Generally speaking, almost all kinds of
expenditure for the benefit of employees is deductible. This
includes the reward for staff's work and cost for promotion of
good relationship with staff.
The deductible payments include:
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salaries, wages, commissions… etc
-
year-end bonus
-
various kinds of leave pay
-
cost of various kinds of staff
benefits
-
severance payment or long service
payment under labor law
-
funeral expenses or funeral allowance
to the relatives of a deceased employee
-
grants or subsidies to the relatives
of a deceased employee
-
payments involving sickness or injury
of employee
If
excessive
severance payment or long service payment are paid on cessation of
business, they may be non-deductible. This is because they are
regarded as not incurred in the production of profits.
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In the case CIR v Cosmotron Manufacturing Co. Ltd. 4 HKTC 562, the Privy
Council held that the severance paid in accordance with employment law on
cessation of business was deductible. |
Small gifts to employees on their marriages are
allowable because they will promote good staff relationship. But
large gifts may not be deductible because they are likely to be
made out of personal reasons.
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Some
overseas companies having permanent establishments
in Hong Kong uses salaries payments to expatriate
employees to reduce tax. These expatriate employees
are employed to provide services both within and
outside Hong Kong. If they stay in Hong Kong for not
more than 60 days, they will be exempt from Salaries
Tax. On the other hand, their employer can claim
full deduction for the salaries payment if their
services are incurred in the production of
assessable profits.
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Losses made by embezzlement or
misappropriation by an employee (other than a director) may be
allowed on the grounds that they are arising out of and incidental
to the carrying of the trade --- vide Curtis versus J. G. Oldfield.
9 TC 319.
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Contributions to approved retirement schemes:
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Special contributions, including initial
contribution to set up the fund, are allowed by spreading
equally over 5 years of assessment – Section 16A(2) of Inland
Revenue Ordinance.
-
Regular contributions made by
employer are deductible up to a “15% limit”: the deduction for
each employee is restricted to15% of his total income. No
deduction is allowed for the excessive contribution. Regular
contribution consists of the employer's mandatory and voluntary
contribution under Mandatory Provident Fund Scheme.
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