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FAQ :
Home Loan Interest
Questions and Answers
| 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 |
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Q: |
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? |
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A: |
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.
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| 2. |
Q: |
Does
the "15 years entitlement" of home loan interest deduction
refer to 15 years of assessment or 180 months?
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A: |
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 1.11.2012 to 31.3.2013.
He claims the deduction in year of assessment 2012/13.
Although he only claims deduction of 5 months' interest,
he is regarded as having been allowed the deduction
for a year of assessment. |
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| Taxpayer
must be the registered owner of the dwelling |
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| 3. |
Q: |
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? |
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A: |
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.
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| Jointly owned or Co-owned dwelling |
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| 4. |
Q: |
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? |
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A: |
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 1.4.2012 to 31.3.2013. Your
share of the interest after proportionate reduction
is $60,000. However, allowable home loan deduction for
the year of assessment 2012/13 should be restricted
to $50,000, that is, half of the ceiling prescribed
in the Inland Revenue Ordinance. |
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| Dwelling owned by a couple as joint tenants and interest wholly paid by the husband |
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| 5. |
Q: |
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?
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A: |
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.
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| Dwelling
owned by a limited company |
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| 6. |
Q: |
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?
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A: |
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. |
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| Dwelling owned by tenants in common and interest wholly paid by one of them |
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| 7. |
Q: |
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? |
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A: |
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. |
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Dwelling owned by the parents and the monthly instalments
paid by the children |
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| 8. |
Q: |
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? |
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A: |
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. |
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| A couple
each owns a dwelling separately |
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| 9. |
Q: |
Where
a couple each owns a dwelling separately, are they entitled
to claim deduction of loan interest paid on acquisition
of their dwellings separately? |
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A: |
Only
one of them is entitled to claim deduction of interest
paid in respect of the dwelling which they regard as
their principal place of residence. |
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| Two
dwellings used as place of residence |
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| 10. |
Q: |
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? |
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A: |
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.
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Can
a separated couple each claim deduction on their respective
dwelling separately |
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| 11. |
Q: |
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?
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A: |
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.)
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| Dwelling
situated overseas |
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| 12. |
Q: |
Is
interest paid on loan for acquisition of a dwelling
situated overseas tax deductible? |
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A: |
Not
deductible. The definition of 'dwelling' in the Inland
Revenue Ordinance is a rateable unit under the Rating
Ordinance, that is, the dwelling must be situated in
Hong Kong. |
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| Non-resident
of Hong Kong |
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| 13. |
Q: |
Is
a non-resident of Hong Kong eligible to claim deduction
of home loan interest? |
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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.
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| Taxpayer
paying tax at standard rate |
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| 14. |
Q: |
Is
a person who is paying tax at standard rate eligible
to claim home loan interest deduction? |
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A: |
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.
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Government's
Home Finance Scheme, Home Purchase Scheme or Housing
Loan Scheme |
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| 15. |
Q: |
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? |
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A: |
(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"]. |
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| 'Sandwich
Class Housing Loan Scheme' and 'Home Starter Loan Scheme'
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| 16. |
Q: |
Is
interest paid for acquisition of a dwelling under the
'Sandwich Class Housing Loan Scheme' and 'Home Starter
Loan Scheme' tax deductible? |
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A: |
Provided
all the conditions mentioned in Eligibility
For Deduction are satisfied, home loan interest
paid on the above schemes also qualifies for tax deduction.
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| A second
charge, a re-mortgaged loan or an overdraft account |
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| 17. |
Q: |
Is
home loan interest paid on a second charge, a re-mortgaged
loan or an overdraft account tax deductible? |
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A: |
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. |
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Repay
the monthly instalments by the 'housing allowance' provided
by his employer |
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| 18. |
Q: |
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? |
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A: |
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. |
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| 'Penalty
interest' paid to bank for early redemption |
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| 19. |
Q: |
Is
the 'penalty interest' paid to bank for early redemption
of the dwelling deductible? |
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A: |
Not
deductible. This is a penalty levied by the bank. It
is not loan interest. |
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