Viewpoints from Kaizen

From 2003/2004 onwards, holiday benefits granted by employers are assessable under Section 9(2A) (a) of Inland Revenue Ordinance. The assessable amount is the actual cost incurred by the employer in providing the benefit to the employee and / or his family. The law provides that the charge of tax is irrespective of the following factors: (a) Whether or not the benefit is convertible into cash, (b) Whether the employer of the employee has the primary liability to pay the benefit, (c) Whether or not the benefit will add additional cost to the employer, (d) Whether or not the benefit will cause opportunity cost to the employer (for example the lost revenue arising from the sale of discounted-price air tickets by air-liner employer to employee). The payment for the relocation of an employee and his family to Hong Kong on commencement of employment or for the relocation of an employee out […]

An employer is required to notify the Revenue of a new employee who is likely to be chargeable to Salaries Tax. That is his annual income larger than the basic allowance. The notification should be made in the form IR56E. The time limit for the notification is three months after the appointment date. An employer is required to deliver a form IR56B to the Revenue in respect of every employee who is likely to be chargeable to Salaries Tax every tax year. The time limit is stated in the Revenue’s letter annexed with the forms, usually one month of the letter. An employer must notify the Revenue of the termination of employment of an employee who is chargeable to Salaries Tax. The time limit for the notification is at least one month before the termination. The notification should be made in the form IR56F. An employer must notify the Revenue […]

An employee has a master and servant relationship with his employer. The work of an employee is within the control of his employer as to what to do, how to do and when to do. See Employed versus self-employed for more. An office holder holds an office created by law or covenants. The office holder¡¦s duties are statutory and irrespective of whoever holding the office. A common example is the director office of a company. Not all so-called “directors” are office holders in law. If a “director” is employed by a company through an employment contract, he is an employee only, not a “director” for tax purpose. The income from a Hong Kong employment is taxable in full. The remuneration from a Hong Kong office is taxable in full too. So, in general, whether the income is from a Hong Kong employment or from a Hong Kong office is unimportant. […]

A taxpayer may claim the elderly home expenses he pays for his or his spouse¡¦s parent or grandparent subject to the following conditions: The parent or grandparent is at least 60; or if under 60, he is eligible to claim disabled allowance. The expenses actually paid by the taxpayer or by his spouse in the year of assessment. The expenses are paid to a recognized elderly home in Hong Kong. The expenses cover accommodation, food, nursing care and sundry expenses but exclude those of private medical care or those of a personal nature not in the nature of residential care. The expenses reimbursed by Social Welfare Department cannot be claimed. Full-year expenses are allowed when the parent reaches 60 in the year of assessment. In other words, no time apportionment of the expenses is necessary. The maximum deduction is HK$60,000 for each parent. No double claim for the same parent […]

A taxpayer making donations to charity can claim tax deduction if: It is a donation of money; and It is for charitable purpose; and It is paid to a charitable institution or a trust of a public character that is exempt from tax under Section 88 of IRO or to the Hong Kong SAR government; and The total donations in the year of assessment is not less than $100. A taxpayer cannot claim for the donation which has been allowed as a deduction in his spouse’s Salaries Tax assessment or in his own Profits Tax assessment. The maximum deduction is 25% of his net income (assessable income less deductions). He may claim the deduction in tax return. If he forgets to do so, he may claim it by an objection when he receives the assessment. Even if he misses the objection deadline, he can still claim it by a Section […]

Section 9A of Inland Revenue Ordinance is to combat avoidance arrangements involving the use of service companies to disguise what are in substance master-and-servant employment relationships. It provides that if a “relevant person” pays remuneration for services rendered by a “relevant individual” to a company controlled by that individual, the remuneration is deemed to be employment income and assessed as such on that individual. Section 9A applies if the following conditions exists: The relevant person carries on a trade, a profession or a business, or a prescribed activity; The relevant person enters into an agreement with the relevant individual for the services carried out by the relevant individual. The agreement may be in writing or implied; and Under the agreement, remuneration for such services is paid to a “service company”. A prescribed activity under (a) is one prescribed in the Gazette by the Revenue under Section 9A (6). So far, […]

If a taxpayer maintains his parent, he can claim the allowance. To qualify the allowance, the parent must ordinarily reside in Hong Kong and be 60 or above; or if under 60, he is disabled. From 2005/06 onward, the age limit is reduced to 55. According to Section 2 of IRO, “parent” means: 1. a parent of whose marriage the taxpayer or his spouse is the child; 2. the natural father or mother of the taxpayer or his spouse; 3. a parent by whom the taxpayer or his spouse was adopted; 4. a stepparent of the taxpayer or his spouse; or 5. a parent of his deceased spouse. Maintaining the parent means paying the parent at least $12,000 during the year of assessment or living with the parent “not for full consideration” for at least 6 months. The phrase “not for full consideration” means the taxpayer subsidizing the living costs […]

A person can get the allowance if he maintains his brother or sister who is single and under 18; or if over 18 and under 25: who is on full time study; or if at any age: who is disabled for work. No double allowance for maintaining the same child is allowed. In other words, if child allowance is granted to the child’s parent, no Dependent Brother or Sister Allowance will be granted. In addition, a person may claim Disabled Dependent Allowance in respect of his disabled brother or sister. The condition for the claim is that the brother or sister must be eligible to claim Disability Allowance from the Social Welfare Department. A taxpayer may claim the allowance in tax return. If he forgets to do so, he may claim it by an objection when he receives the assessment. Even if he misses the objection deadline, he can still […]

A taxpayer may claim child allowance if he maintains an unmarried child who is below 18, and if 18 to 25: a full-time student, or if over 25: disabled for work. Full allowance is granted in the year of assessment in which the child is born. Press here for the amount of allowances. No double claim of child allowance for a child. No sharing or splitting of child allowance among a couple unless the couple is living apart or divorced. If the couple has more than one eligible child, either spouse can make the claim for all the children and then the other spouse gets no child allowance at all. In general, it is advisable for the spouse with higher income to make the claim. A claim for living-apart has to be proved by production of court order or separation deed. A married person living apart from his spouse temporarily […]

Section 8(1) of the Inland Revenue Ordinance imposes the basic charge: to tax all the income from employment or pension which are arising in or derived from Hong Kong. In deciding the charge concerning employment, it is necessary to establish the place where the employment (that is the source of the income) is located. The general rule of how to determine the source is laid down in the court case CIR v. George Andrew Goefert: the chief factors to be considered are: (1) whether the employment contract was made in Hong Kong (2) whether the employer has a residence in Hong Kong, and (3) whether the employee’s remuneration was paid in Hong Kong. In addition to the basic charge, an extension of charge is imposed by Section 8(1A) of Inland Revenue Ordinance to assess all the income in respect of the services rendered in Hong Kong. This charge, frequently called […]