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(Source : Government Information Centre)

LCQ13: Home loan interest deductions


Following is a question by the Hon Sin Chung-kai and a written reply by the Secretary for the Treasury, Miss Denise Yue, in the Legislative Council today (February 21):


At present, if owners of mortgaged dwellings which are used as their principal place of residence have assessable income in a financial year, they are entitled to claim "home loan interest deductions" in respect of the interest paid on mortgages in that year; if they have no assessable income, they may nominate their spouses who live in the same dwelling and have assessable income to make such claims. In this connection, will the Government inform this Council:

(a) of the reasons for the Administration stipulating that these persons may only nominate their spouses but not their children to lodge the claims; and

(b) whether the Administration will consider amending the relevant legislation to give the children of such persons the same right; if not, of the reasons for that?

Reply :


Under the Inland Revenue Ordinance, the maximum home loan mortgage interest deduction under salaries tax in respect of a property is $100,000 in a year of assessment. Each taxpayer is entitled to a home loan interest deduction in any five years of assessment in respect of a property which is used by him/her as his/her principal place of residence in each year of assessment. Where a property is jointly owned by more than one person, the interest deductible for the property, subject to a maximum of $100,000 in a year, would have to be apportioned between the owners in the same ratio as their respective shares of the ownership of the property. No transfer of entitlement between joint owners is allowed, except under section 26(F) of the Ordinance.

Under section 26(F), where a taxpayer is entitled to the home loan mortgage interest deduction but has no income, property or profits chargeable to tax for that year of assessment, he or she may nominate his or her spouse who is not living apart, to claim the deduction for that year of assessment.

Allowing eligible taxpayers to nominate only their spouses (and not their children or any other persons) to claim the deduction is in line with the existing tax policy under which tax liability is assessed on an individual basis and entitlement to tax deductions is not transferable, with married couples being the only exception. It is for this reason that the Inland Revenue Ordinance allows only married couples to elect to be jointly assessed, whereby the two individuals' net chargeable income is aggregated and a single assessment is raised as if they are a single taxpayer. In a joint assessment, even if only the husband or the wife is eligible to claim the home loan mortgage interest deduction as an individual taxpayer, the deduction will be made against the aggregated income of the couple. However, if only the husband or the wife is eligible to claim the home mortgage interest deduction but he or she has no income chargeable to tax in any year of assessment, the couple will not be able to benefit from the deduction through election for joint assessment. The nomination option merely seeks to provide an alternative channel to these married couples whereby they can benefit from the deduction as if they are allowed to elect for joint assessment.

As we do not consider it appropriate to allow the income of any individual taxpayer to be jointly assessed with any other persons except his or her spouse, we see no case to extend the scope of the nomination provision relating to home loan mortgage interest deduction under section 26(F) of the Ordinance to cover the taxpayer's children or any other persons.

End/Wednesday, February 21, 2001