Hong Kong Tax Exemption: Deducting Tax With Domestic Rental Payment

For those who are renting a residential property, you’re in luck with a tax exemption. As you may not know, you can actually deduct your taxes with your residential rental payment because the Hong Kong government has introduced a unique tax deduction scheme for residential tenants in the 2022/2023 tax season, providing an additional tax-saving opportunity with up to HK$100,000 exclusion from the taxable income.

To take advantage of this opportunity, you would need to learn about eligibility and how to fill out the specific section on the tax return form. Continue reading for more guidance on saving taxes!

Tax deductions for residential rent bills have been implemented since 2022

The Legislative Council passed the Inland Revenue (Amendment) (Tax Deductions for Domestic Rents) Bill 2022, which implements the tax deduction for residential rents proposed in the 2022/23 budget, to reduce the burden on taxpayers who do not own any residential properties.

Taxpayers can make a preliminary declaration for the “Deduction for Domestic Rent” in Part 8.5 of the tax return form. The Inland Revenue Department will consider the deduction when calculating the provisional salary tax for the next tax year.

Who qualifies for tax deduction?

Did you know that if you’re renting a qualifying residential property in Hong Kong, you and your cohabiting spouse can enjoy a tax deduction? This special tax deduction allows you to deduct up to HK$100,000 from your taxable income per tax year. It’s a great opportunity to save on taxes while enjoying the benefits of renting. Let’s explore the eligibility criteria and definitions of key items for this tax deduction:

• Eligible persons
• Eligible residential premises
• Qualifying residential tenancy

Eligible persons for tax deductions from rental payments

Eligible persons for rent deduction include:

• Taxpayers chargeable to salaries tax or tax charged under personal assessment who pay rent as tenants for qualifying residential properties
• Taxpayers can claim a deduction for rent paid by their cohabiting spouses as tenants of qualifying residential properties

Eligible residential premises for tax deduction from rental payments

Eligible residential premises for rent deduction include:

• Residential premises used as a place of residence, whether in a building or any part thereof, must not be prohibited by any law or specified instrument (e.g., government lease, occupation permit) from being used for residential purposes. If the taxpayer has more than one place of residence, the relevant premises must be their principal place of residence.
• If a tenancy includes both a residential premises and a parking space, and the parking space is not sublet, the parking space will be considered part of the residential premises.

Qualifying residential tenancy for tax deduction from rental payment

To qualify for the rent deduction, taxpayers must enter into a written tenancy agreement or a sub-tenancy agreement for the residential premises. The agreement must be stamped in accordance with the Stamp Duty Ordinance (Cap. 117).

Amount of allowable rent deduction

Taxpayers can claim a maximum deduction of HK$100,000 per tax year. It’s important to note that the tax deduction from the rental payment limit will be reduced in the following circumstances:

• If there are multiple tenants under the tenancy, the deduction will be calculated proportionally based on the number of co-tenants.
• If the period for which rent has been paid under the tenancy only covers part of the tax year, the deduction will be calculated proportionally based on the period of the tenancy within the tax year.

In addition, the amount of allowable deduction for rent should be noted in the following situations:

• The deduction is based on the smaller amount between the rent paid by the taxpayer and/or their cohabiting spouse or the rent deduction limit. This principle applies when the taxpayer becomes married during a tax year.
• If there are multiple tenancies within a tax year, the deduction will be the aggregate of the amounts calculated in accordance with the above principle for each tenancy.
• If part of the residential premises is used for other purposes, such as a home office or a combination of a shop and a residence, the deduction will be adjusted based on the circumstances of the case.

Cases where tax deductions from rental payments do not apply

Unfortunately, being a residential tenant does not automatically qualify you for the rent deduction. There are certain circumstances in which you may not be eligible to claim this deduction. So, even though you’re renting, you might not be able to enjoy the tax benefits.

Keep in mind that there are specific criteria and conditions that need to be met in order to qualify for this tax deduction. Here are some cases where tax deductions from rental payments do not apply:

• The taxpayer or their cohabiting spouse is a legal and beneficial owner of any residential premises in Hong Kong.
• The landlord of the tenancy (or the principal tenant in the case of a sub-tenancy) is an associate of the taxpayer or their cohabiting spouse. For example, if the landlord is the taxpayer’s spouse, parent, child, sibling, partner, or a corporation controlled by the taxpayer or their spouse.
• The taxpayer or their cohabiting spouse is provided with a place of residence by their employer or an associated corporation. Or if the rents payable or paid by the taxpayer or their cohabiting spouse are wholly or partly paid or refunded by the employer or the associated corporation.
• The taxpayer or their cohabiting spouse is a tenant or an authorised occupant of a public rental housing flat of the Hong Kong Housing Authority or the Hong Kong
• The tenancy is prohibited by any law or government lease.
• The taxpayer or their spouse has entered into a lease purchase agreement with the landlord.
• The rent amount for the residential premises is allowable as a deduction under any other provision of the Inland Revenue Ordinance (Cap. 112); or the taxpayer or their cohabiting spouse has already claimed a deduction for rent paid for any other residential premises during the same period in which the rent is paid.

Where can you fill in your rental information on the tax form?

As the rent deduction is a new measure, many people may not be aware of where to report it on the tax form. It is located in Section “8.5” of the tax form “Deduction for Domestic Rent”.

The procedure for declaring a rent deduction is simple. Taxpayers only need to fill in “Deduction for Domestic Rent” section 8.5 of the tax return form (BIR60) with the estimated total amount of residential rent paid for the 2023/24 tax year (from April 1, 2023, to March 31, 2024). The tax authorities will consider the rent for tax deduction.

Frequently asked questions: Tax deduction against domestic rent

Who qualifies for tax deduction from rental payments?

Taxpayers chargeable to salary tax or tax charged under personal assessment who pay rent as tenants for qualifying residential properties are eligible for deduction.

Taxpayers can claim a deduction for rent paid by their cohabiting spouses as tenants on qualifying residential properties.

What types of residential premises are eligible for tax deductions from rental payments?

To qualify for the deduction, the residential premises must not be prohibited by any law or specified instrument (e.g., government lease, occupation permit) from being used for residential purposes. The relevant premises must be the taxpayer’s principal place of residence.

If a tenancy includes both a residential premises and a parking space, and the tenant does not sublet the parking space, the parking space will be considered part of the residential premises for the purpose of the deduction.

What is a qualifying residential tenancy?

A qualifying residential tenancy is a written lease (or sublease) of a residential premises, stamped with duty under the Stamp Duty Ordinance (Chapter 117), under which the exclusive right to use the premises is granted and the rent is paid by the taxpayer at a fair market value, either by the government or by the Financial Secretary Incorporated as an agent of the government.

How to determine the amount of rental payment eligible for tax deduction for a taxpayer?

Generally, for a taxpayer’s eligible deduction amount for a particular tax year, the deduction is either the rent paid during the tax year under a qualifying residential tenancy or the deduction cap of HK$100,000 per year for the relevant tenancy, whichever is lower.

How to calculate the rent and maximum deduction for each tenant in a shared residential tenancy?

The rental payment is considered to be paid by each joint tenant in equal proportions, and the deduction cap is proportionally reduced based on the number of joint tenants.

How is the deduction cap calculated for a partial tax year in a qualifying residential tenancy?

The deduction cap is reduced proportionally based on the period of the tenancy within the tax year.

In which situations is the tax deduction for residential rent not applicable?

The tax deduction for residential rent is not applicable in the following situations:

• (a) Taxpayer or cohabiting spouse is the legal and beneficial owner of any residential premises in Hong Kong.
• (b) Landlord of the tenancy (or principal tenant in the case of a sub-tenancy) is an associate of the taxpayer or their cohabiting spouse.
• (c) Taxpayer or cohabiting spouse is provided with a place of residence by their employer or an associated corporation, or the rents are paid or refunded by the employer or associated corporation.
• (d) Taxpayer or cohabiting spouse is a tenant or authorised occupant of a public rental housing flat.
• (e) The tenancy is prohibited by any law or government lease.
• (f) Taxpayer or spouse has entered into a lease purchase agreement with the landlord.
• (g) Rent amount is allowable as a deduction under any other provision of the Inland Revenue Ordinance.
• (h) Taxpayer or cohabiting spouse has already claimed a deduction for rent paid for any other residential premises during the same period in which the rent is paid.

How can a taxpayer prove that a residential premises is their principal place of residence in Hong Kong when claiming the deduction?

The taxpayer must retain documentary proof that the residential premises are used as their principal place of residence, such as utility bills (including water, electricity, and gas bills) and the Hong Kong Identity Card. The proof does not need to be submitted when filing the tax return, but it should be kept for verification by the Inland Revenue Department.

When does the tax deduction for residential rent come into effect?

The tax deduction for residential rent is applicable for the year of assessment starting from tax season 2022/2023 onwards.

Are there any other tax deductions available for taxpayers besides the deduction for residential rent?

Yes, there are various other tax deductions available for taxpayers, such as deductions for charitable donations, contributions to recognised retirement schemes, and voluntary MPF schemes. Taxpayers should consult the Inland Revenue Department (https://www.ird.gov.hk) or seek professional advice for more information on these deductions.

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