Extending the number of years of home loan interest deduction from 10 years of assessment to 15 years of assessment with effect from the year of assessment 2012/13
The number of years of deduction of home loan interest is extended from 10 years of assessment to 15 years of assessment with effect from the year of assessment 2012/13. Will the extension have any retrospective effect?
The extension of the number of years of deduction is not applicable to years of assessment prior to the year of assessment 2012/13. In other words, taxpayers who had already got the deduction of home loan interest for 10 years of assessment during the years of assessment from 1998/99 to 2011/12 cannot get further deduction of home loan interest for any year during the same period. He can only claim up to a total of 5 additional years of deduction from the year of assessment 2012/13 onwards.
Does the "15 years entitlement" of home loan interest deduction refer to 15 years of assessment or 180 months?
The "15 years of entitlement" means 15 years of assessment as chosen by the taxpayer. The 15 years may be continuous or otherwise. For example: Mr. A paid home loan interest of $80,000 during the period 1.11.2016 to 31.3.2017. He claims the deduction in year of assessment 2016/17. Although he only claims deduction of 5 months' interest, he is regarded as having been allowed the deduction for a year of assessment.
Taxpayer must be the registered owner of the dwelling
I have signed a Provisional Sales & Purchase Agreement with the developer to acquire a property for my own dwelling. The developer granted me mortgage loan. Before the full repayment of the mortgage loan, the developer remained as the registered owner of the property. Can I claim for home loan interest deduction of the interest paid on the mortgage loan?
The person claiming for home loan interest deduction must be the registered owner of the dwelling as shown in the record of the Land Registry. Thus, you are not qualified for the deduction.
I borrowed a bank loan to pay for the price of a dwelling which I partly own. I paid all the monthly interest myself. The dwelling is exclusively used as my residence. Can I claim full deduction of the interest?
You cannot claim deduction of the full amount of the interest paid. Since you own the dwelling as one of the joint owners or tenants in common, the amount of interest deductible is restricted to that portion of the total interest proportional to the number of joint tenants/ share of your ownership. The amount allowable for deduction should not exceed the ceiling prescribed in the Inland Revenue Ordinance as proportionately reduced.
For example: You are one of the two joint owners or tenants in common and you paid total bank interest of $120,000 during the period 1.4.2016 to 31.3.2017. Your share of the interest after proportionate reduction is $60,000. However, allowable home loan deduction for the year of assessment 2016/17 should be restricted to $50,000, that is, half of the ceiling prescribed in the Inland Revenue Ordinance.
Dwelling owned by a couple as joint tenants and interest wholly paid by the husband
The husband borrowed a bank loan to pay for the price of a family dwelling which is held by the husband and wife as joint tenants. The wife did not borrow any bank loan. The husband paid all the interest incurred. Can the husband claim the full amount of interest paid?
The husband can only claim half of the interest paid since the deduction is restricted to the portion of interest proportional to the number of joint tenants. The amount allowable for deduction will be restricted to half of the ceiling prescribed in the Inland Revenue Ordinance.
The wife cannot claim any home loan interest deduction since she has not borrowed any bank loan.
If a person acquires a dwelling in the name of a limited company and uses it as his place of residence, is he eligible to claim deduction of the home loan interest paid on a loan for acquisition of the dwelling?
Not eligible. Home loan interest paid is deductible from a person's assessable income under salaries tax or from a person's total income under personal assessment. Therefore the claimant must be an individual person, and the property must be purchased in his own name and used as his place of residence.
Dwelling owned by tenants in common and interest wholly paid by one of them
Mr A and Mr B are tenants in common in the proportion of 1/4 and 3/4. The dwelling is exclusively used as their residence. Interest is wholly paid by Mr A. What amount of home loan interest deduction can each of them claim?
Based on his share of ownership, Mr A can claim deduction for 1/4 of the total interest paid. The amount allowable for deduction will be restricted to 1/4 of the ceiling prescribed in the Inland Revenue Ordinance.
Mr B cannot claim any home loan interest deduction since he has not paid any interest.
Dwelling owned by the parents and the monthly instalments paid by the children
The dwelling is owned by the parents and wholly used by the parents and their children as their place of residence. The monthly instalments of the loan on acquisition of the dwelling are paid by the children. Are the children eligible to claim deduction of the home loan interest paid?
Not eligible. The person eligible to claim deduction of home loan interest is the legal owner of the dwelling as shown in the records of the Land Registry. Although the children are paying the monthly instalments and use the dwelling as their place of residence, they are not the legal owners and are not qualified to claim the deduction.
If a taxpayer owns two dwellings both of which are used as his place of residence, is he entitled to deduction of loan interest paid for both dwellings?
The taxpayer is not entitled to deduction of interest paid on both dwellings. He will only be allowed deduction of interest paid for acquisition of the dwelling which he has actually used as his principal place of residence.
Can a separated couple each claim deduction on their respective dwelling separately
If a husband and wife are separated and divorce proceedings are in progress, can they each claim deduction of loan interest paid on their respective dwelling separately?
The Inland Revenue Department will accept that each of them has different place of residence because the separation is likely to be permanent. Therefore, provided that all other conditions are satisfied, they are each eligible to claim deduction of loan interest paid on their respective dwelling. (Similarly, in considering the claim for home loan interest deduction, the Inland Revenue Department will accept that the couple may each have different place of residence for the period prior to their marriage.)
Is a non-resident of Hong Kong eligible to claim deduction of home loan interest?
A non-resident is eligible to claim the deduction under salaries tax provided he satisfies all the criteria laid down in the Inland Revenue Ordinance relating to home loan interest deduction. However, in the case of a claim under personal assessment, the claimant must in the first instance be a person eligible to elect personal assessment, which means he must either be a permanent or temporary resident in Hong Kong.
Is a person who is paying tax at standard rate eligible to claim home loan interest deduction?
Home loan interest deduction is a 'concessionary deduction', which means the loan interest paid, together with any other deductions as applicable, will be deducted from a person's assessable income under salaries tax, or from his total income under personal assessment. The balance will then be subject to progressive tax rates (after deducting personal allowances) or standard tax rate. That is to say, a person taxed at standard rate is also eligible to claim the home loan interest deduction.
Government's Home Finance Scheme, Home Purchase Scheme or Housing Loan Scheme
A civil servant who joins the Government's Home Finance Scheme, Home Purchase Scheme or Housing Loan Scheme obtains a downpayment loan from the Government in addition to the mortgage loan from the bank. Is the interest paid on these 2 loans tax deductible?
(i) Mortgage Loan from the bank
If the mortgage loan is used for acquisition of his dwelling, the loan interest paid thereon is tax deductible.
(ii) Downpayment Loan from the Government
If the loan is used for acquisition of his dwelling and is secured by a mortgage/charge over the dwelling or over any other property in Hong Kong (for example, a second charge on the property in favour of the Financial Secretary Incorporated), the loan interest paid thereon is tax deductible - Section 26E(9) [definition of "home loan"].
A second charge, a re-mortgaged loan or an overdraft account
Is home loan interest paid on a second charge, a re-mortgaged loan or an overdraft account tax deductible?
The point to consider is whether the loan obtained is directly applied for acquisition of the claimant's dwelling. For example:
(i) The claimant, in addition to obtaining a bank mortgage loan on 70% of the cost of his dwelling, is further granted a second mortgage loan by the developer of the property, the developer being one approved by the Commissioner of Inland Revenue under s.26E(9) of the Inland Revenue Ordinance. In such case, subject to the maximum limit under sections 26E(2)(a)(ii) and 26E(2)(c), interest paid on both loans are deductible for tax purposes.
(ii) If the claimant re-mortgaged his property and used the borrowed money to purchase shares, the interest paid on the re-mortgaged loan is not tax deductible. However, if the re-mortgaged loan was used to repay the original loan which was executed for acquisition of his dwelling so as to enjoy a lower interest rate, the portion of loan interest paid, pro-rata to the outstanding balance of the original loan, is tax deductible.
(iii) Home loan interest paid on bank overdraft account is deductible if the money borrowed is directly used for acquisition of his dwelling and the overdraft facility is secured by a mortgage/charge over the dwelling or any other property in Hong Kong. If the bank overdraft account is used partly for purposes other than for acquisition of the dwelling, the amount of deductible home loan interest would be reduced accordingly.
Repay the monthly instalments by the 'housing allowance' provided by his employer
A taxpayer acquires a dwelling for his residence and finances the purchase by a mortgage loan. If he uses the 'housing allowance' provided by his employer to repay the monthly instalments, is he entitled to claim deduction of the home loan interest?
In normal circumstances, the taxpayer is entitled to the deduction of the home loan interest paid by him. However, if he lets his dwelling to his employer, who then provides it back to him as quarters (instead of giving him the 'housing allowance'), the taxpayer is not entitled to home loan interest deduction because the property then becomes a let property. However, he may claim deduction for interest payments to produce rental income from properties in Part 7.2 of BIR60.