Section 9(1)(a) of the Inland Revenue Ordinance (IRO) defines taxable emoluments to include: salary, wages, leave pay, fee, commission, bonus, gratuity, perquisite or allowance whether or not they are derived from employer.

Special provisions are laid down in the IRO to tax special perks such as subsidized accommodation, retirement benefits, share options, holiday benefits and children's education subsidies .

Under Section 9, all kinds of cash allowances arising from an employment are wholly taxable. They include housing allowance, living-cost allowance, transportation allowance, baggage allowances, medical allowance, clothing allowances, tips...etc. So, to make the benefits non-taxable, the employer should be made solely liable to pay the benefits --- in that case, these benefits will be inconvertible into cash or have no cash value. Caution: Such arrangement does not work for subsidized accommodation, retirement benefits, share options, holiday benefits and children's education subsidies because they are subject to special provisions of the IRO.

Only emoluments for the services rendered by employee are taxable. If the payment is paid as a gift on a special occasion (e.g. marriage, death, passing an examination...etc.), it is not taxable. Besides, the following receipts are not taxable:

• compensations for work injuries
  
• compensation for loss of employment
  
• compensation for damages in legal disputes
  
• compensation on redundancy
  
• compensation for wrongful dismissal of an employee
  
• legal settlement / compensation for sexual harassment
  
• legal settlement / compensation for breach of employment contract
  
• payment by a new employer for inducement of an employee to leave his existing employment
  
• payment of employee's relocation expenses from a foreign country to Hong Kong on commencement of employment
  
• payment of employee's relocation expenses from Hong Kong to a foreign country on cessation of Hong Kong employment
  
• payment for a leaving employee not to compete with his employer within a certain period of time
  
• severance payment
  
• long-service payments
  
• payment in lieu of notice for early termination of employment
  
• certain payments from retirement schemes
  
• free medical services, free lunch, free training, free transportation, free house-keeping services... etc.
  
• reimbursement of self-education expenses (not exceeding the statutory limit)

An employee can claim deduction for his mandatory contribution to a recognized retirement scheme. Click here for more on retirement benefits.