【2023 Fiscal Budget】What You Need to Know About Tax Deduction for Domestic Rent

Since the announcement of the 2023 fiscal budget, besides waiting for the distribution of consumption vouchers, don’t forget about other “sweeteners.” For example, individuals must pay attention to the tax deduction of personal residential rent, and company directors must be especially aware!

Salary Tax vs. Profit Tax

Generally, a company’s rental expenses for providing accommodation to employee  can be applied for profit tax deduction. Therefore, the rental expenses for the director’s residence can be borne by the company and applied for tax deduction. However, after the introduction of the “personal residential rent tax deduction,” directors must calculate carefully to ensure that they are deducting taxes intelligently and not leaving any money on the table. Besides, directors can choose to directly apply for salary tax deduction for the rental expenses of the residence. When choosing between the two options, what factors should be considered?

Taking a monthly rent of $9,000 as an example, the “employee housing benefit” tax deduction is not affected by the amount of rent, and the total rental amount of $108,000 for the year can be fully deducted from profit tax. However, the housing benefit obtained by the director based on work needs to be counted as part of income. 10% of the net income is added to total income as housing benefit obtained. 

After the “personal residential rent tax deduction” becomes effective, directors can now directly deduct the rental amount from the assessable income for salary tax, but the cap is only $100,000. As in the case above, $8,000 is not deductible. Therefore, the director’s income and the amount of rental income directly affect whether the deduction is more advantageous for salary tax or profit tax. As the remuneration for directors is generally high, the difference between the two can be significant! It is recommended to consult a professional accountant first before rental arrangement.

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