Question

Hong Kong Taxation

Candy Suen rented out an office premise in Wanchai to Winny Ltd for many years at $30,000 per month. However, due to its poor trading performance, Winny Ltd has not paid the monthly rent since 1 January 2018. Rates paid by Candy for the flat were $10,000 per annum for the years ended 31 March 2018, 2019 and 2020. As Winny Ltd failed to pay the monthly rent, legal action was taken to recover the rent and to take repossession of the premise. On 1 May 2018, Winny Ltd was put into liquidation and the office premise was left vacant thereafter. The assessor agreed that the rent outstanding has become bad during the year of assessment 2018/19. The office premise was subsequently let to a new tenant from 1 June 2019 at $20,000 per month for a lease period of three years. In addition, Candy received $20,000 out of the outstanding rent from the final distribution of Winny Ltd on 10 June 2019.

Required: (a) Calculate the property tax liability for the year of assessment 2017/18. Ignore provisional tax.

(b) Calculate the property tax liability for the year of assessment 2018/19, and make any necessary adjustments to the property tax liability for the year of assessment 2017/18. Ignore provisional tax.

(c) Calculate the property tax liability for the year of assessment 2019/20. Ignore provisional tax.

Answer 1

Inland Revenue department , a tax authority of Hong Kong enacts law to collect property tax. Property tax payble by the owner of immovable property at 15% standarad rate on propertys net assessable value.

Net assessable value calculated by Annual rentle income less

• Rates paid
• bad debts
• allownce- maximum 20%of annual rentals

Calculation  property tax liability for the year of assessment 2017/18.

a).Year of assessment is from 1st april 2017 to 31st march 2018.

	Amount
Annual rental income (12 months * 30000)	360000
Less
Rates paid	10000
	350000
Allowance 20 % of annual rental income(20% * 350000)	70000
Net value	280000
Property tax @15%	42000

b). Calculation of property tax liability for the year of assessment 2018/19

	Amount
Annual rental income (for 1 month only from 1st may property remain vacant)	30000
Less
Irrecoverable rent (4 months *30000)	120000
Assessable value	Nil
Property tax @15%	Nil

In case where irrecoverable rent exceeds rental income should be deducted from the rental income of the previous year

Year of assessment 2017/18

	Amount
Annual rental income (12*30000)	360000
Less
Irrecoverable rent ( 120000 less 30000)	90000
Revised assessable value	270000
Less: Rates	10000
	260000
Less: 20% allowance	52000
Net assessable value	208000
Revised Property tax @15%	31200
Tax to be refunded (42000 less 31200)	10800

(c)property tax liability for the year of assessment 2019/20

	Amount
Annual rental income ( 10months *20000)	200000
Add
Outstanding rent received	20000
assessable value	220000
Less: Rates	10000
	210000
Less: 20% allowance	42000
Net assessable value	168000
Property tax @15%	25200

When amount irrecoverable deducted and later recovered, it should be included in the assessable value in the year of recovery.