  35. s42(1) proviso: Deduction of interest expense under Personal Assessment
    Interest payable on any loan borrowed for the purposes of acquiring land and/or buildings which produce income chargeable to property tax is deductible provided that the net assessable value of the land and/or building is included in the total income under Personal Assessment.
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Salaries tax
Salaries tax