How much tax do you pay for renting a property? Teach you how to calculate property tax

What exactly is “Property Tax”? Does any property owner have to pay property tax? And how should the tax payable in property tax be calculated? If you are also a business owner, or plan to become a business owner, you may have thought about the above questions. In this article, I will specifically list the calculation methods of property tax, and share an example of property tax calculation, so that taxpayers can be handier when filing tax returns.

Who does “Property Tax” apply to?

“Property tax” is different from personal assessment. Generally, it only applies to property owners who collect rent from their properties, and owner-occupiers are not subject to taxation. If there is any rental income from the rental property during the year of assessment, the landlord is required to pay “Property Tax”.

How to calculate “Property Tax”?

To calculate “property tax”, it is necessary to calculate the “net assessable value” of the property in the year of assessment (the property tax year is from April 1 to March 31 of the following year), and then calculate it at the standard rate.

How to calculate “Net Assessable Value”? The tax assessment criteria for “Property Tax” given by the Inland Revenue Department are calculated as follows:

[A]: Rental income

[B] Minus: non-recoverable rent

[C]: Assessable Value (A-B)

[D] Minus: Rates paid by the owner

[E] Minus: (C-D)

[F] Less: Standard allowance for repairs and expenses (E x 20%)

And the net assessable value is: (E-F)

In item [F], the general property tax rate is 15% of the annual net rental income, and the annual net rental income is subject to deduction of rates, non-recoverable rent, repairs, miscellaneous expenses (such as building management fees, insurance fees, mortgage interest), etc.

However, since the repair fee varies according to the age of the property, the Inland Revenue Department will automatically deduct a flat 20% from it to simplify the procedure as a “standard allowance” for repairs and expenses. For the actual repair costs and miscellaneous expenses every year, the owner does not need to provide the relevant actual expenditure certificate to the Inland Revenue Department one by one.

If the tenant is in arrears of rent, the landlord should calculate the arrears of rental income when filing tax returns.

Calculation example of “Property Tax”

Assuming that in the 2021/22 tax period, the monthly rental income of the rental property is HK$10,000, and the rates are paid by the tenant, how much property tax does the landlord need to pay in this situation?

Calculated annually, the annual rent/assessable value is: $10,000 x 12 = $120,000;

Less allowance for 20% repairs and expenses = 24,000;

The net assessable value is $96,000,

If calculated based on the net assessable value in 2021/22 and the standard tax rate of 15%, the property tax of the owner in 2021/22 is $14,400, but because the provisional tax for 2022/23 is added, the owner’s “tax payable” Total Payment” will be $28,800.

The above information is for reference only. If you have any questions about tax declaration and accounting, we welcome your inquiries.