Housing allowance and taxes???

[lacrosse]

Here's the scenario:

My monthly salary is HKD 30,000 and my company is offering me a housing allowance of HKD 10,000. I am currently paying HKD 10,000 per month for rent. For every quarter, I will receive HKD 25,000. What is the total tax which I need to pay? Can anyone please show me how the calculations work? Thank guys!

[PDLM]

If I understand correctly your total annual income excluding your "housing allowance" is 30000*12 + 25000*4 = 460000.

Assuming that your employer "exercises proper control" to the satisfaction of the Inland Revenue that you do actually spend the housing allowance on housing, then that allowance will be deemed to have a taxable value of 10% of the rest of your income. i.e. 10% * 460000 = 46000

Your total taxable income will therefore be 460000+46000 = 506000

From the tax calculator here: http://www.ird.gov.hk/eng/ese/st_com..._07/stcfrm.htm
the tax you pay would be $66,640 assuming that you are single and have no dependent relatives in Hong Kong.

The effective rate on your actual cash income of 580,000 is therefore 11.49%.

[lacrosse]

PDLM,
I am sorry. I didn't word it correctly. It should be a total of HKD 30,000 per month where HKD 10,000 goes towards housing allowance. So my actual cash per month is only HKD 20,000 . How do I calculate my tax?

[PDLM]

By following the same methodology...

$20000*12 + 25000*4 = 340000 per year plus housing allowance.

Therefore taxable income = 340000 * 110% = 374000

Using the calulator, tax payable = $41560

Effective tax rate on total cash in of 460000 per year = 9.03%

[lacrosse]

PDLM,
Thanks for your help

[coolgirl]

you can also go here:

http://www.ird.gov.hk/eng/ese/st_com..._07/stcfrm.htm

[PDLM]

Er, didn't I say that in post #2?

But that doesn't deal with Housing Allowance directly - you need to do a separate calculation (as I have described above) to determine what the "effective taxable value" of your housing allowance is in order to enter a number in the "Income" box.

[coolgirl]

Er, didn't I say that in post #2?

But that doesn't deal with Housing Allowance directly - you need to do a separate calculation (as I have described above) to determine what the "effective taxable value" of your housing allowance is in order to enter a number in the "Income" box.

sorry! didnt see it

[lacrosse]

Gosh, one can really save soooooo much more money when given housing allowance by the employer. I wonder what's the catch?????

[PDLM]

How big the difference is depends on both the absolute size of your package and on how much of it you spend on housing. If you only spend 10% of your total package on housing there is no benefit. If, as in your case you spend almost 30% of you package on housing then yes there is a significant benefit.

In case you hadn't noticed, HK is effectively financed by its property business, so tax breaks which encourage you to spend more on rental and hence drive up the value of property are encouraged by the people who really run this place (i.e. the Li Ka-Shings and so on who own all the property rights).