Settlement payouts not taxable: doctors

PUBLISHED : Friday, 15 June, 2007, 12:00am
UPDATED : Friday, 15 June, 2007, 12:00am

About 4,600 doctors awarded a total of HK$629 million in back pay after a landmark court ruling should not have to pay tax on their payments, a judicial review application states.

The application, lodged in the High Court on Wednesday by Leung Ka-lau, a surgeon and former president of the Public Doctors Association, accuses the Inland Revenue Department of wrongly applying income tax to the payments, which were allocated to doctors under a settlement agreement with the Hospital Authority.

In March last year, Mr Justice William Stone upheld a claim by 165 doctors that they were entitled to compensation for time worked on rest days and statutory holidays from 1996 to 2002.

Under a settlement agreement between the doctors and the Hospital Authority, the doctors received one-off payments of HK$61,000 to HK$222,000. The payouts were for an average of two to six months' non-payment for work on statutory and public holidays, and rest days between January 2000 and December last year.

Dr Leung says in his application to the High Court that the money should not be taxed because it is not back pay. It was effectively a damages payment, he said, and was therefore not taxable.

He argues that because the payment comprises a portion attributable to the authority's failure to grant doctors statutory holidays it cannot be back pay because monetary compensation for statutory holidays is outlawed.

'Back pay is taxable,' Dr Leung said. 'But the law does not allow back pay for holidays.'

An information sheet issued by the Labour Department states that: 'An employer must not make any form of payment to an employee in lieu of granting him a holiday.'