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FAQ on Completion of Property Tax Returns
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Completion of Property Tax Returns
Common Questions and Answers on Completion of Property Tax Returns (B.I.R.57 & B.I.R.58)
The following questions and answers will help joint owners, owners in common and owners other than individuals in the completion of their Property Tax Returns.
I have received a Property Tax Return (B.I.R.57) last week. When should I return it to your Department?
You should submit the Return within 1 month from the date of issue of the Return.
However, if your case meets the criteria specified by the Commissioner of Inland Revenue, you may choose to file the Return through the Internet and an extension of 2 weeks will be granted automatically. To know more about electronic filing, please click here.
Do I have to attach any supporting documents to the Return as proof for the figures that I filled in?
My spouse and I have received a Property Tax Return (B.I.R.57). What is the reporting period for details of rent from our property?
Normally, the reporting period is from 1st April of the year to 31st March of the following year. For example, the reporting period for the year of assessment 2008/09 is 1.4.2008 to 31.3.2009. However, for the year of acquisition, the reporting period is from the date of purchase to 31st March. For the year of disposal, the reporting period is from 1st April to the date of cessation of ownership.
I earned rental income from several properties. Which tax returns should I complete?
You should report rental income of all of your solely owned properties in your Tax Return - Individuals (B.I.R.60).
The rental income for each of the properties for which you are a joint owner or an owner in common is to be reported in a Property Tax Return (B.I.R.57). Annual Property Tax Returns are issued to the owners of jointly-owned or co-owned properties on a property-by-property basis, and can be completed and submitted by any one of the owners.
My 3 sons and I are the joint owners of a property. How should I complete my share of ownership?
My 2 daughters and I own a property as tenants-in-common. I own 50% and each of my daughters owns 25%. How should I complete the shares of ownership?
You should state the share of ownership in the B.I.R.57 as:
My spouse and I have commenced to receive rent from our jointly owned property at $10,000 per month on 1.4.2008. How is Property Tax computed?
Property Tax is calculated at the standard rate by the year of assessment on the net assessable value. Your Property Tax liability is computed as follows:
Rent for 12 months ($10,000 x 12)
Less: 20% statutory allowance for repairs and outgoings
Property Tax for 2008/09 @15%
Provisional Property Tax for 2009/10@15%
I completed a "Notification of Letting" (I.R.C.Form 5712), specifying that the property jointly owned by my spouse and me had been let since a particular date. I had also stated the monthly rent received. Why are we required to complete Property Tax Return for the year involved?
According to the Inland Revenue Ordinance, the owner has to declare his/her rental income in a specified Tax Return. Assessment will then be raised by reference to the Tax Return filed. Submission of I.R.C. Form 5712 can only serve as a notification informing us the start date of letting your property; it cannot be regarded as a Tax Return. So, even if you have furnished the Form, you still have to declare the annual rental income and claim your deductions in the Property Tax Return.
Who should complete the Return
The property is owned by my parents and me. Do you require signatures from all of us on the Return (B.I.R.57)?
The Return can be completed and signed by any one owner. Therefore, only one of you is required to complete the Return and sign the declaration.
My parents are joint owners of the property. If they are unable to write, how can they sign on the Return (B.I.R.57)?
If the owner is unable to write, the affixing of a name-chop, thumbprint or mark (such as “x”) as the owner's signature can be accepted, provided that it is properly witnessed by a person aged 18 or more. The witness should sign and date, and state his/her full name and Identity Card number beside his / her signature.
I am the agent of the property owners who are residing outside Hong Kong. Can I complete the Return (B.I.R.57) on behalf of the owners?
Provided that you are in possession of a written authorization from the owners, you can complete the Return on their behalf. You should attach to the Return a copy of the relevant Power of Attorney or Letter of Authorization if this is the first time you act as agent.
We own a piece of bare land with no property built upon it. Why are we required to complete Property Tax Returns and chargeable to Property Tax?
According to the Inland Revenue Ordinance, Property Tax is charged on rental income from the letting of any land and/or buildings. So, the Department issues Property Tax Returns to owners of land and charges them for Property Tax on the rental income received.
We have already sold the property. Why are we still required to complete a Property Tax Return (B.I.R.57)?
Please check the year of assessment stated on the front page of the Property Tax Return (B.I.R.57) to see if this is for the year of assessment you sold your property or for an earlier year of assessment. This is to ensure that you will complete the Return correctly with the appropriate period of rental income. Although you have sold your property, you are still required to complete the Property Tax Returns for the years of assessments up to and including the year in which you sold your property.
If you sold your property on 1 July 2008, then you would have to report details of the rent received from 1 April to 30 June 2008 in the B.I.R.57 for 2008/09.
If the property was vacant prior to sale, from 1 April to 30 June 2008, you should put a “” in the box against “No” in the top portion of Part 4 of the Return.
If you sold the property in December 2007 and hence you did not own that property on 1 April 2008, you should give the date of disposal of the property in Part 3 and put a “” in the box against “No” in the top portion of Part 4 of the Return.
The property is owned by a corporation and the rental income should be subject to Profits Tax. Why do you still send out a Property Tax Return (B.I.R.58) for completion?
Income will not be taxed twice under two different heads of charge.
Generally speaking, section 2 of the Inland Revenue Ordinance provides that letting of property by a corporation would be regarded as the carrying on of a business, and the basic charge for all rental income is Profits Tax. However, under section 5 of the Ordinance, a corporate property owner is also chargeable to Property Tax on rental income from the letting of property. For this reason, sometimes Property Tax Returns (B.I.R.58) are issued to corporations. If the letting income is chargeable to Profits Tax or the property is used for producing chargeable profits, exemption from Property Tax under section 5(2)(a) of the Inland Revenue Ordinance can be claimed in Part 1 of the Return (B.I.R.58).
In any event, Part 4 must also be completed, otherwise the Assessor may raise queries.
Is an incorporated owner of a building required to report rental income derived from letting the common areas of the building in a B.I.R.58?
The common parts of a building are collectively owned by the individual owners of the building. Hence, the rental income derived from the letting of common areas such as a side shop, carpark, external wall, roof top etc is assessable to Property Tax and the incorporated owner is required to complete the Property Tax Return (B.I.R.58) on behalf of all the owners of the building. Name of the incorporated owner and other particulars are to be completed in Part 1 of the Return. Please note that section 16 of the Building Management Ordinance [see appendix] provides that the rights and duties of the owners in relation to the common parts of the building shall be exercised and performed by the incorporated owners of the building.
How to handle change of ownership
How should I report the change of ownership in Part 3 of the Return?
You are not required to fill in the date of acquisition of the property in Part 3. However, for other types of changes, such as the disposal of property, change of ownership due to the addition of an owner or the death of an owner, etc., you should fill in the date of change in Part 3.
I have received a Property Tax Return for a property owned by my parents and me. My mother passed away on 1.8.2008. How should I complete the Property Tax Return for 2008/09?
If your parents and you are the joint owners of the property concerned, your mother's share of ownership will be passed to you and your father. In order to distinguish new ownership from old ownership, a new Property Tax file will be opened in the name of you and your father.
If your parents and you had owned the property as tenants-in-common, your mother's share of ownership will be passed to the beneficiary named in her will or according to the law of intestacy. Again, in order to distinguish new ownership from old ownership, a new Property Tax file will be opened in the name of you, your father and the personal representative / executor of the estate of your mother. When the legal title is passed to the beneficiary, another new Property Tax file will be opened in the name of you, your father and that beneficiary (if that person is some other person, say Ms C).
Two Property Tax returns will be issued for the year of assessment 2008/09. You should report the total rental income for the period from 1.4.2008 to 1.8.2008 in the tax return for the 1st ownership, and the total rental income for the period from 2.8.2008 to 31.3.2009 in the tax return for the 2nd ownership.
In the event that you and your mother were the only joint owners of the property concerned, you, as the surviving owner, will become the sole owner of the property on 2.8.2008. As the rental income of any sole-owned property should be reported in a Tax Return – Individuals (B.I.R.60), the rental income from that property for the period from 2.8.2008 to 31.3.2009 should be reported in your own B.I.R.60.
How to report letting income
My spouse and I had let out the flat and carpark together to the same tenant at one lump sum rental. However, I received two separate Property Tax Returns, how should I fill in Part 4 of the Return?
You must complete and submit both Property Tax Returns. The rental income can be apportioned by reference to the ratable values per demand for rates issued by the Rating and Valuation Department.
My husband and I jointly own a flat and a carpark. The flat is let for rental income and the carpark is used for parking our own car. The Property Tax Return shows the location of property as consisting of both the flat and the carpark. How should we report this situation in the tax return?
When a flat and a carpark constitute a single unit of property and it is partly let, the owner should put a “” in the box against “Yes” in the top portion of Part 4 and report the rental income of the flat in Part 4.2 of the Return.
If the property is sub-divided into several small units for letting, how should we report this situation in the tax return?
You have to sum up all the rental income derived from letting of each small unit and report the total rental income in Part 4.2 of the Return (B.I.R.57/58).
Our property was let for 9 months only during the year of assessment 2008/09. It was vacant for the period from August to October 2008. How should we report this situation in the tax return for that year?
You should put a "" in the box against "Yes" in the top portion of Part 4 of the Return, and then report the details of the rent. The number of complete months to be stated in Part 4.1 is "9". You are also required to state the periods of letting i.e. 1 April 2008 to 31 July 2008 and 1 November 2008 to 31 March 2009 , and then report the total rental income in Part 4.2 of the Return.
My brother and I own a property as tenants-in-common. My brother let out his share of one room in our flat. The remaining area is for my own use, how should we report this situation in the tax return?
Each and every joint owner or owner in-common is responsible for reporting rental income on tax returns and paying property tax. You should put a "" in the box against "Yes" in the top portion of Part 4 of the Return, and then report the rental income from letting that room in Part 4.2.
What is the meaning of "complete months" in Part 4.1 of the Return?
It is the round up figure of the total number of months that the property was let. For example, if the property had been let for altogether 8 months and 4 days during the 12 months to 31st March, the number of complete months to be stated in Part 4.1 should be ‘9’, and not ‘8’.
What is "lease premium"?
Lease premium is a non-refundable lump sum payment made by the tenant to the owner upon the signing of the tenancy agreement. It is part of the consideration for using the property and is chargeable to Property Tax. If the period of the lease is not contained within any one year of assessment, the owner should spread the lease premium into equal monthly instalments over the period of the lease or a period of 3 years, whichever is the shorter, and include the relevant amount as rental income for the years of assessment concerned.
What is "rent recovered"?
( see Question 27 )
How to claim deductible expenses/allowances
We have to pay building management fees and certain other out of pocket expenses for the property. Are they deductible? Should we deduct them from the rental income and report the net amount of the income?
In Part 4.2 of the Return, you must state the gross amount of rental income, without any deduction. Otherwise, income may have been understated.
Under the provisions of the Inland Revenue Ordinance, only the following items are deductible under Property Tax:
Rates agreed to be paid and actually paid by the owner;
A 20% statutory allowance for repairs and outgoings; and
Irrecoverable rent.
Hence, only rates paid by the owners and irrecoverable rent can be claimed in Part 4.3 of the Return. You should not claim any deduction for say Government rent, building management fees, decoration expenses, repair expenses, rent-collection fees, commission, insurance and mortgage interests paid by you in Part 4.3 of the Property Tax Return.
Deduction for mortgage interests incurred on the acquisition of the property can only be claimed by property owners who are eligible to and have elected for Personal Assessment. Please refer to Questions 29 to 33 for further information on how to claim tax relief under Personal Assessment.
If the tenant fails to pay rent, can I report the uncollected rent in Part 4.3(2) of the Return?
You can claim deduction only when the rent has become irrecoverable. If the tenant defers the payment of the monthly rent and has not moved out, the uncollected rent would unlikely be treated as irrecoverable rent. For the year it becomes irrecoverable, you should state the annual rental income, without deducting the irrecoverable rent in Part 4.2 of the Return. The amount of irrecoverable rent can be stated in Part 4.3(2). If you have used the rental deposit to set-off part of the uncollected rent, only the balance unrecovered by you could be claimed as irrecoverable rent. Please note that any sum previously deducted as irrecoverable should be treated as income in the year of recovery and you should report it in Part 4.2 of the tax return in the year of recovery.
My spouse and I own a property is let out for rental income. Can we claim basic or other personal allowances (such as child, dependent parent allowances)?
Apart from the 20% statutory allowance for repairs and outgoings, you cannot claim other deductions under Property Tax. Please refer to Questions 29 to 33 for further information on how to claim personal allowances for dependent family members under Personal Assessment.
How to claim tax relief under Personal Assessment
What is the meaning of "Personal Assessment"?
Under the Inland Revenue Ordinance, there are 3 types of direct taxes, namely, Salaries Tax, Profits Tax and Property Tax. Personal Assessment is not a tax levy. It is a method of computation of tax (by combining all 3 types of income) that may lighten the tax burden of certain categories of taxpayers. If you wish to know more, please click here.
Individual property owners who are eligible for Personal Assessment election (click here for election requirements) may indicate their wish to elect Personal Assessment by completing the "Elect for Personal Assessment" column in Part 1 of the Property Tax Return (B.I.R.57).
Regular taxpayers usually receive their annual Tax Return - Individuals (B.I.R.60) on/about the first working day of May. To elect Personal Assessment, the elector should complete Part 6 of his/her B.I.R.60.
However, if your total income is lower than your personal allowances, which means that on election for Personal Assessment you do not have to pay any tax, you only need to indicate your wish to elect Personal Assessment in the Property Tax Return. The IRD may not send you a B.I.R.60 annually for completion.
I had already elected Personal Assessment for past year(s), do I need to elect Personal Assessment again this year? Would your Department treat me as an elector for Personal Assessment automatically?
Election of Personal Assessment is voluntary and so you are required to make election year-by-year. Please refer to Question 30 for further information on how to claim tax relief under Personal Assessment.
My spouse and I have salaries income of $200,000 and rental income of $80,000 from a jointly owned property during the year 2008/09. Should we elect for Personal Assessment?
If Personal Assessment NOT elected
Computation of your tax liabilities:
Tax is charged at standard rate (15% for the year 2008/09) on the net assessable value.
Property Tax @15%
$ Salaries income
Total tax payable under Property Tax and Salaries Tax is $9,600.
If Personal Assessment elected
NAV of property
Less : 100% tax reduction
Therefore, you would pay less tax through electing Personal Assessment.
Is Election for Personal Assessment Always Advantageous to Taxpayers?
Under Personal Assessment, tax is calculated at progressive tax rates on the aggregated income of the individual (or of the couple, if married) from all sources. From this total income, business losses, approved charitable donations, interest payments on money borrowed for purpose of producing property income, personal allowances and concessionary deductions may be allowed. Tax is then charged on the balance at progressive tax rates similar to those used for Salaries Tax. As this method of computation of tax involves aggregating all chargeable income, tax is charged at marginal rate , and there is no separate taxation for married couples, it may not be advantageous for some taxpayers.
When you have elected Personal Assessment for any year of assessment, the Department will make a comparison between the tax payable under Personal Assessment and the tax payable under separate direct taxes. If it is not advantageous for you to elect Personal Assessment, the Department will issue separate demand notes for Property Tax and other direct tax and will advise you by way of an Assessor's note in the respective demand notes.
How to claim for deduction of mortgage interest?
Interest payments made on money borrowed for producing income chargeable to Property Tax is allowable as a deduction under Personal Assessment. Such claim should be made in Part 7 of the Tax Return - Individuals (B.I.R.60) but NOT in Part 4.3 of the Property Tax Return.
The amount of interest deduction allowable under Personal Assessment is limited to your share of the net assessable value of the property concerned.
How to claim exemption from Property Tax
Under the provisions of the Inland Revenue Ordinance, rent received from the letting of a property owned by a corporation is subject to both Property Tax and Profits Tax. How could the corporation avoid the same income from being taxed twice?
Normally, same income will not be taxed twice. Hence, if the relevant income forms part of its profits assessable to Profits Tax, it may be exempted from Property tax. The corporation should claim exemption from Property Tax by completing the "Apply for Exemption from Property Tax" column in Part 1 of the Property Tax Return (B.I.R.58). If the property is occupied or used by the corporation for producing chargeable profits, the "Apply for Exemption from Property Tax" column in Part 1 is to be completed as well. Then, Property Tax Return will not be sent annually for completion.
How can charitable bodies claim exemption from Property Tax?
Only charitable bodies which have been approved under section 88 of the Inland Revenue Ordinance can be exempted from Property Tax. To claim exemption from Property Tax, the charitable body has to declare in Part 2 of the Return (B.I.R.58) that it is a charity exempted from Property Tax by virtue of section 88 of the Inland Revenue Ordinance.
Property without rental income
If I receive the Return (B.I.R.57/58), do I have to complete and send it back?
Yes, you must complete and submit it in time. If you have no rental income from the property, you should complete Parts 1 and 2 and put a “” in the box against “No” in the top portion of Part 4 of the Return.
About three years ago our organization received a B.I.R.58 and in it we stated that the property was for own use. We received a B.I.R.58 last week. Do we have to complete it?
Yes, you have to complete it and submit it in time. The IRD conducts reviews to find out whether the owners have let out the property for rental income.
We have received a Property Tax Return for the year of assessment 2008/09. Our property was for own use up to 31 March 2009 and so we stated "no income" in the B.I.R.57. However, we intend to let out the property on 1 July 2009. Do we need to inform the IRD once we have started to receive rent?
Yes, you have to inform the IRD. You may do so by supplying the particulars of the tenancy in a letter, or by completing a Form I.R. 6129 - "Notification of Letting of Properties". Form I.R. 6129 may be downloaded from the IRD Website or obtained through the FAX-A-FORM Service at 2598 6001 or found at the back of the information leaflet PAM 54 (e)-A guide to Property Tax(1).
There is a time limit for informing the IRD that you are chargeable to Property Tax. If you do not receive a Property Tax Return for the year of assessment 2009/10 (the year of commencement of letting), you should lodge a notification on or before 31.7.2010. Please note that stamping of tenancy agreement or completion of questionnaire from Rating and Valuation Department do not constitute a notification to IRD.