Raymond Yeung Tax Consultant former Assessor of Inland Revenue Department 前稅局評稅主任楊輝洪

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Salaries Tax - Rent refund versus Rent allowance

Section 9(1)(a) of Inland Revenue Ordinance (IRO): any allowance, including rent allowance, from the employer is taxable in full (i.e. 100%).

Section 9(1)(b) of IRO: rental value (normally computed at 10% on the relevant income) is assessed if free accommodation is provided by employer. Relevant income means the taxable income (excluding rent refund) in respect of the period of free accommodation.

If the free accommodation is a room at a hotel, the rental-value rate will be 4% instead of 10%. If it consists of two rooms, the rate will be 8% instead. In practice, a room means one unit of residence (that is one room number) although there may be more than one bedroom in that "room".

Contract gratuity paid on termination of employment is not included in the relevant income for computation of rental value. But if there is no termination of employment, the gratuity will be added to the relevant income and so increase the rental value. If the contract of employment is renewed upon expiry, there will be no termination of employment. Therefore, in order to avoid the inclusion of the contract gratuity in the relevant income, it is advisable for the taxpayer to have a break, say 2 to 3 weeks, after the expiry of the first employment contract before he signs a new contract of employment with the same employer.

Section 9(1A)(b) of IRO: free accommodation by employer is deemed in case of rent refund by the employer. In general, the taxable amount under rent-refund is much less than rent-allowance.

As established from Board of Review cases, the crucial point in deciding the question of Rent Refund versus Rent Allowance is whether the employer has, from time to time, exercised control over the use of the rent. In this regard, the Revenue may ask: (a) whether any control over the use of the rent payment is stipulated in the employment contract, and (b) whether the employer does in fact exercise that control, for example: requiring the employee to produce the lease agreement for approval and sample check the rent receipts.

In the court case CIR versus Peter Leslie Page, the judge commented on the question “Rent refund versus rent allowance”. Press here for more.

If it is a rent allowance case, the allowance should be reported by the employer in the Employer's Return of Remuneration and Pensions (IR56B) under item: Any other Rewards, Allowances or Perquisites.

If it is a rent refund case, the rental benefit should be reported as free accommodation under item: Particulars of Place of Residence provided.

Board of Review case D46/87: A residence provided to an employee with restrictions on its use was held not a taxable benefit. 

A free accommodation is not taxable if there are restrictions on the employee or his family to reside in it.

In Board case D33/97, the taxpayer claimed certain sums paid by his employer to him as rental refunds. Click here for details.

Board of Review case No. D78/03 concerns the distinction between rent allowance (wholly taxable) and rent refund (taxable at 10% of relevant income). Press here for details.


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