Q：
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Is payment in lieu of notice assessable under salaries tax?
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A：
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Yes, payment in lieu of notice is assessable to salaries tax as it is an income from employment, not being in the nature of compensation. It is an income paid under the express or implied term of an employment contract.
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Q：
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From which date the payment in lieu of notice become assessable to salaries tax?
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A：
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On or after 1 April 2012.
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Q：
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When will the payment in lieu of notice accrue as income if my employer terminates the employment contract by agreeing to pay me for the same, but the payment was made later?
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A：
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The sum accrues on the date that your employer agrees to pay the payment in lieu of notice has become an unconditional commitment or on the date the employment is terminated, whichever is the earlier.
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Q：
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If I need an early termination of the employment and I paid payment in lieu notice to my employer, can I use such payment as a deductible expense under salaries tax?
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A：
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In general, for an expense to be considered as deductible under salaries tax, it must be wholly, exclusively and necessarily incurred in the production of assessable income. Thus, the payment in lieu notice is not deductible for salaries tax purpose.
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Q：
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If the employment contract is governed by foreign law, would the taxability of payment in lieu notice differ?
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A：
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The Inland Revenue Department will carefully examine the foreign law which governed the employment, including the right to payment in lieu of notice. If the sum is an income from employment, it will be assessed to salaries tax, whether paid under the express or implied term of the contract.
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FAQ
