TAXATION

1. I let a property on 1 July 2022 for $30,000 per month. Rates for the 3 quarters to 31 March 2023 paid by me amounted to $12,000. How is Property Tax computed for 2022/23? Do I have to pay Provisional Property Tax for 2023/24?

Calculation of Provisional Property Tax for 2023/24 is based on the NAV for 2022/23, but grossed up to 12 months, as follows:

You will receive a Property Tax demand note that carries two components:

2. My solely-owned property yielded a rental income of $30,000 per month until the tenant left on 31 May 2023. It was let again after 3 months' vacancy at a reduced monthly rental of $24,000. Can I apply to pay less property tax (or to holdover/defer payment of provisional tax)?

Yes, compared with that for 2022/23, your rental income for 2023/24 would be reduced by more than 10%. You can apply for a partial holdover of the provisional Property Tax on the grounds of rent reduction.

You must submit the written application to the Inland Revenue Department not later than 28 days before the due date for payment of the provisional tax, or 14 days after the issue of the relevant demand note, whichever is the later. The amount of provisional tax to be held-over would be $15,840 ($43,200 – $27,360), computed as follows:

Can I apply for holdover of provisional tax on other grounds?

You may apply for complete or partial holdover of provisional tax within the time limit described above if any one of the following conditions can be satisfied: 

• a reduction in more than 10% of provisional year's estimated assessable value (please refer to the figures shown in the demand note);
• you cease to own the property in 2023/24, thus your rental income is reduced in that assessment year;
• you have chosen the Personal Assessmentand it would likely reduce your overall tax bill; or
• you have raised an objection against the Property Tax assessment for the preceding year.

C. Scenarios involving jointly-owned properties

1. My 3 sons and I are the joint owners of a property. How should I state my share of ownership?

You should treat the total ownership as 100% and divide it equally amongst the owners. This means each person's share of ownership is 25%.

Please note a property ownership under joint owners (the legal term is "joint tenants") must be in equal shares as illustrated on the above example. While an ownership under co-owners (the legal term is "tenants-in-common") may be in equal or unequal shares. For example, you might own 40% and your 3 sons own 20% each.

2. I have received a Property Tax Return for a property owned by my parents and myself. My mother passed away on 1 August 2022. How should I complete the Property Tax Return for 2022/23?

The death of your mother gives rise to a change of ownership. 

If your parents and you are the joint owners (the legal term is “joint tenants”) of the property concerned, your mother's share of ownership will be passed to you and your father. In order to distinguish new ownership from old ownership, a new Property Tax file will be opened in the name of you and your father. 

If your parents and you had owned the property as co-owners (the legal term is “tenants-in-common”), your mother's share of ownership will be passed to the beneficiary named in her will or according to the law of intestacy. Again, in order to distinguish the new ownership from the old ownership, a new Property Tax file will be opened in the name of you, your father and the personal representative / executor of the estate of your mother. When the legal title is passed to the beneficiary, another new Property Tax file will be opened in the name of you, your father and that beneficiary. 

Two Property Tax returns will be issued for the year of assessment 2022/23. You should report the total rental income for the period from 1 April 2022 to 1 August 2022 in the Tax Return for the 1st ownership (before the death of your mother), and the total rental income for the period from 2 August 2022 to 31 March 2023 in the Tax Return for the 2nd ownership (after the death of your mother).

Suppose your father is not one of the owners while you and your mother were the only joint owners of the property concerned, you (as the surviving owner) will become the sole owner of the property on 2 August 2022. As the rental income of any sole-owned property should be reported in a Tax Return – Individuals (B.I.R.60), the rental income from that property for the period from 2 August 2022 to 31 March 2023 should be reported in your own B.I.R.60.

3. My parents are joint owners of the property. If they are unable to write, how can they sign the Tax Return (B.I.R.57)?

If the owner is unable to write, the affixing of a name-chop, thumbprint or mark (such as “x”) as the owner's signature can be accepted, if properly witnessed by a person aged 18 or above. The witness should sign and date the form, and state his/her full name and Identity Card number beside his / her signature.

An alternative to the above is that if you have written authorization from the owners, you can complete the Return on their behalf. You should attach a copy of the relevant Power of Attorney or Letter of Authorization to the Tax Return informing the details of the agent (including name, Hong Kong identity card number/business registration number, postal address and date of commencement and cessation (if any) of becoming the agent), if this is the first time you act as the agent or representative for them.

4. My spouse and I let out a flat and a parking space together to the same tenant at one lump sum rental. However, I received two separate Property Tax Returns, how should I fill in Part 4 of the Return?

You must complete and submit both Property Tax Returns. The rental income can be apportioned by reference to the rateable values per demand for rates issued by the Rating and Valuation Department.

5. My husband and I jointly own a flat and a parking space. The flat is let for rental income and the parking space is used for parking our own car. The Property Tax Return shows the location of property as consisting of both the flat and the parking space. How should we report this situation in the Tax Return?

When a flat and a parking space constitute a single unit of property and it is partly let, the owner should put a “✓” in the box against “Yes” in the top portion of Part 4 and report the rental income of the flat in Part 4.2 of the Return.

IV. Personal Assessment (may provide more tax relief in some cases)

What is "Personal Assessment (PA)"?

Under the Inland Revenue Ordinance, there are 3 types of direct taxes, namely, Salaries Tax, Profits Tax and Property Tax. Personal Assessment is not a tax levy. It is a method of computation of tax that may lighten the tax burden of certain taxpayers who are subject to Profits Tax and/or Property Tax and/or Salaries Tax. However, there is no merit for choosing PA if the relevant taxpayer only liable to pay Salaries Tax.

Deductions and allowances under PA

Sole-proprietor or partners of a business and property owners who receive rental income are assessed to Profits Tax and Property Tax respectively at standard rate. By choosing “Personal Assessment”, they may claim the following deductions and/or allowances on their income/profits and their tax liabilities will be computed at progressive rates applicable to Salaries Tax. Credit will be given for any tax already paid on the income included in the assessment. If the total of the tax already paid is greater than the tax chargeable under personal assessment, a refund will be made.

Deductions and allowances include (non-exhaustive list): 

1. interest incurred on money borrowed for the purpose of producing property income, (the amount deductible should not exceed the net assessable value of each individual property);
2. approved charitable donations;
3. elderly residential care expenses (from year of assessment 1998/99 onwards);
4. home loan interest (from year of assessment 1998/99 onwards);
5. business losses incurred in the year of assessment;
6. losses brought forward from previous years under Personal Assessment; and
7. personal allowances.

1. Who are eligible to choose Personal Assessment?

With reference to section 41 of the Inland Revenue Ordinance, an individual (but not a corporation or limited company) may select Personal Assessment if:

1. the person is 18 years of age or over, or under that age if both of his/her parents are deceased; and
2. the person is either ordinarily resident in Hong Kong or a temporary resident. 

(Note: In respect of a partnership business, each partner must choose Personal Assessment individually.)

For the purpose of Personal Assessment: 

1. “ordinarily resident in Hong Kong” means an individual  who resides in Hong Kong voluntarily and for a settled purpose (e.g. education, business, employment or family) with sufficient degree of continuity. He/she would habitually and normally reside in Hong Kong as an ordinary member of the community for all his/her daily life. 
2. "temporary resident" means an individual who stays in Hong Kong for a period or a number of periods amounting to more than 180 days during the year of assessment in respect of which the election of Personal Assessment is made or for a period or periods amounting to more than 300 days in 2 consecutive years of assessment, one of which is the year of assessment in respect of which Personal Assessment is chosen.

Selection of Personal Assessment must be made in writing. It can be made by completing Part 7 in the Tax Return - Individuals (B.I.R.60) or an application form (I.R.76C) within the time limits.