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Tax deduction for domestic rent

1.

Q:

Who is eligible to claim deduction for domestic rent?

A:

A taxpayer chargeable to salaries tax or tax charged under personal assessment is eligible to claim deduction of the rent paid by him / her as a tenant under a qualifying tenancy of domestic premises.

A taxpayer may be allowed deduction of rent paid by his / her spouse (who is not living apart from the taxpayer) as a tenant under a qualifying tenancy of domestic premises. 

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2.

Q:

What types of properties qualify for the deduction of domestic rent?

A:

To qualify for the deduction, the domestic premises must be a building or any part of such a building that is not prohibited by or pursuant to any law or any specified instrument from being used for residential purposes.  The premises must also be used by the taxpayer as his / her principal place of residence. 

If the qualifying tenancy is procured in respect of any domestic premises and a car parking space, and the car parking space is not sublet, the car parking space will be taken to be part and parcel of the domestic premises for the purposes of the deduction.

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3.

Q:

What is a qualifying tenancy?

A:

A qualifying tenancy of domestic premises is a tenancy (or sub-tenancy) in writing in respect of the right to the exclusive use of the premises that is stamped within the meaning of the Stamp Duty Ordinance (Cap. 117), or under which the right is given by the Government (or the Financial Secretary Incorporated as an agent of the Government) at a rent of a fair market value.

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4.

Q:

How is the amount of deduction for domestic rent allowable to a taxpayer determined?

A:

In general, the amount of deduction allowable to a taxpayer for a year of assessment is the amount of rent paid under a qualifying tenancy for the year of assessment, or the deduction ceiling for the tenancy for the year of assessment, whichever is less.

If the taxpayer is married and not living apart from his / her spouse, the total amount of deduction allowable to the taxpayer or the taxpayer’s spouse (or both of them) will be the amount of rent paid under the tenancy for the year of assessment, or the deduction ceiling for the tenancy for the year of assessment, whichever is less.

The deduction ceiling for each year of assessment is $100,000.

Please refer to the illustrative examples to understand how the amount of allowable deduction is to be computed under different scenarios.

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5.

Q:

If a taxpayer is married during part of a year of assessment, how will the total amount of deduction allowable to the taxpayer or the taxpayer’s spouse (or both of them) be determined for the year of assessment?

A:

The principle set out in the answer in Item 4 above for determining the total amount of deduction allowable to the taxpayer or the taxpayer’s spouse (or both of them) will apply to that part of the year of assessment when the taxpayer is married.

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6.

Q:

If there is more than one tenant under a qualifying tenancy, how will the amount of rent paid by each tenant and the deduction ceiling for the tenancy be determined?

A:

The rent paid under the tenancy will be taken to have been paid by the co-tenants in equal shares, whilst the deduction ceiling will be reduced in proportion to the number of co-tenants.

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7.

Q:

If the contractual period of a qualifying tenancy only covers part of a year of assessment, how will the deduction ceiling for the tenancy for the year of assessment be determined?

A:

The deduction ceiling will be reduced in proportion to the contractual period that falls within the year of assessment.

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8.

Q:

If there is more than one qualifying tenancy in relation to a year of assessment, how will the amount of deduction for domestic rent allowable to a taxpayer be determined?

A:

The amount of deduction allowable to the taxpayer for the year of assessment will be the aggregate of the amount determined in accordance with the principle set out in the answer in Item 4 above for each of the tenancies.

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9.

Q:

Is there a maximum number of years of assessment that a taxpayer is entitled to claim the deduction of domestic rent?

A:

There is no limit in the number of years that a taxpayer can claim basic deduction of domestic rent. Upon the passage of the relevant legislation on additional deduction thereof, each taxpayer is only entitled to claim the additional deduction of domestic rent for an aggregate of 19 years of assessment, whether continuous or not. Please click here for more information on the additional deduction of domestic rent.

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10.

Q:

Under what circumstances a deduction for domestic rent is not allowable?

A:

In the following circumstances, a deduction for domestic rent is not allowable:

(a) the taxpayer or the taxpayer’s spouse (who is not living apart from the taxpayer) is a legal and beneficial owner of any domestic premises in Hong Kong;
(b) the landlord of the tenancy concerned (or the principal tenant in the case of sub-tenancy) is an associate of the taxpayer or the taxpayer’s spouse (e.g. the landlord is the taxpayer’s spouse, or a parent, child, sibling or partner of the taxpayer or the taxpayer’s spouse, or a corporation controlled by the taxpayer or the taxpayer’s spouse);
(c) the taxpayer or the taxpayer’s spouse (who is not living apart from the taxpayer) is provided with a place of residence by his / her employer or an associated corporation of the employer, or the rent payable or paid by the taxpayer or the taxpayer’s spouse in respect of a place of residence is wholly or partly paid or refunded by the employer or the associated corporation;
(d) the taxpayer or the taxpayer’s spouse (who is not living apart from the taxpayer) is a tenant or an authorised occupant of a public rental housing flat of the Hong Kong Housing Authority or the Hong Kong Housing Society; 
(e) the tenancy concerned is prohibited under any law or a Government lease;
(f) the taxpayer or the taxpayer’s spouse has entered into a lease purchase agreement in respect of the premises concerned with the landlord; 
(g) the rent is allowable as a deduction under any other provision of the Inland Revenue Ordinance (Cap. 112); or
(h) any rent paid in respect of any other domestic premises has been allowed to the taxpayer or the taxpayer’s spouse (who is not living apart from the taxpayer) as a deduction for the same period for which the rent is paid.

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11.

Q:

If a taxpayer claims deduction in respect of a domestic premises, how should he / she prove the premises as his / her place of residence in Hong Kong?

A:

The taxpayer should retain documentary evidence showing that the premises was used as his / her place of residence such as utility bills (including water, electricity and gas bills) and resident card.  The taxpayer is not required to provide the above documents when filing his / her tax return.  However, he / she should retain the documents for verification by the Inland Revenue Department.

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12.

Q:

If a taxpayer has more than one place of residence in Hong Kong, how will his / her principal place of residence be determined?

A:

A taxpayer’s principal place of residence has to be decided on the facts of each case, including the periods and pattern that the taxpayer and his / her family members have resided in all places of residence.  Generally, the place of residence in which the taxpayer and his / her family have spent the majority of their time is taken as their principal place of residence.

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13.

Q:

What is the effective date of the tax deduction for domestic rent?

A:

The amendment ordinance on tax deductions for domestic rents was enacted on 30 June 2022. The legislation is applicable to the year of assessment commencing on 1 April 2022 and to all subsequent years of assessment.

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14.

Q:

I have signed a qualifying tenancy for a residential flat and used it as my principal place of residence.  The contractual period is from 1 July 2022 to 30 June 2024.  The monthly rent is $10,000.  I have paid in advance the total rent of $240,000 in a lump sum upon signing the tenancy.  How should I fill in the Tax Return – Individuals for the year of assessment 2022/23?

A:

You should complete Parts 8.1 and 8.5 of the Tax Return – Individuals. The contractual period of your tenancy falling within the year of assessment 2022/23 should start from 1 July 2022 to 31 March 2023 (i.e. 9 months). The total amount of rent that was paid in relation to this year of assessment is $ 90,000 (i.e. $240,000 x 9/24). As the statutory maximum amount of domestic rents deduction for a year is $100,000, and the contractual period of your tenancy falling within the year of assessment is only 9 months, the deduction ceiling allowable to you is restricted to $75,000 (i.e. $100,000 x 9/12).