3. I have to pay building management fees and certain other out of pocket expenses for the property. Are they deductible? Should I deduct them from the rental income and report the net amount of the income?
The following items can be claimed as deductions:
- rates (if payable by the owner);
- irrecoverable rent and other income from the property (sums so deducted as irrecoverable rent and later recovered should be included in arriving at the assessable value in the year of recovery);
- 20% statutory allowance on the property's assessable value for repair and outgoings. This is a flat rate deduction irrespective of the actual amount spent, and is to be given after deduction of rates (if payable by the owner) and irrecoverable rent.
Except for the above items, no other expenses are allowable as deductions for Property Tax purposes. You should not claim any deduction for, such as Government rent, building management fees, decoration fees, repair expenses, rent-collection fees, commission and insurance premiums paid by you.
Deduction for mortgage interest incurred on the acquisition of the property can only be claimed by property owners who are eligible for and have chosen Personal Assessment. The amount of the interest deduction allowable under a Personal Assessment is limited to your share of the net assessable value of the property concerned. Your may also enjoy other personal allowances under Personal Assessment.
How do property owners apply for Personal Assessment?
Individual property owners may indicate their wish to elect “Personal Assessment” by stating their names and Hong Kong identity card numbers in Part 5 of the Property Tax Return (B.I.R.57). If more than 2 owners wish to elect “Personal Assessment”, the additional owners can state their names and Hong Kong identity card numbers in the space below the boxes, or provide the particulars on a separate sheet.
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 electors should complete Part 6 of their tax returns.
However, if your total income is lower than your tax allowances (which means that you do not have to pay any tax after choosing Personal Assessment), the Inland Revenue Department may no longer send you a B.I.R.60 annually. You need only indicate your wish to be assessed under “Personal Assessment” but you do not have to complete a B.I.R.60.
Selection of “Personal Assessment” is voluntary and so you are required to select it year-by-year.