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Tax deductions are available for renting and living in a building. What should I pay attention to in the “residential rent deduction”?

In addition to tax incentives for taxpayers, the Hong Kong government recently proposed that starting from the 2022/23 year of assessment, all tenants of eligible properties can enjoy rental allowances, bringing tax incentives of up to HK$100,000 per year to tenants who do not own properties. , it is estimated that 430,000 taxpayers in Hong Kong will benefit, and the warehouse will therefore reduce the income of 3.3 billion Hong Kong dollars. So, what should tenants be aware of before the new measures are implemented? How do I qualify for a tax deduction?

Who is entitled to the “Residential Rental Expenses Deduction” deduction?

According to the current Financial Secretary’s proposal, all eligible persons for the “Residential Rental Expenses Deduction” need to meet the following conditions:

• for taxpayers who do not own property;

• for salaries tax and personal assessment taxpayers;

• Not to be associated with the owner of the property (the relationship between the owner and the taxpayer must not be a spouse, parent, sibling, child, partner, corporation controlled by him, etc.),

Among them, the lease agreement entered into by the cohabiting spouse can also be used as tax deduction for the taxpayer, but the taxpayer whose employer provides the domicile is not included, and cannot enjoy the “residential rental expense deduction” tax deduction.

Furthermore, the deduction items for the “Residential Rental Expenses Deduction” also have certain specifications for the rental property, including the following:

• The rented private property must be the taxpayer’s principal residence in Hong Kong;

• The tenancy agreement of the property must be stamped (the IRD will only accept stamped tenancy agreements);

• The property must be for residential use (non-residential properties are not eligible);

• Residential properties rented under a lease purchase agreement are not eligible.

Points to note on the tax deduction for the “Residential Rental Expenses Deduction”

First of all, since the relevant measures may be introduced in April this year, it may not be possible to enjoy tax deductions in the current year – the year of assessment 2021/2022. Moreover, applicants for this tax concession are not entitled to the “Home Loan Interest Tax Deduction” at the same time.

Secondly, there is no term limit for the tax credit of “Rental Expenses Deduction”, which can be deducted up to HK$100,000 in each year of assessment. That is, to exhaust the “rental expense deduction” allowance, the average monthly rent is HK$8,333.

In addition, it should be noted that renting more than one unit at the same time does not apply to this tax concession. Only the residence of the “principal residence” is eligible for the tax deduction.

If the lease term expires and is less than 12 months in the year of assessment, the rent will basically be deducted proportionally. In the event of a sublease, the tax-free limit is only HK$100,000, and multiple leases will not be deducted at the same time.

Also, if there are more than one tenant, the deduction cap will be reduced proportionally to the number of people in the shared tenant. Simply put, if two people share a tenancy, the upper limit of the entire “Residential Rental Expenses Deduction” will be changed from HK$100,000 to HK$50,000. However, the Hong Kong government has not yet specified the terms and conditions of how to deal with the unequal capital contributions of the two co-lease.

Lastly, again, the Inland Revenue Department will spot-check records relating to rental addresses, and it may be a criminal offense of tax evasion if a property owner is found to be under-reporting property tax.

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

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