confusion over taxing of rental payments

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  1. #1

    confusion over taxing of rental payments

    My expat friend recently was offered a job and was told that her rental payments can be used as a tax break which makes her taxable income lower and thus paying less tax. Can someone explain this to me?

    Is this only for expats?
    I have heard something about the rental must be higher than 10%, what is this?
    If she is living her her partner are both of them eligible to this scheme if they split the rental costs?


  2. #2

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    The HK tax scheme is exactly the same for all taxpayers.

    The details of the tax break for "Housing Allowance" have been discussed many, many times in these forums.

    This thread is probably the best place to start: http://www.geoexpat.com/forum/thread13639.html

    The IRD documentation on the scheme is here: http://www.ird.gov.hk/eng/pdf/pam44e.pdf

    Last edited by PDLM; 29-12-2009 at 03:37 PM.

  3. #3

    Ok, thanks for that, after reading the referred threads, this is my understanding

    E.g.
    If she is paid 30,000 per month and her rental is 10,000 per month, then her actual taxable income is 240,000 per annum and plus the 10% (240,000 * 0.1 ) of 24,000. Therefore the taxable income for the year would be (240,000 +24,000) 264,000 and using the tax calculator provided is her tax payable for the year going to be $14,520

    Is this correct


  4. #4

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    Yes if all of the following are true:

    - there is a sum of at least HK$10,000 defined as "Housing Allowance" in her contract of employment
    - she does spend the HK$10,000 on rent
    - her employer does "exercise control" over the fact that she spends this much on rent and fills in the forms appropriately when making their annual submissions to IRD. "Exercising control" means keeping a copy of the lease agreement and the rental receipts.


  5. #5

    Great thanks for that PDLM

    One more question though, what if she contributes to the rent but the rental agreement is not in her name but in her partner's name. In this situation she would not get the tax benefit of the rental payments would she?

    So in the situation where the rent is split, then the rental agreement should be under both of their names in order for them to split the tax break right?


  6. #6

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    No she wouldn't. I'm really not sure how or whether it would work for two people - the scheme really isn't set up for that situation. Probably the easiest way would be for her partner to get the whole tax break and then pay half of the amount saved to her (or whatever proportion they are paying the rent in).

    If these two are, in fact, married then they should probably be looking at submitting joint tax returns anyway.


  7. #7

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    Yes you are correct. It is what my company did for me last year. The only thing I had to do was keep the rental receipts. My landlord actually didnt give me any receipts during the year but I just got one receipt to cover the entire year at the end of the year. This was enough for the tax department.

    This year I have stopped renting and bought an apartment instead. So I can not get this tax break anymore. But I can get another tax break for 'home loan interest'. Unfortunately it is capped at quite a low amount.

    I find it strange that the government is effectively promoting renting over buying by giving higher tax breaks to renters. Or do they think that those renting are 'poorer' and need more of a tax break? I cant understand this logic.


  8. #8

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    Quote Originally Posted by bdw:
    This year I have stopped renting and bought an apartment instead. So I can not get this tax break anymore. But I can get another tax break for 'home loan interest'. Unfortunately it is capped at quite a low amount.
    $100,000 to be precise, equivalent to about $4.5M of mortgage at current rates, which I guess covers the vast majority of properties in HK. So the "tax break" is worth HK$15K per year.
    Last edited by PDLM; 29-12-2009 at 04:49 PM.

  9. #9

    ok, so if the two are not married, your advice is to just have one person take the entire tax break and split it later. Thanks

    Also what are the terms around the dependant parent over 60 living with you. Does the dependent have to be hong kong citizen?

    Also how long do they have to be living with you for? e.g. if the parent splits their time between countries living with you in HK for 7 months and away for 5?


  10. #10

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    Quote Originally Posted by raymondliu:
    ok, so if the two are not married, your advice is to just have one person take the entire tax break and split it later. Thanks
    Yes - and it has to be the one whose name is on the lease.
    Quote Originally Posted by raymondliu:
    Also what are the terms around the dependant parent over 60 living with you. Does the dependent have to be hong kong citizen?

    Also how long do they have to be living with you for? e.g. if the parent splits their time between countries living with you in HK for 7 months and away for 5?
    They don't have to be a HK Citizen, but they must "ordinarily reside" in Hong Kong. This means that they must have a HK Dependant Visa (this is only possible if the sponsor (child) is a HK Permanent Resident) AND meet other conditions which seem to be subject to the case-by-case judgement of ImmD: Allowances
    Last edited by PDLM; 29-12-2009 at 05:01 PM.