【Tax Deduction for Domestic Rent】A Guide to Eligibility & Allowable Deduction
A comprehensive guide to understanding tax deduction for domestic rent in Hong Kong. Find out who is eligible and how to claim a maximum $100,000 deduction.
The new tax deduction for domestic rent has come into effect from the year of assessment 2022/23. This tax deduction applies to rents paid under a qualifying tenancy to any year of assessment commencing on or after 1st April 2022 (i.e. the year of assessment 2022/23 and onwards) in Hong Kong. Here is a summary of the most important information regarding the rent deduction.
Are domestic rents tax deductible? What is The “Tax Deduction for Domestic Rent” Ordinance?
Domestic rents in Hong Kong are notoriously high. Fortunately, with the enactment of the "Tax Deduction for Domestic Rent" Ordinance in 2022, a taxpayer will be eligible to claim a tax deduction of the rent paid as a tenant of a domestic premises in Hong Kong under specific conditions. If you are subjected to paying salaries tax or tax under personal assessment, you are eligible to claim a rent deduction from the year of assessment 2022/23 onwards, simply by including the rental expenses in your individual tax return. Generally, the maximum amount of deduction per taxpayer is HK$100,000 for each year of assessment. There is no limit for the years of entitlement, which means, taxpayers are allowed to file for a rent deduction in Hong Kong every tax year.
Who is eligible for rent deduction in Hong Kong?
Theoretically, all taxpayers chargeable to salaries tax or tax charged under personal assessment are eligible for this tax deduction under the new ordinance. However, a deduction for domestic rent is not allowable if:
● a taxpayer or his/her spouse is a legal owner of any domestic premises in Hong Kong;
● a taxpayer or his/her spouse is a tenant or an authorized occupant of a public rent housing flat of the Hong Kong Housing Authority or the Hong Kong Housing Society;
● the landlord of the relevant premises is a relative (e.g. if the landlord is the taxpayer’s spouse, parents, children, in-laws or siblings) or an associate of the taxpayer or his/her spouse (e.g. a corporation controlled by the taxpayer or the taxpayer's spouse).
The rented premises must primarily be for domestic use and the tenancy is only qualified in writing and must be stamped within the meaning of the Stamp Duty Ordinance.
What is the maximum amount of allowable rent deduction?
A taxpayer can receive a maximum of HK$100,000 tax deduction for domestic rent paid under a qualifying tenancy per year of assessment. In other words, if your average monthly rent reaches HK$8,333, you can claim the allowance fully.
What premises are eligible for tax deduction in Hong Kong?
Eligible domestic premises are a building or any part of a building that is not prohibited or under any law or any specified instrument from being used for residential purposes. A stamped tenancy in writing must be demonstrated to qualify for the deduction.
It is important to note that the relevant domestic premises must be the taxpayer's and his/her spouse's principal place of residence to be eligible for a rent deduction. If a taxpayer or his/her spouse has more than one place of residence, only the rent of the principal place of residence can be deducted. Taxpayers could be asked to provide proof of residency, such as utility bills (including water, electricity, and gas bills) or resident cards.
If a qualifying tenancy is procured concerning domestic premises and car parking space, the rent of the car parking space can also be part of the tax deduction if it is not sublet.
Calculation of Allowable Rent Deduction
The maximum deductible amount allowed varies depending on the circumstances of the tenancy.
For example, if the qualifying tenancy is shared by a taxpayer and his/her spouse, the total amount of tax deduction allowable to the couple is the amount of rent paid under the tenancy for the year of assessment, or the deduction ceiling for the year of assessment, whichever is less. In other words, both spouses can either claim a maximum amount of HK$ 50,000 tax deduction individually, or one spouse is allowed a maximum of HK$100,000 tax deduction.
If you are sharing a qualifying tenancy with friends or family, you are also eligible for a tax deduction as long as you do not own any domestic premises in Hong Kong. The amount of deduction is divided among the co-tenants in equal shares. So, for example, if the qualified tenancy is shared by four tenants, the maximum amount of deduction allowable to each tenant is HK$ 25,000, regardless of the difference in rent paid individually.
Procedures For Filing Tax Deduction For Rent In Hong Kong
Taxpayers subjected to paying salaries tax or tax under personal assessment can simply provide the amount claimed for deduction for the year of assessment in Part 10A of your Tax Return - Individuals.
Frequently Asked Questions
Q: Can I still claim a tax deduction for domestic rent if the tenancy agreement was signed without a stamp?
Generally, a tenancy agreement has to be stamped within 30 days from the date of its signing. Late stamping is possible but will incur a penalty of two to 10 times the original amount of stamp duty. A rent deduction is only possible with a stamped tenancy agreement.
Q: If I own domestic premises but rent another property as a residence, can I still claim a rent deduction?
Unfortunately, no. A deduction for domestic rent is not applicable if the taxpayer or the taxpayer’s spouse is a legal and beneficial owner of any domestic premises in Hong Kong.
Q: I just moved from abroad. How can I calculate the amount of tax deduction in Hong Kong if the tenancy covers less than a year?
In the case where the qualifying tenancy does not cover the whole year of assessment, the deduction ceiling will be reduced in proportion to the tenancy period that falls in the year of assessment. For instance, if the tenancy only covers 10 months of the year of assessment, the maximum amount of tax deduction for domestic rent allowable is HK$ 83,333.
Q: If there is more than one qualifying tenancy within a year of assessment, can I claim tax deduction for all the domestic rents paid in Hong Kong?
The allowable deduction to a taxpayer is the amount of rent paid under a qualifying tenancy of the domestic premises that is the principal place of residence. The principal place of residence is where the taxpayer and his/her family spend the majority of their time. If the taxpayer has more than one place of residence, only the rent of the principal place of residence is eligible for a tax deduction in Hong Kong.
The introduction of tax deductions for domestic rent will certainly help reduce the tax burden of taxpayers who do not own a domestic property in Hong Kong or receive housing benefits from their employers. Contact us to find out more about how we can help you with renting a property in Hong Kong or answering any questions regarding rent deduction of your property.
Previous Article 【U.S. Interest Rate】How will it affect the cost of housing mortgages?
Next Article【Primary One Admission】Hong Kong Island POA School Net & Areas Covered
Are domestic rents tax deductible? What is The “Tax Deduction for Domestic Rent” Ordinance?
Domestic rents in Hong Kong are notoriously high. Fortunately, with the enactment of the "Tax Deduction for Domestic Rent" Ordinance in 2022, a taxpayer will be eligible to claim a tax deduction of the rent paid as a tenant of a domestic premises in Hong Kong under specific conditions. If you are subjected to paying salaries tax or tax under personal assessment, you are eligible to claim a rent deduction from the year of assessment 2022/23 onwards, simply by including the rental expenses in your individual tax return. Generally, the maximum amount of deduction per taxpayer is HK$100,000 for each year of assessment. There is no limit for the years of entitlement, which means, taxpayers are allowed to file for a rent deduction in Hong Kong every tax year.Who is eligible for rent deduction in Hong Kong?
Theoretically, all taxpayers chargeable to salaries tax or tax charged under personal assessment are eligible for this tax deduction under the new ordinance. However, a deduction for domestic rent is not allowable if:● a taxpayer or his/her spouse is a legal owner of any domestic premises in Hong Kong;
● a taxpayer or his/her spouse is a tenant or an authorized occupant of a public rent housing flat of the Hong Kong Housing Authority or the Hong Kong Housing Society;
● the landlord of the relevant premises is a relative (e.g. if the landlord is the taxpayer’s spouse, parents, children, in-laws or siblings) or an associate of the taxpayer or his/her spouse (e.g. a corporation controlled by the taxpayer or the taxpayer's spouse).
The rented premises must primarily be for domestic use and the tenancy is only qualified in writing and must be stamped within the meaning of the Stamp Duty Ordinance.
What is the maximum amount of allowable rent deduction?
A taxpayer can receive a maximum of HK$100,000 tax deduction for domestic rent paid under a qualifying tenancy per year of assessment. In other words, if your average monthly rent reaches HK$8,333, you can claim the allowance fully.What premises are eligible for tax deduction in Hong Kong?
Eligible domestic premises are a building or any part of a building that is not prohibited or under any law or any specified instrument from being used for residential purposes. A stamped tenancy in writing must be demonstrated to qualify for the deduction.It is important to note that the relevant domestic premises must be the taxpayer's and his/her spouse's principal place of residence to be eligible for a rent deduction. If a taxpayer or his/her spouse has more than one place of residence, only the rent of the principal place of residence can be deducted. Taxpayers could be asked to provide proof of residency, such as utility bills (including water, electricity, and gas bills) or resident cards.
If a qualifying tenancy is procured concerning domestic premises and car parking space, the rent of the car parking space can also be part of the tax deduction if it is not sublet.
Calculation of Allowable Rent Deduction
The maximum deductible amount allowed varies depending on the circumstances of the tenancy.For example, if the qualifying tenancy is shared by a taxpayer and his/her spouse, the total amount of tax deduction allowable to the couple is the amount of rent paid under the tenancy for the year of assessment, or the deduction ceiling for the year of assessment, whichever is less. In other words, both spouses can either claim a maximum amount of HK$ 50,000 tax deduction individually, or one spouse is allowed a maximum of HK$100,000 tax deduction.
If you are sharing a qualifying tenancy with friends or family, you are also eligible for a tax deduction as long as you do not own any domestic premises in Hong Kong. The amount of deduction is divided among the co-tenants in equal shares. So, for example, if the qualified tenancy is shared by four tenants, the maximum amount of deduction allowable to each tenant is HK$ 25,000, regardless of the difference in rent paid individually.
Procedures For Filing Tax Deduction For Rent In Hong Kong
Taxpayers subjected to paying salaries tax or tax under personal assessment can simply provide the amount claimed for deduction for the year of assessment in Part 10A of your Tax Return - Individuals.Frequently Asked Questions
Q: Can I still claim a tax deduction for domestic rent if the tenancy agreement was signed without a stamp?
Generally, a tenancy agreement has to be stamped within 30 days from the date of its signing. Late stamping is possible but will incur a penalty of two to 10 times the original amount of stamp duty. A rent deduction is only possible with a stamped tenancy agreement.Q: If I own domestic premises but rent another property as a residence, can I still claim a rent deduction?
Unfortunately, no. A deduction for domestic rent is not applicable if the taxpayer or the taxpayer’s spouse is a legal and beneficial owner of any domestic premises in Hong Kong.Q: I just moved from abroad. How can I calculate the amount of tax deduction in Hong Kong if the tenancy covers less than a year?
In the case where the qualifying tenancy does not cover the whole year of assessment, the deduction ceiling will be reduced in proportion to the tenancy period that falls in the year of assessment. For instance, if the tenancy only covers 10 months of the year of assessment, the maximum amount of tax deduction for domestic rent allowable is HK$ 83,333.Q: If there is more than one qualifying tenancy within a year of assessment, can I claim tax deduction for all the domestic rents paid in Hong Kong?
The allowable deduction to a taxpayer is the amount of rent paid under a qualifying tenancy of the domestic premises that is the principal place of residence. The principal place of residence is where the taxpayer and his/her family spend the majority of their time. If the taxpayer has more than one place of residence, only the rent of the principal place of residence is eligible for a tax deduction in Hong Kong.The introduction of tax deductions for domestic rent will certainly help reduce the tax burden of taxpayers who do not own a domestic property in Hong Kong or receive housing benefits from their employers. Contact us to find out more about how we can help you with renting a property in Hong Kong or answering any questions regarding rent deduction of your property.
Previous Article 【U.S. Interest Rate】How will it affect the cost of housing mortgages?
Next Article【Primary One Admission】Hong Kong Island POA School Net & Areas Covered
04 MAR 2023
