What expenses are tax deductible for rental properties? Parking spaces and roof rentals also need to declare property tax?
Rent-collecting landlords in Hong Kong are subject to property tax. Generally speaking, their rental income is deductible after deducting certain miscellaneous expenses. This article will specifically introduce the tax-deductible items of rental properties, and discuss whether the rental income generated by parking spaces, rooftops, public areas, etc. are also subject to property tax?
What property tax deductions are available for rental property owners?
According to the “Inland Revenue Ordinance”, when a taxpayer declares property tax, the tax bureau will generally only accept the following three main tax deduction items, including the rates paid by the owner, “irrecoverable rent”, and repairs and Standard allowance for expenses.
Rates paid by landlord
Only the rate items that have been agreed to be paid by the owner and have been paid can enjoy the deduction, and the rate amount that was exempted before can no longer apply to the Inland Revenue Department for tax deduction. By the way, the payment of ground rent cannot be used as a property tax deduction item.
“No Rent Recovery”
According to the Inland Revenue Department’s explanation, “non-recoverable rent” means that it is determined that the arrears of rent cannot be recovered, so an application is made to the Inland Revenue Department for deduction.
If the tenant fails to pay the rent to the landlord on time for any reason, it is generally only arrears of rent in nature, and the landlord cannot deduct the arrears of rent from the property tax declaration. However, if the landlord has been unable to contact the tenant, Generally, it will be regarded as “irrecoverable rent”;
If the landlord can recover the “irrecoverable rent” in the future, he must report the deducted amount in the year of recovery and pay the tax to the tax bureau again.
Standard allowance for repairs and expenses
Depending on the age of each building, the repair expenditure varies. Fortunately, the Tax Office automatically deducts a flat rate of 20% from the owner’s net rental income to simplify the calculation.
Therefore, general rental properties are entitled to a standard allowance of 20% for repairs and expenses, and the owner does not need to provide proof of actual expenses. It’s just that if the actual repair cost is more than the standard allowance of 20%, there is no additional tax deduction.
Do rental spaces, rooftops, and public areas also need to declare property tax?
If the owner rents out the common areas of the building, such as side shops, parking spaces, exterior walls, roofs, etc. (generally considered to be jointly owned by the owners of the building), the rent collected for this area is also subject to property tax. The owner is responsible for voluntarily declaring rental income and paying taxes. If the owner collects multiple rents due to subletting the unit or shop, the owner must also truthfully declare all operating income of the property held and pay taxes.
All operating income from the property is paid and taxed.
However, if the building owner has established an owners’ corporation, according to Article 16 of the Building Management Ordinance, the owner’s powers and duties related to the common parts of the building must be exercised and performed by the owners’ corporation. Therefore, the OC is required to declare income and pay taxes on behalf of all owners of the building.
The above information is for reference only. If you have any questions about tax returns and accounting, it is wisest to seek advice from professional accountants, and we welcome your inquiries.
