Taxpayers earning an income arising in or derived from Hong Kong employment are subject to Hong Kong Salaries Tax under section 8 of Inland Revenue Ordinance. For more information about Hong Kong salaries tax obligations, please refer HERE:
There has been good news announced early 2022 for Hong Kong salaries taxpayers as the Hong Kong Internal Revenue Department (IRD) has allowed an additional deduction for domestic rent expense under a qualifying tenancy of domestic premises used by the taxpayer as his / her place of residence.
In general, the deduction is allowed to a maximum of HKD $100,000 for each year of assessment starting from 2022/23. The Hong Kong tax year runs from 1 April – 31 March. However, the amount of deduction allowable to a taxpayer for a year of assessment is the amount of rents paid under a tenancy for the year of assessment or the deduction ceiling for the tenancy for the year of assessment, whichever is less. A few examples below.
To qualify for the deduction, a tenancy agreement (or a sub-tenancy agreement) in writing must be procured in respect of any domestic premises. The tenancy must be stamped within the meaning of the Stamp Duty Ordinance (Cap. 117) except one procured in respect of any domestic premises leased by the Government or the Financial Secretary Incorporated as an agent of the Government at a rent of a fair market value.
Here are a few examples for reference:
Ms. Lau entered into a qualifying tenancy agreement in respect of a residential flat with a monthly rent of HKD $20,000 for the period from 1 July 2021 to 30 June 2023. She lived in the flat and paid total rent of HKD $240,000 (i.e. $20,000 x 12 months) for the year of assessment 2022/23.
Domestic rent deduction available in above case for the year of assessment 2022/23 will be HKD $100,000 which is the maximum amount of deduction allowable to a taxpayer under a qualifying tenancy agreement used as a place of residence.
Mr. Lee entered into a qualifying tenancy agreement in respect of a residential flat with a monthly rent of HKD $20,000 for the period from 1 July 2020 to 30 September 2022. He lived in the flat and paid total rent of HKD $120,000 (i.e. HKD $20,000 x 6 months) for the year of assessment 2022/23. Since 1 October 2022, Mr. Lee has lived in another residential flat acquired by him.
The taxpayer paid a total rent of HKD $120,000 for 6 months. However, domestic rent deduction available in above case for the year of assessment 2022/23 will be HKD $50,000 which is half the maximum amount of deduction allowable of HKD $100,000 to a taxpayer under a qualifying tenancy agreement because taxpayer used the place of residence for 6 months from 1 April 2022 to 30 September 2022.
Disclaimer: This information has been prepared for informational purposes only, and is not
intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors or consult us regarding your own personal tax situation as this article was intended to be general in nature.
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