Q：
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Are severance payment and long service payment assessable under salaries tax?
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A：
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The sum you received as severance payments or long service payments strictly in accordance with the provisions of the Employment Ordinance are not assessable to salaries tax. Any sums paid in excess to your statutory entitlement are assessable to salaries tax.
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Q：
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How can I compute for the amount of severance payments or long service payments not assessable to salaries tax?
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A：
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Details on how eligibility and computation of severance payment and long service payment under Employment Ordinance can be referred to this link (Chapter 11: Severance Payment and Long Service Payment (labour.gov.hk)), and should be further computed after deduction of:
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Contract gratuities based on length of service;
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Benefits attributable to employer’s contributions and related investment return paid under an occupational retirement (“OR”) scheme; and
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Accrued benefits attributable to employer’s contributions and related investment return held in a mandatory provident fund scheme or which have been paid.
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Q：
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I was made redundant and entitled to a severance payment of HK$80,000 under the Employment Ordinance. My employer paid me HK$100,000. Does it mean the portion of severance payment assessable income to salaries tax should be HK$20,000?
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A：
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Yes, your understanding is correct.
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Q：
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I have worked for my employer more than 10 years. I was dismissed recently and I received OR scheme benefits of HK$150,000 attributable to my employer’s contributions and was entitled to long service payment of HK$200,000. My employer reduced the long service payment by OR scheme benefits and paid me HK$50,000. What is my tax position?
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A：
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Non-assessable long service payment would be HK$50,000, it is calculated as the sum you received as long service payment after deduction of benefits attributable to employer’s contributions under OR scheme. In addition, as you have worked for 10 years or more, the whole amount HK$150,000 you received OR scheme would be exempt as well.
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Q：
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Using the above scenario, will there be any difference if I have worked for less than 10 years?
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A：
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Yes, the amount attributable to contributions of the employer that exceeds the proportionate benefit would be assessable to salaries tax. Proportionate benefit is calculated as the number of completed months of service divided by 120, then multiplied by accrued benefits. Let’s say your period of service is 5 years, your proportionate benefit would be HK$200,000 x 60 / 120 months = HK$100,000. Therefore, the calculation of taxable benefit should be HK$150,000 – HK$100,000 = HK$50,000.
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FAQ
