Question

Given that Mary is the landlord of a Hong Kong property. The flat has been successfully rented out to a tenant from 1st April 2018. Her husband provides below background information for Mary to compute her Hong Kong property tax computation. Mary fully trusts her husband and will use the below information for her Hong Kong property tax computation. The background information is as below:

Yearly rent receivable HK$ 120,000

Premium received HK$ 9,600

Repairs borne by tenant HK$ 600

Rate by owner (per quarter) HK$ 300

Rate by tenant (per quarter) HK$ 200

Statutory allowance 0%

Tax rate 6%

Rental year from 1st April Year 2

Her husband reminds Mary that the rate can be fully deductible and the premium is regarded as a fully deductible item in a particular year of assessment. Required:

a) Discuss Mary’s Hong Kong property tax computation including the discussion of taxable and deductible items for the year of assessment of 2019/20 if Mary prepares it based on her husband approach.

b) Based on the above information, justify whether the information provided by her husband is correct or not, and state the correct treatment for any incorrect information.

c) Discuss any issue related to tax administration for the case of Mary and any possible consequences Mary may face if she submits her property tax return based on (a) answer.

Answer 1

a) Computation is as follows:

Yearly Rent receivable=120000

(-)Premium=                     9600

                                      110400

(-)Rate by owner=             1200 (300*4)

Net assessable value= 109200

Tax rate is 6% as per Mary's husband

=109200*6/100

=$6552

b) Information by Mary's husband is incorrect.

Following are the corrections:

Premium received is not deductible, it is taxable.

Statutory allowance is deductible which is 20%.

Tax rate is 15%.

Computation is as follows:

Rent receivable:                   120000

(+)Premium recd:                    9600

                         129600

(-)Rate by owner:       1200

                           128400

(-)Statutory allowance (20%)=25680(128400*20%)

Net Assessable Value         =102720

Tax rate is 15%.

=102720*15/100

=15408.

c) Penalties are imposed by Inland Revenue Ordinance. 5%surcharge shall also be imposed as per terms and conditions.