1. How should taxpayers report their rental income for Property Tax assessment to the Inland Revenue Department?
1. How should taxpayers report their rental income for Property Tax assessment to the Inland Revenue Department?
Rental income from a solely-owned property should be declared in the owner's Tax Return – 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.
I have already sold the property. Do I still have to complete the Property Tax Return issued to me?
Even though your property has been sold, you must continue to file your Property Tax Returns for the years of assessment up to and including the year of the sale.
Notice of Chargeability
You must inform the Inland Revenue Department in writing if you have any assessable income and supply the relevant details within 4 months after the end of the basis period for that year of assessment (unless you have already received a tax return to report the income).
Please be aware that the stamping of a tenancy agreement or the completion of a questionnaire from the Rating and Valuation Department is not considered a notification of chargeability if you are a property owner and have rented out your property. You must nonetheless notify the Inland Revenue Department in writing, and you may do so by using the Form IR6129.
Do I have to keep records of rental income?
Yes, the law requires you to keep and retain sufficient rent records for at least 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?
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?
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 through the Internet, and an extension of 2 weeks will be granted automatically. To know more about electronic filing, please click here.
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 at least 7 years. You have to provide documents as evidence for deductions/claims when the Assessor requires you to do so.
4. 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?
4. 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?
Only the following items can be claimed as deductions for Property Tax purposes:
- rates (only if paid or payable by the owner);
- irrecoverable rent (irrecoverable rent that was previously deducted but later recovered should be included in the assessable value in the year of recovery);
- 20% statutory allowance on the property's assessable value for repair and outgoings (if payable by the owner) given after deduction of rates and irrecoverable rent. This is a flat rate deduction irrespective of the actual amount spent.
Additional claims should not be made for government rent, decoration fees, rent-collection expenses, building management fees, insurance and mortgage interest, or any other non-deductible expenses. Nevertheless, you may deduct the mortgage interest from your taxes in Part 8 of your Tax Return-Individual (BIR 60) if you are qualified and have opted for Personal Assessment.
How do property owners apply for Personal Assessment?
Property owners may indicate their wish to elect “Personal Assessment” in Part 1 of the Property Tax Return (B.I.R.57). The individual owner might need to file a Tax Return - Individuals (BIR60), which may be sent to him/her later, in order to complete the election process.
5. I bought a property and took out a mortgage loan for 10 years. Can I get any relief for the mortgage interest paid?
5. I bought a property and took out a mortgage loan for 10 years. Can I get any relief for the mortgage interest paid?
Mortgage loan interest spent to purchase a rented property is not deducted when determining the amount of Property Tax due. Availability of the deduction depends on the usage of the property as follows:
| Usage of your property | Where to claim deductions |
| Let for rental income which is subject to Property Tax | Deduct mortgage interests from net assessable value under Personal Assessment (limit: deduction cannot exceed the net assessable value of each individual property let) |
| Occupied for use as the premises of your sole-proprietorship business | Deduct mortgage interests from your assessable profits under Profits Tax. |
| Occupied as your residence | Deduct home loan interest under Salaries Tax or Personal Assessment. |
| Vacant or occupied as dwelling by relatives rent-free (i.e. not for self-occupation or let-out) | No deduction. |
6. If the tenant fails to pay rent, can I report the uncollected rent and claim deductions in Property Tax?
6. If the tenant fails to pay rent, can I report the uncollected rent and claim deductions in Property Tax?
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.
7. What is a “lease premium”? Should it be included in the assessable value for Property Tax?
7. What is a “lease premium”? Should it be included in the assessable value for Property Tax?
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.
The lease premium shall be included in the assessable value that is subject to assessment in the year that the lease begins. If the lease period does not fall within a single year of assessment, owners should spread the lease premium over the lease period or a maximum period of 36 months, whichever is shorter.
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.
8. Will the letting of common areas of a building cause liability to Property Tax?
8. Will the letting of common areas of a building cause liability to Property Tax?
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 or file Form IR6129.
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.
9. 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?
9. 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?
To find out why the net assessable value and the tax amount are excessive, you may first review any assessor's note written on the notice of assessment.
In case of disagreement with the assessment, you must lodge a written notice of objection (or a Form IR831) with this Department within one month after the date of issue of the assessment, stating the grounds of objection clearly.
Alternatively, if you have opened your eTAX account, you can lodge a notice of objection against the assessment via your eTAX account.
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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