BUSI 0018 Hong Kong Taxation

Tutorial Questions
Unit 2 Property Tax
Answer 4
(a)
s.5(1), IRO general charging section
property tax is charged for each year of assessment on every person being the
owner of any land or buildings or land and buildings wherever situated in HK
it is computed at the standard rate on the net assessable value of such land or
buildings or land and buildings for each year of assessment
special note
o
*property tax is charged on owners
o
i.e. income received from sub-letting NOT subject to property tax but
assessable under profits tax
o
*for property tax purpose the party who entitles to receiving the rent will be
charged to Property Tax (DIPN No. 14, para 7)

(b)
Y/A 2007/08:
Property tax liability = Nil; because the rental income started in June 2008, i.e. Y/A 2008/09.
Y/A 2008/09: Property Tax Liability for Miss Chan
$
150,000
93,750
19,000
262,750
52,550
210,200

Rent ($15,000 x 10)

Premium ($225,000 x 10/24)
Management fee ($1,900 x 10)
Less: 20% statutory deduction
Net assessable value
Tax at 15%

31,530

Notes: (a) Rates paid by tenant is neither an assessable value nor an eligible deduction for
Miss Chan.
(b) Bank mortgage interest is not an eligible deduction for property tax purposes.

Y/A 2009/10
$
195,000
112,500
22,800
330,300
66,060
264,240

Rent ($15,000 x 2 + $16,500 x 10)

Premium ($225,000 x 12/24)
Management fee ($1,900 x 12)
Less: 20% statutory deduction
Net assessable value
Tax at 15%

39,636

Notes for Y/A 2008/09 are also applicable.

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Answer 5
Property Tax Liability of Mr. Mo
Year of Assessment 2007/08
$
280,000
18,900
261,100
52,220
208,880

Rent: 1.11.2007 - 31.3.2008 ($56,000 x 5)

Less: Rates ($8,100/3 x 7)
Less: 20% statutory deduction
Net assessable value
Tax at 16%

33,420

Tax reduction for 2007/08: 75% of $33,420 (i.e. $25,065) or $25,000, whichever is the less.
Therefore, property tax for 2007/08: $33420 - $25,000 = $8,420

Notes:
(a)
Rent free period is not assessable for property tax purposes as no consideration is paid
or payable.
(b)
Rent in arrear is not deductible until it is proved to be irrecoverable in the following
year.
(c)
Rental deposit is not assessable value for property tax purposes unless and until the
irrecoverable debt is proved to be bad and the deposit is used to compensate the loss.
(d)
Rates paid by landlord is deductible but apportioned on lease term basis.
(e)
Management fee paid by tenant directly to management company is not deductible
nor assessable. Only rates agreed and paid by landlord, 20% statutory allowance, and
bad rent are deductible for property tax purpose.

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Answer 5 (cont)
Property Tax Liability of Mr. Mo
Year of Assessment 2008/09

Rent: 1.4.2008 - 30.4.2008 old lease

1.7.2008 - 31.3.2009 new lease
Premium ($240,000 x 9/24) new lease
Less: Irrecoverable rent (56,000 x 3 - 112,000)
Less: Rates (1.4.2008 - 30.6.2008)
Less: 20% statutory deduction
Net assessable value
Tax at 15%

$
56,000
270,000
90,000
416,000
56,000
360,000
8,100
351,900
70,380
281,520
42,228

Notes:
(a)
(b)
(c)

(d)
(e)

(f)

The old lease is regarded as terminated on 1 May 2008 when the tenant moved out
and beyond trace.
The overdue management fee paid by landlord for period under the old lease is not an
eligible deduction for property tax purpose.
Since the overdue rent from 1.2.2008 to 30.4.2008 is proved to be bad when the
tenant moved out on 1 May 2008, the bad debt can be claimed as deduction in the
Y/A 2008/09 rather than 2007/08. However, since the rental deposit is used to
compensate part of the loss, only the balance of bad debt not recovered or
compensated can be deducted.
Rental deposit again is not an assessable value until and unless it is used to
compensate any loss of taxable revenue.
Rates under the new lease is payable by tenant, hence not deductible for Mr. Mo.
However, rates for the intermittent period between the old and new lease may by
concession be deducted on the basis that the item is deductible under the old lease,
and the property remains as available for letting during the intermittent period.
Management fee paid by tenant to management company is not deductible nor
assessable.

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Answer 6
Mr. Newtons property tax liability in the year of assessment 2008/09:
Spreading premium over 36 months starting from 1.7.2008 and ending on 30.6.2011:
2008/09 (1.7.2008 - 31.3.2009)
2009/10 (1.4.2009 - 31.3.2010)
2010/11 (1.4.2010 - 31.3.2011)
2011/12 (1.4.2011 - 30.6.2011)

90,000 x 9/36
90,000 x 12/36
90,000 x 12/36
90,000 x 3/36

=
=
=
=

$22,500
30,000
30,000
7,500
$90,000

Y/A 2008/09
$
270,000
22,500
292,500
5,400
287,100
57,420
229,680

Rent (9 x $30,000)
Premium
Assessable value
Less: Rates paid ($1,800 x 3)
Less: 20% statutory allowance
Net assessable value
Property tax at 15%

34,452

Notes:
(a)

Property tax is levied on person who derives assessable value from land and buildings
situated in Hong Kong. The residence and citizenship of the person are irrelevant. In
this case, since the property is located in Hong Kong, the landlord, Mr. Newton, is
subject to HK property tax in respect of consideration received.

(b)

Management fee directly paid by tenant to the management company is neither

assessable nor deductible. Only rates agreed and paid by landlord, 20% statutory
allowance, and bad rent are deductible for property tax purpose.

(c)

The fact that the rent is paid by tenant to the landlords agent in Hong Kong does not
affect the assessability of Mr. Newton. Section 5B(2) of IRO states that assessable
value includes consideration payable to, to the order of, or for the benefit of, the
owner.

(d)

The agency service fee of 2% is not deductible for property tax purpose.

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Answer 6 (cont)

Mr. Chau can on behalf of Mr. Newton lodge a hold-over claim in respect of the 2008/09
provisional property tax. Such claim must be (S.63O):
(i)

in writing;

(ii)

lodged with the Commissioner not later than 28 days before the payment due date, i.e.
28 days before 28 January 2009, or not later than 14 days after the date of notice, i.e.
14 days after 10 December 2008; whichever is the later. In this case, the due date for
holdover should be 31 December 2008; and

(iii)

stating the ground for holding over the provisional property tax. In this case, the
ground would be:
The assessable value for 2008/09 which is $292,500 is less than 90% of the
estimated assessable value of $350,000. [NAV: 280,000/(1-20%) =350,000]
By doing so, provisional property tax of [($280,000 - $229,680) x 15%] = $7,548 will
be held over.

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