How is the provision of accommodation by an employer to an employee taxed? Depends on three scenarios!
Salaries tax provides a wide range of housing benefits to employees, one of which is a tax credit for the provision of accommodation by an employer to an employee. How should an employee’s assessable income be calculated in this case? If the employee has to bear part of the rent, what is the taxation arrangement? This article will explain with examples.
Is it taxable for an employer to provide accommodation to an employee?
In calculating the amount of salaries tax payable by an employee, if an employer or an associated corporation provides accommodation to an employee and the housing benefit is derived from the position held, the “rental value” of the accommodation is considered to be part of the income and should be included in the assessable income of the employee.
However, if the assessor does not accept the benefit as a provision of accommodation to the employee, the benefit will be treated as an additional benefit (e.g. rental allowance, reimbursement of mortgage payments by the employer, reimbursement of mortgage interest subsidy by the employer) and will be subject to salaries tax in full.
How should an employer’s provision of accommodation to an employee be taxed?
The amount of tax payable on “rental value” varies according to the type of accommodation. The calculation of “rental value” is based on the total income of the employer and the relevant corporation, less expenses and outgoings (but not self-education expenses), and then the following percentages according to the type of accommodation provided.
Type of accommodation Percentage
One residential unit/service apartment 10%
Two rooms in a hotel, hostel or flat 8%
One room in a hotel, hostel or flat 4%
In addition, service apartments, such as short-term rented units with furniture and household fittings, are not usually treated as rooms in hotels, hostels or flats and are generally calculated at 10% of the ‘rental value’. However, the Inland Revenue Department will still examine the details on a case-by-case basis.
However, the Inland Revenue Department will still examine the details on a case-by-case basis.
To be more specific, there are three broad scenarios for the calculation of “rental value”, which relate to whether the employee has paid rent.
Scenario Taxation method
No rent is payable by the employee The “rental value” is included in the assessable income of the employee.
The employee is required to pay rent The rent paid by the employee is deducted from the “rental value”.
If the employee’s tax can be reduced, the employee may choose to replace the “rental value” with the rateable value of the accommodation (applicable to domestic units only).
Example 1.
Mr. Chan earns $600,000 per annum and the employer allocates a residential unit from the property he owns to Mr. Chan as his residence, of which Mr. Chan is not liable for the rent. The income is calculated as follows
Rental value of home = $600,000 x 10%
Less the relevant “expenses”, “employee MPF contributions”, “self-education expenses”, etc. to arrive at the “assessable income”.
Example 2.
The situation is similar to the above example, except that Mr. Chan has to pay the rent for his residence and deduct $3,000 from his monthly salary. his income is calculated as follows
Rental value of home = $600,000 x 10% – ($3,000 x 12)
Less the relevant “expenses”, “employee MPF contributions”, “self-education expenses”, etc. to arrive at the “assessable income”.
The above information is for reference only. If you have any questions or enquiries about tax returns (personal tax returns, corporate tax returns, accountant tax returns), you are welcome to contact our professional advisors and we will provide you with a free quotation and consultation service in due course.
