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1. How should taxpayers report their rental income for Property Tax assessment to the Inland Revenue Department?
Answer: Rental income from a solely-owned property should be declared in the owner's Tax Return ¡V Individuals (B.I.R. 60), which is the same form used for reporting salary or profit of individual persons.
Rental income from a jointly-owned or co-owned property can be declared by any owner in a Property Tax Return (B.I.R. 57) . Annual Property tax Returns are issued to the owners of jointly-owned or co-owned properties on a property-by-property basis, and can be completed and submitted by any one of the owners.
Do I have to keep records of rental income?
Yes, the law requires you to keep and retain sufficient rent records for 7 years to enable the assessable value of your property to be readily ascertained. It is recommended that you retain lease agreements, correspondence relating to modification of lease terms and recovery of rent in arrears etc.
2. I received a Property Tax Return (B.I.R.57) last week. When should I return it to the Inland Revenue Department? Do I have to attach any supporting documents to the Return as proof for the figures that I filled in? Can I file my Tax Return via the Internet?
Answer: You should submit the Return to the IRD within 1 month from the date of issue of the Return.
However, if your case meets the criteria specified by the Commissioner of Inland Revenue, you may choose to file the Return by means of "tele-filing" or through the Internet at web site http://www.esd.gov.hk, and an extension of 2 weeks will be granted automatically.
You are not required to attach supporting documents at the time of filing the Return. The law requires the owners to keep and retain sufficient rental records for 7 years. You have to provide documents as evidence for deductions/claims when the Assessor requires you to do so.
3. I have to pay building management fees and certain other out of pocket expenses for the property. Are they deductible? Should I deduct them from the rental income and report the net amount of the income?
Answer: The following items can be claimed as deductions:
- rates (if payable by the owner);
- irrecoverable rent and other income from the property (sums so deducted as irrecoverable rent and later recovered should be included in arriving at the assessable value in the year of recovery);
- 20% statutory allowance on the property's assessable value for repair and outgoings. This is a flat rate deduction irrespective of the actual amount spent, and is to be given after deduction of rates (if payable by the owner) and irrecoverable rent.
Except for the above items, no other expenses are allowable as deductions for Property Tax purposes. You should not claim any deduction for, such as Government rent, building management fees, decoration fees, repair expenses, rent-collection fees, commission and insurance premiums paid by you.
Deduction for mortgage interest incurred on the acquisition of the property can only be claimed by property owners who are eligible for and have chosen Personal Assessment. The amount of the interest deduction allowable under a Personal Assessment is limited to your share of the net assessable value of the property concerned. Your may also enjoy other personal allowances under Personal Assessment.
How do property owners apply for Personal Assessment?
Individual property owners may indicate their wish to elect ¡§Personal Assessment¡¨ by stating their names and Hong Kong identity card numbers in Part 5 of the Property Tax Return (B.I.R.57). If more than 2 owners wish to elect "Personal Assessment", the additional owners can state their names and Hong Kong identity card numbers in the space below the boxes, or provide the particulars on a separate sheet.
Regular taxpayers usually receive their annual Tax Return - Individuals (B.I.R.60) on/about the first working day of May. To elect "Personal Assessment", the electors should complete Part 6 of their tax returns.
However, if your total income is lower than your tax allowances (which means that you do not have to pay any tax after choosing Personal Assessment), the Inland Revenue Department may no longer send you a B.I.R.60 annually. You need only indicate your wish to be assessed under "Personal Assessment" but you do not have to complete a B.I.R.60.
Selection of "Personal Assessment" is voluntary and so you are required to select it year-by-year.
4. I bought a property and took out a mortgage loan for 10 years. Can I get any relief for the mortgage interest paid?
Answer: The availability of relief depends on the usage of the property.
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Usage of your property
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Where to claim deductions
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Let for rental income which is subject to Property Tax
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Deduct mortgage interests from net assessable value under Personal Assessment (limit: reducing net assessable value to zero)
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Occupied for use as the premises of your business
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Deduct mortgage interests from your assessable profits under Profits Tax.
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Occupied as your residence
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Deduct home loan interest under Salaries Tax or Personal Assessment.
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Vacant or occupied as dwelling by relatives rent-free (i.e. not for self-occupation or let-out)
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No deduction
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5. If the tenant fails to pay rent, can I report the uncollected rent and claim deductions in Property Tax?
Answer: You can claim a deduction for the amount of rent remaining unpaid only when the rent has become irrecoverable (e.g. your tenant has gone bankrupt and does not have any assets from which you can recover your outstanding rent). If the tenant only defers the payment of monthly rent and has not moved out, the uncollected rent is unlikely to be treated as "irrecoverable rent". You are advised to check with the Inland Revenue Department or other legal/accounting professionals before claiming the rent as irrecoverable on your tax return .
If you have used the rental deposit to set-off part of the irrecoverable rent, only the balance un-recovered could be claimed as irrecoverable rent.
Irrecoverable rent can be excluded from the assessable value in the year in which it became irrecoverable. Any amount subsequently recovered is assessable to tax as income in the year of recovery.
6. What is a "lease premium"? Should it be included in the assessable value for Property Tax?
Answer: A lease premium is a non-refundable lump sum payment made by the tenant to the owner upon the signing of the tenancy agreement (e.g. a consent fee payable to the owner for accepting the transfer of tenancy from the "old tenant" to the "new tenant"). It is part of the consideration/money paid for using the property and is chargeable to Property Tax. Owners may elect to have the lease premium spread over the lease period, up to a maximum period of 36 months, for assessment purpose.
On the other hand, a rent deposit is returnable to the tenant at the end of the tenancy. Therefore, it is not income and should not be declared in the owner's tax return.
7. Will the letting of common areas of a building cause liability to Property Tax?
Answer: Normally the common areas of a building such as a side shop, carpark, external wall, rooftop, etc. are collectively owned by the individual owners of the building. If any part of the common areas is let out, the rental income derived is chargeable to Property Tax. The owners are responsible for reporting the rental income and paying the tax. If the owners have not received the Property Tax Return relating to the common areas let, they are required to notify the Commissioner in writing.
However, when an owners' corporation is formed, section 16 of the Building Management Ordinance (Cap.344 of the Laws of Hong Kong) provides that the rights and duties of the owners relating to the common parts of the building shall be exercised and performed by the incorporated owner/owners' corporation of the building . Therefore, the incorporated owner is required, on behalf of all the owners of the building, to report the income (via Property Tax Return B.I.R.58) and pay the tax.
8. If I received a Property Tax assessment and found that the net assessable value (NAV) and the tax charged are incorrect, what should I do?
Answer: You must lodge a written notice of objection with this Department within one month after the date of issue of the assessment, stating the grounds of objection clearly.
You should find out why the NAV was incorrect. If the assessment was an estimated assessment raised under section 59(3) of the Inland Revenue Ordinance, you must submit a completed tax return together with your objection letter.
If you are eligible for, and wish to select, Personal Assessment, you should double-check your tax returns to ensure that your selection is valid.
Pending the ultimate settlement of the objection, you should pay as indicated on the demand note or follow the Assessor's advice as regards tax payment - whether you have to pay a lesser amount of tax or the full tax in the first instance.
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