10. What happens with respect to assessable income if the employer does not provide a place of residence to the employee, but refunds all or part of the rent paid by that employee?

10. What happens with respect to assessable income if the employer does not provide a place of residence to the employee, but refunds all or part of the rent paid by that employee?

Such an arrangement can be treated the same as the employer directly providing a place of residence to the employee. The rental value (“RV”) will be calculated and included in the employee's Assessable Income, and the actual reimbursement of rent paid to the employee will not be treated as income (i.e. the reimbursement will not be directly added to the employee's Assessable Income).

The employer is required to monitor the employee's spending or exert control over the expenditures, which includes putting in place a system with clearly defined ranks of those officers who are entitled to rental reimbursements and the limit of their respective entitlements; defining in the employment contract the mode of housing benefit that the employee is entitled to and the limit of rental reimbursement; and assessing the tenancy of the employee (including cases of reimbursements of rent paid by employees directly to their landlords). For these purposes, both parties should keep all the documents evidencing that the employer has made reasonable supervision over the reimbursements (e.g. copies of the tenancy agreement, rental receipts and employment contract, etc.). Otherwise, the Assessor may regard the payment as cash allowance and include the full amount as income in the employee’s assessable income.

Example

Ms. H was paid a salary of $50,000 and an accommodation benefit of $10,000 per month. She occupied a flat for which she paid $8,000 per month. How should her Assessable Income be computed?

If Ms. H’s employer has implemented proper procedures controlling how employees’ housing benefits are actually utilized (e.g. stating that benefits on her employment contract and keep written record on how the money was spent), the Assessor would accept that Ms H was provided with a place of residence by her employer. However, as Ms. H only used $8,000 on the payment of rent, the remaining $2,000 would be regarded as a cash allowance. Her Assessable Income would be computed as follows:

On the contrary, if the employer has NOT implemented proper controlling procedures over housing benefits, the Assessor will treat the full amount of $10,000 as a cash allowance. Ms. H’s assessable income would then be computed as follows:

Retention of documents

When filing the Tax Return, there is no need to attach the tenancy agreement, rental receipts, or other documents evidencing payments of rent. Such documents, however, should be retained so that they can be produced to the Assessor for review upon request.