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Ref...
Tel. No
Date
Commissioner of Inland Revenue
HQ 264/833C
5945002
12 May 1992
TEX
MEMO
To
Secretary for the Civil Service [Attn: Mr M J.C.Waters]
CSB-S/8 V
Your Ref.
10.
1.5.92
dated
all
not quite correct. They will get sam
13.5·92
Taxation of Lump Sum Compensation Payments : HMOCS Compensation Scheme
Under the terms of the Inland Revenue Ordinance a person is chargeable to Salaries Tax in respect of his income arising in or derived from Hong Kong from any office or employment of profit. Income from any office or employment is defined to include any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance, In my opinion, sums whether derived from the employer or others. received under the HMOCS Compensation Scheme would, prima facie, constitute a bonus, gratuity or allowance from an employment.
2.
There is no specific provision in the Inland Revenue Ordinance which would exempt from tax sums received under the Scheme. However, as a matter
matter of general taxation law sums which are "compensation for loss of office or employment" are not liable to tax. Whether a particular sum is "compensation for loss of office or employment" must be determined by reference to principles which can be drawn from a series of English tax cases. Applying those principles to the HMOCS Compensation Scheme, as I understand it, I am of the view that payments made to officers who continue in employment with the Hong Kong Government after 30 June 1997 would not be "compensation for loss I of office or employment". This is because, as a tax administrator, find it difficult to accept the proposition put forward by the FCO that all HMOCS officers will cease employment on 30 June 1997. As I see it, compensation will be paid to an officer because on that date he is and will continue to be an employee of the Hong Kong Government. Officers who cease employment will, in fact, have no entitlement to this compensation. There may well be a change of status after 30 June 1997 but I doubt that this change can be said to amount to a cessation of employment.
3.
From what I have said above it follows that, in my opinion, to ensure that all payments made under the Scheme are exempt from tax, it would be necessary to amend the Inland Revenue Ordinance to provide a specific exemption. This was also the advice I gave the Deputy Financial Secretary in 1987 in relation to the Limited Compensation Scheme - a copy of that advice is attached for your information.
Encl
JK Sill
(A. K. Gi11)
for Commissioner of Inland Revenue
G.F. 78€
CONFIDENTIAL #
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