Property Tax Tips
Section 5 of Inland Revenue Ordinance levies property tax on the property owner
in respect of the rental income of his land and building in Hong Kong. In
general, the tax is equal to: Standard rate (from 2008/09 onward) 15% * 80% * (rental income – rates
paid by the owner).
Rental Income includes license fee, lump sum premium or management fee paid or
payable to the owner.
The owner's expenses (e.g. maintenance and property tax) borne by the tenant is
regarded as taxable income.
No deduction for decoration fees, rent-collection fees, insurance and mortgage
interests under Property Tax. In theory, such expenses have been covered by the
20% flat-rate deduction. No more allowance is granted even though the owner actually incurs
more expenditure. Nevertheless, mortgage interest may be deductible under
Personal Assessment if the owner elects to be personally assessed.
An example of property tax computation
Rental income for 1 July 2007 to 31 March 2008: $38,000 per month. Rates paid by
owner for the 3 quarters ending on 31 March 2008: $12,000. Provisional Tax paid
per last tax bill for 2007/2008: $35,000.
Rent for 9 months ($38,000 x 9): $342,000 less rates paid by owner of $12,000
equal to $330,000 (assessable value). Then, less 20% allowance for repairs and
outgoings of $66,000, gives $264,000 (Net assessable value).
Property Tax for 2007/2008: $264,000 *16% = $42,240.
Less: Provisional Tax paid for 20007/2008: $35,000.
Balance payable for 2007/2008: $7,240.
Add: Provisional Tax for 2008/2009: $264,000 * 12 / 9 * 16% = $56,320.
Total tax payable to be shown in the tax bill: $7,240 plus $56,320 equal to
The tax $63,560 is payable in two installments: the first one in November 2008
and second in April 2009. The November tax payable is 7,240 plus 7 / 12 of
$56,320 totaled $40,093. The April tax payable is 5/12 of $56,320 equal to
A checklist for reduction of property tax
Are you a low-income person? If yes, you should elect for personal assessment
to remove or to reduce the tax.
Have you borrowed money to purchase the property and paid interest? If yes,
you should elect for personal assessment to claim deduction of interest.
Have you claimed deduction of rates?
Have you claimed deduction of irrecoverable rents?
Do you include rent deposits in your rental income? If yes, you should
exclude them from the assessable value.
Have you received lump-sum premium? If yes, the premium can be spread over 36
months in order to reduce tax.
Do you pay management fee as an agent of the tenant? If yes, such fee
received from the tenant is not assessable.
Do you know what property incomes are assessable and what are non-assessable?
If no, please read my tax tips below.
You do not agree to the income assessed or the deduction or relief or
allowances granted. In that case, you should read "What can you do if you
disagree with an assessment" under Basic Tax Tips.
Have you read “How to reduce property tax” under “Common topics of tax
The checklist is for general guidance only. Indeed the above guidelines are
subject to the various conditions laid down in the Inland Revenue Ordinance as
well as the judgments made in court and Board of Review cases. Besides, there
are exceptions to which the above guidelines do not apply. For details, please
refer to my electronic books.
Rent deposit returnable to the tenant is not taxable.
The lump-sum premium received at the start of the lease period can be spread
throughout the lease period up to a maximum of 36 months if the owner makes such
Irrecoverable rent (i.e. bad debt) is deductible from the rental income.
The “rates paid by the owner” does not include government rent. In other words,
the government rent levied in the rates bill is not deductible. To claim the
rates deduction, it is advisable for the property owner to keep all the rates
Where the tenant pays management fee through the landlord and such fee is not
included as rent under the lease, the fee is not assessable. If the lease makes no provision for payment of management fee and the rent
payable to the landlord includes the management fee, then the rent comprising
the management fee will be assessable in full, and the management fee paid by
the landlord will not be deductible. So, it is advisable for the landlord to
have the lease stipulating the rent only and the management fee to be borne by
Where the landlord dies, his executor will be liable to pay the tax for the
rental income until the grant of probate or letters of administration. Thereafter, the beneficial owner will be
liable to pay the tax.
The landlord may reduce his tax liability by electing for Personal Assessment
which brings all his income including property income, salaries income and
business income into a single assessment with deductions for married person
allowance, child allowance, dependent parent allowance, etc. from the chargeable
incomes. Besides, he can claim mortgage interest on loans for purchase of the
property under Personal Assessment --- such interest is not deductible under
If the landlord has property income only, it is always advisable for him to
elect for Personal Assessment. If he has other incomes, he can also make the
election in the tax return because such election will not take effect if it is
not to his advantage.
Where the landlord is a limited company, the rental income will
normally be included in
the company's assessable profits. If the company pays interest on a loan for
buying the property, the interest is a deductible expense under Profits Tax.
Property held by more than one owner: strictly in law, every owner (whether he
is a joint owner or an owner-in-common) is legally obliged to file a Property
Tax Return (BIR 57) to disclose the rental income and pay Property Tax as if he
were the sole owner. But in practice, the tax return will be sent to the
precedent owner (the owner as first named in the title deed) --- then the
precedent owner will be required to file the tax return and pay the tax on
behalf of the other owners.
The property owner is required by Stamp Duty Ordinance to have the lease duly
stamped within 30 days of the execution of the lease. Failure to do so may
render the owner liable to penalty and make the lease agreement inadmissible in
Hold over of Provisional Property Tax
The taxpayer can apply for hold over of Provisional Property Tax on the
1. The provisional rental income is likely less than 90% of the amount assessed.
2. He ceased to be the owner.
3. He applied for Personal Assessment that could reduce his total tax payable.
4. He has objected to an assessment forming the basis of the provisional tax.
The application for holding over of Provisional Tax must be in writing, setting
out the grounds for the hold-over and proposing a suggested provisional income
if applicable. It should be sent to the Revenue not later than 28 days before
the due date of the provisional tax.
Property tax versus profits tax
According to section 2, the letting and sub-letting of properties by a
corporation is a business liable to Profits Tax. So, a corporation is normally
not liable to Property Tax because its property income is assessed under Profits
Tax. But in the following cases, property tax assessment can still be charged on
the corporation holds the property as trustee or agent for other individual
the corporation is an association or a club deemed under Section 24 of the IRO as not carrying on a business
the corporation is a foreign corporation
the corporation is joint owner or co-owner with other persons
A corporation wishing to exempt from Property Tax
on the grounds of Profits Tax assessment should lodge a claim in Part 5 of the
Property Tax Return (B.I.R.57). If the corporation has paid property tax, the
property tax paid will be used to set off its profits tax liability under
As for a person other than a corporation, the sub-letting of properties is
liable to profits tax whereas the letting income is generally liable to Property
In special cases, letting of property by an individual can constitute a business
liable to Profits Tax. Of course, this is a question of facts. In general, the
Revenue does not accept a claim for Profits Tax unless there is a large number
of letting properties and the owner has hired staff to handle the tenancies and
deal with the tenants. Where the properties concerned are ballrooms, cinemas or
restaurants, the letting of such are likely to be accepted as a business.
Nevertheless, income from letting by an individual will be chargeable to Profits
Tax in the following cases: (a) letting by a property dealer: the rental income
is regarded as part of the income of the property dealing business, and (b)
where a property is used for a trade or a business of the owner and no rent has
been charged in the Profits and Loss account or the rent charged is added back
in the Profits Tax computation, and (c) the property is partly used for a trade
or a business and partly let out.
Besides, furnished letting can also be accepted as carrying on a business. But
for administrative reasons, the Revenue is not inclined to assess it under
Profits Tax, particularly where a single-property case is concerned. Therefore,
Property Tax returns are issued to assess the whole rental income, including any
hire charge for the use of furniture or equipment. But if the owner claims for a
Profits Tax assessment instead of a Property Tax assessment, either before the
issue of a Property Tax assessment or upon objection to the Property Tax
assessment, the hiring income for the use of furniture or equipment will be
assessed under Profits Tax. The Revenue may require the taxpayer to supply the
tenancy and hire agreements and the Business Registration number to substantiate
What is furnished letting?
In general, the Revenue accepts furnished letting if the landlord under the
terms of the tenancy agreement provides furniture and domestic equipments so
that the tenant needs only bring in his personal belongings. If only a few items
of furniture and equipments are provided (e.g. a refrigerator and cooker in the
kitchen, or a wardrobe and an air-conditioner in the bedroom), the Revenue will
not normally accept the letting as furnished.