Introduction to Property Tax in Hong Kong

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Questions and Answers

What is the total annual rent income Mr. Leung received for the year ended 31 March 2023?

$83,200

$96,000 (correct)

$108,000

$12,000

How much did Mr. Leung pay in rates during the year ended 31 March 2023?

$5,000

$1,000

$4,000 (correct)

$3,000

What is the net assessable value for Mr. Leung after applying the 20% deduction?

$83,200 (correct)

$104,000

$96,000

$80,000

What is the amount of property tax liability for Mr. Leung for the year of assessment 2022/23?

$12,480 Signup and view all the answers

Which of the following expenses is not included in the calculation of Mr. Leung's net assessable value?

Mortgage loan interest Signup and view all the answers

What is the monthly rent Mr. Cheung receives from his property?

$2,000 Signup and view all the answers

How is the assessable value for the year 2020/21 calculated?

Monthly rent x 12 + Premium x 12 Signup and view all the answers

What is the total assessable value for Mr. Cheung in the year of assessment 2021/22?

$30,000 Signup and view all the answers

What is the premium Mr. Cheung charges for his property during the lease period?

$18,000 Signup and view all the answers

For the year of assessment 2022/23, what is the assessable value calculated based on the monthly rent and premium?

$24,500 Signup and view all the answers

What is the rate of property tax applied to the net assessable value calculated?

15% Signup and view all the answers

What percentage is deducted from the assessable value for maintenance of the property?

20% Signup and view all the answers

Which aspect does NOT affect the calculation of the net assessable value?

Owner's residence status Signup and view all the answers

What distinguishes property tax from profits tax in terms of the taxpayer's activity?

Property tax applies if the letting of land and buildings is not a business. Signup and view all the answers

Who is responsible for paying property tax according to the scope of charge?

The owner of the land and/or buildings. Signup and view all the answers

Which of the following statements is correct concerning the tax assessment period?

The period of assessment begins on April 1 and ends on March 31 of the following year. Signup and view all the answers

What can a corporation do regarding property tax payments?

Apply for exemption and include the rental income as profit. Signup and view all the answers

How is the net assessable value for property tax calculated?

Net assessable value is calculated as assessable value less statutory deductions. Signup and view all the answers

What is the standard tax rate for property tax applicable since the year 2008/09?

15% Signup and view all the answers

Which of the following is considered as 'buildings' in the context of property tax?

Parts of a building and other structures like bridges. Signup and view all the answers

Which of the following is NOT included under the definition of 'land or buildings'?

Farms and agricultural land. Signup and view all the answers

Who is considered the owner of a property if registered in Mr. Chan's name, but held in trust for the partnership?

The partnership is the beneficial owner. Signup and view all the answers

What role does a mortgagee in possession play in property tax ownership?

They are considered the owner for tax purposes. Signup and view all the answers

Which situation indicates that a beneficial owner exists?

A partnership holding property through a registered individual. Signup and view all the answers

What happens to the property tax liability if income is derived from a property owned by a partnership?

Only the beneficial owner is liable for property tax. Signup and view all the answers

If Mr. Yip cannot repay his bank loan, who assumes control of the property?

The bank can enter possession. Signup and view all the answers

Which of the following is not classified as an ownership category for property tax purposes?

A lessee of government land Signup and view all the answers

Who among these is not considered a beneficial owner for property tax?

An executor managing an estate Signup and view all the answers

In property tax ownership, who is labelled as an owner when subject to a ground rent?

The individual who holds the land. Signup and view all the answers

What is the assessable value for Mr. Chan for the year of assessment 2021/22?

$135,000 Signup and view all the answers

How much did Mr. Wong pay in premium for the year of assessment 2022/23?

$5,000 Signup and view all the answers

Which of the following is included in the calculation of assessable value for Mr. Wong?

Repairs paid for the landlord Signup and view all the answers

What is the total monthly rent received by Mr. Chan in the year of assessment 2020/21?

$60,000 Signup and view all the answers

What is the net assessable value after the statutory deduction for a property with an assessable value of $57,000?

$45,600 Signup and view all the answers

For the year of assessment 2022/23, what is the total rent for Mr. Wong over the six-month period?

$48,000 Signup and view all the answers

What premium amount should Mr. Leung report for the year of assessment?

$24,000 Signup and view all the answers

Which of the following reflects a common misconception about the assessable value calculation?

Repairs are excluded from assessable value. Signup and view all the answers

Study Notes

Property Tax Introduction

Hong Kong income from letting land and buildings is taxed in two ways:
- Property Tax
- Profits Tax
Property Tax is charged on rental income from land and buildings by owners
Profits Tax is charged on rental income if the taxpayer is conducting a business
Corporations can choose to apply for exemption from Property Tax and include rental income as profit income.
If a sole proprietor, partnership, or corporation paid property tax in the year of assessment, they can offset the property tax against their profits tax.

Property Tax Scope of Charge

The source of income must be land, buildings, or both.
The chargeable person is the owner of the land or buildings
Rental income must come from land and buildings situated in Hong Kong.
Tax is charged on a current year basis (annual).
Tax is calculated at the standard rate on the net assessable value.
Net assessable value is the assessable value less statutory deductions.

Basis Period and Tax Rate

Year of assessment: 12 months starting April 1st and ending March 31st of the following year.
Tax rate: No tax rebate for property tax, standard flat rate.
- 2008/09 onwards: 15%

Understanding "Land or Buildings"

Land or buildings include structures like piers, wharves, walls, dams, fish ponds, sewers, roads, and bridges.
Buildings also include parts of a building, like a single room in a flat.

Identifying Property Owners for Tax Purposes

Owner for Property Tax Purposes:
- Individuals holding land directly from the HKSAR government.
- Beneficial owners.
- Life tenants.
- Mortgagors.
- Mortgagees in possession.
- Executors of an owner's estate.
- Individuals making payments to a cooperative society for purchasing land or buildings.
- Individuals holding land with a ground rent or other annual charge.
- Incorporated owners formed by the owners of a building under the Building Management Ordinance when receiving consideration for the right to use any part of land and/or buildings.
- In practical terms, individuals registered under a government lease in the Land Registry are considered the owners.

Class Exercise 1: Identifying the Owner

A property in HK is registered in the name of Mr.Chan, who is a partner in Chan, Wong & Cheung partnership.A Declaration of Trust shows that Mr.Chan holds the property in trust for the partnership.
Answer: Mr.Chan is not the beneficial owner. The partnership is the beneficial owner and liable for property tax if the property generates income.

Class Exercise 2: Identifying the Owner

Mr.Yip purchased a property in Shatin on May 1, 2023. 90% of the purchase price was financed by a bank mortgage loan. Due to repayment issues, the bank took possession of the property on October 1, 2023, after a court judgment.
Answer: The bank, as mortgagees in possession, are considered the owners for property tax purposes.

Computation Template of Property Tax

Items to Calculate Assessable Value:
- Rent and premium
- Add: Rent recovered
- Less: Irrecoverable rent (bad debt)
- Less: Rates paid by the owner
- Less: Statutory deduction (20% of assessable value less rates)
Net Assessable Value: Assessable value less statutory deductions

Example 1: Mr.Cheung's Property Tax Computation

Let out property on May 1, 2019, for 4 years at a monthly rent of 2,000andapremiumof2,000 and a premium of 2,000andapremiumof18,000.
Calculations for Different Years:
- 2019/20: (2,000x11m)+(2,000 x 11m) + (2,000x11m)+(18,000/36 x 11m) = $27,500
- 2020/21: (2,000x12m)+(2,000 x 12m) + (2,000x12m)+(18,000/36 x 12m) = $30,000
- 2021/22: (2,000x12m)+(2,000 x 12m) + (2,000x12m)+(18,000/36 x 12m) = $30,000
- 2022/23: (2,000x12m)+(2,000 x 12m) + (2,000x12m)+(18,000/36 x 1m) = $24,500

Example 2: Mr.Chan's Property Tax Computation

Let out property on October 1, 2020, for 2 years at a monthly rent of 10,000andapremiumof10,000 and a premium of 10,000andapremiumof30,000.
Calculations for Different Years:
- 2020/21: (10,000x6m)+(10,000 x 6m) + (10,000x6m)+(30,000/24 x 6m) = $67,500
- 2021/22: (10,000x12m)+(10,000 x 12m) + (10,000x12m)+(30,000/24 x 12m) = $135,000
- 2022/23: (10,000x6m)+(10,000 x 6m) + (10,000x6m)+(30,000/24 x 6m) = $67,500

Example 3: Mr.Wong's Property Tax Computation

Let out property on October 1, 2022, for 2 years at a monthly rent of 8,000,adepositof8,000, a deposit of 8,000,adepositof8,000, an initial premium of $20,000, and the tenant pays management fees and repairs.
Calculation for 2022/23: (8,000x6m)+(8,000 x 6m) + (8,000x6m)+(20,000/24 x 6m) + 4,000=4,000 = 4,000=57,000

Understanding Net Assessable Value

Net assessable value is the assessable value less the following deductions:
- Rates paid by the owner.
- Statutory deduction (20% of assessable value less rates paid). This deduction covers repairs and outgoings.

Example 4: Mr.Leung's Net Assessable Value Calculation

Let out flat for 2 years from April 1, 2022, at 8,000monthlyrentanda8,000 monthly rent and a 8,000monthlyrentanda24,000 premium. Expenses include 1,000perquarterinrates,1,000 per quarter in rates, 1,000perquarterinrates,3,000 repairs, and $54,300 mortgage interest.
Calculation for 2022/23:
- (8,000x12m)+(8,000 x 12m) + (8,000x12m)+(24,000/24 x 12m) = $108,000
- 108,000−(108,000 - (108,000−(1,000 x 4) = $104,000
- 104,000−(104,000 - (104,000−(104,000 x 20%) = $83,200

Property Tax Liability Calculation

Property tax is calculated at the standard rate (15%) on the net assessable value.
Example 5: Mr.Leung's Property Tax Liability:
- Taxable value: $83,200
- Property tax: 83,200x1583,200 x 15% = 83,200x1512,480

End of Lecture 3

Students are encouraged to review chapters 6 and 7 in the HKTTP for further details.

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Description

This quiz introduces the key concepts of Property Tax in Hong Kong, focusing on how income from letting land and buildings is taxed. Learn about the differences between Property Tax and Profits Tax, and understand who is chargeable and how taxes are calculated based on rental income.