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Tax Information :
Individuals : Holiday
Journey Benefits
Tax position
for the year of assessment 2003/04 and after
Generally speaking, up to and including 31 March 2003, "holiday
warrants and passages" provided by employers are tax exempted.
With the enactment of the Revenue (No. 2) Ordinance 2003 on 25 June
2003, relevant tax exemption provisions in the Inland Revenue Ordinance
are removed. The consequences are :
| 1. |
As from 1 April 2003 onwards,
any amount paid by an employer in connection with a holiday
journey is taxable. This includes school passage
allowance and related benefits (baggage and traveling expenses)
and long service travel award. The taxable amount would include
expenses on air, land or sea transportation, accommodation,
meals, sightseeing tours, travel insurance and visa fees,
etc. as appropriate.
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| 2. |
"Holiday Journey"
is defined as either "a journey taken for holiday purposes"
or " where a journey is taken for holiday and other purposes,
the part of the journey taken for holiday purposes"
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| 3. |
Where a trip is taken partly for
business and partly for holiday, the Department will
look at the immediate purpose of the trip; if a holiday is
merely incidental to a business trip, the Department will
refrain from taxing the benefit. As a corollary, where a business
dealing by an employee is merely incidental to his holiday
journey, e.g. visiting a business contact on his way, the
whole journey is to be treated as being for holiday. However,
in cases where a clearly identifiable part of the journey
is taken for holiday purposes, the expenses relating to that
part of the journey will have to be ascertained and included
in the assessable income of the employee.
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| 4. |
For business-cum-holiday
situation, where the expenses relating to the holiday journey
are distinct and separable (e.g. accommodation costs for the
extra nights spent on holiday), such expenses will be assessed.
Where the expenses are not so distinct and separable, an apportionment
based on the "holiday-days basis" will generally
be adopted, i.e. the total amount spent for the combined journey
times the number of days spent on holiday divided
by the total number of days in the journey. In either
case, the cost of the air ticket would normally not be apportioned
since that cost would have to be incurred irrespective of
the holiday element.
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| 5. |
For holiday journeys organized by
an employer on a group basis where the amount paid
by the employer is not distinct and separable for individual
employees, say a 1-day local tour for a group of employees,
an apportionment on a head count basis may be adopted.
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| 6. |
Usually the first appointment passage and
home journey taken immediately after the termination of an
employment in Hong Kong will not be considered as a holiday
journey, and hence will not be taxable.
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| 7. |
Employers will have to monitor
their record keeping system so as to ensure that the taxable
benefits for each individual employee can be properly reported,
as from 1 April 2003, in
- I.R. 56B (annual reporting);
- I.R. 56F (termination of employment); and
- I.R. 56G (termination of employment and leaving
Hong Kong).
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| 8. |
Employee is required to report the taxable
"holiday journey" benefits under item 4.1(1) "Total
amount" of Income of the Tax Return - Individuals (B.I.R.
60). |
Tax position for
years prior to year of assessment 2003/04
| 1. |
If entitlements to holiday warrant or passage
are clearly spelt out in the terms of employment of the taxpayer
and the benefit granted by the employer is conferred under a
proper control system which ensures that there
is evidence of expenditures having been incurred on the taxpayer's
holiday travel and not to be spent on other than this purpose,
the benefit is eligible to tax exemption and does not have to
be reported on the Employer's Return and the tax return of the
employee. |
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| 2. |
The employer and the employee need not report
the benefit if
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(a)
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the employer pays the costs fo travel directly to the travel
agency.
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(b) |
the employer operates a system of reimbursement under which,
on production of valid vouchers and receipts by the employee,
the employer reimburses the actual costs of travel. |
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| 3. |
However, the empolyer and the employee must report
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(a) |
the full amount of benefit if it is granted by the employer
relating to holiday warrant or passage in the form of cash allowance
of which the employee is not obliged to account for its disposal,
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(b) |
the full amount of benefit if the control exercised by the
employer over the amount to be spent on holiday warrant or passage
is relaxed,
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(c) |
the unspent amount (i.e. entitlement minus incurred) where
the employer has operated a satisfactory system of control over
actual spending of the benefit granted. In other words, where
the entitlement granted / passed to the employee has not been
fully spent, the employer and the employee should report the
amount unspent.
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Example
Employer paid an employee a sum of $10,000 to cover the costs
of travel and exercise satisfactory control over the amount
spent.
Employee only spent $8,000 on joining a package tour.
Unspent balance of $2,000 should be reported by the employer
in
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item 11(k) of I.R. 56B,
item 13(h) of I.R. 56F, or
item 11(h) of I.R. 56G.
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and by the employee under item 4.1(1) of B.I.R. 60. |
FAQ
Please click
here for FAQ on Holiday Journey Benefits.
Related information
The Department has issued Departmental
Interpretation and Practice Notes No. 41 regarding tax treatments
concerning taxable "holiday journeys". You may read the
relevant notes for details.
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