Mr. Tam was the owner of four properties located in the following places and received rental income
Question:
Mr. Tam was the owner of four properties located in the following places and received rental income in the year of assessment 2018/19 as below:
Property Rental income Rates
(a) Taikoo Shing $156,000 $22,000
(b) Shatin City One $120,000 $19,000
(c) Whampao Garden $288,000 $11,000
(d) A house in Canada $145,000 $0
Compute the total property tax liabilities of Mr. Tam. Advise the number of assessments that he will receive.
(2)
Mr. Kwan owned three properties in Flat A, C and D of 15th Floor in Hoi Kwong Mansion of Taikoo Shing. Flat A was his residential home while Flat C and D were let out to Mr Tam and ABC Limited respectively. How many property tax assessments will Mr Kwan receive?
(3)
(a) Beagle Limited owns a floor in a commercial building in Central and received rent in the total amount of $880,000 and paid rates of $120,000 for the 12-month accounting year ended 31 December 2018. The property left vacant after the year end. Compute the property tax liability for the year of assessment 2018/19 if Beagle Limited did not claim the exemption from property tax relief.
(b) If the profits tax liability of Beagle Limited (including the rental income) is assessed to be $36,890. Advise what Beagle Limited should do and the net amount of tax payable or refundable.
- Mrs. Lam owned a flat in City Garden and rented out to Mr. Mason and his family under the following terms:
- Lease period: 18 months from 1 October 2018
- Monthly rent: $6,800 payable at the beginning of each month
- Initial premium: $54,000
- Rental deposit: $13,600 payable on 1 October 2018 and refundable upon completion of the lease
- Rates: $2000 per quarter payable by the tenant
- Management fee: $980 per month payable per quarter by the tenant.
Required:
Compute the property tax liabilities over the lease period.
- Same information as in Q4. From 1 February 2019 onwards, Mr. Mason failed to pay the rent and left the property on 31 March 2019. After searching Mr. Mason for a few months, Mrs. Lam still could not find Mr. Mason. The assessor agreed that the outstanding rent be treated as irrecoverable in July 2019. Subsequently, Mr. Mason approached Mrs. Lam and agreed that the rental deposit paid at the start of the lease will be used to offset the outstanding rent. Such agreement was reached in September 2020. From 1 October 2019, Mrs. Lam rented the property out again at monthly rent of $7,500. The new tenant was still responsible to pay the rates and the management fee. Compute the property tax liabilities for the years of assessment 2018/19 and 2019/20.
(6)
Mr. Go emigrated to Canada several years ago and he owns a residential property and an office in Hong Kong. The following information is provided in respect of the properties lease transactions:
Property A
The property was rented to Mr. Kan under the following terms:
- Lease period: 1st July 2017 to 30th June 2019
- Monthly rent: $20,000 payable in advance at the beginning of each month
- Premium: $100,000 paid on 30th June 2017
- Rent deposit: $40,000 paid on 30th June 2017. The deposit is refundable to Mr. Kan upon termination of lease when he returns the property to Mr. Go in good condition
- Rates: $2,500 per quarter payable by Mr. Go
- Management fee: $1,200 per month payable by Mr. Go
- Mortgage interest: $25,000 per month, incurred by Mr. Go on a bank loan obtained to acquire the property.
- Renovation: $50,000, incurred by Mr. Go to a decoration company.
- Property agency fee: half of the monthly rental.
Due to financial difficulty, Mr. Kan was unable to pay rent to Mr. Go starting from 1st March 2018. On 1st May 2018, both parties reached the following new agreement:
- Monthly rent reduced to $15,000 starting from 1st May 2018
- Rent deposit of $40,000 would be used to fully settle the outstanding rent
- Other terms and conditions of the lease remain unchanged
Property B
This office was vacant during the period from 1st March 2018 to 31st December 2018. Starting from 1st January 2019, the property was let to Boss Ltd. at a monthly rent of $30,000. Rates of $6,100 per quarter and the monthly management fee of $2,800 were payable by Mr. Go.
The assessor accepted the rent of $85,000 owed by the previous tenant for the period of 1st December 2017 to 28th February 2018 was irrecoverable when that tenant was declared bankrupt on 30th June 2018.
Mr. Go had never considered any tax reporting in Hong Kong as he believed that he was not subject to Hong Kong tax on the basis that he is no longer a resident in Hong Kong and all rentals are deposited into his bank account in Canada.
Required:
a) Advise and explain briefly to Mr. Go of his liability to tax under the Inland Revenue Ordinance regarding the above properties.
b) Compute Mr. Go’s property tax liability on each property for the year of assessment 2018/2019. Ignore provisional property tax.
c) Give a brief explanation of the treatment of items (3) and (7) for property tax purpose under the
Inland Revenue Ordinance.
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts