Mr. Ho purchased an office in Mongkok (Kowloon, Hong Kong) in late February 2022; and rent it
Question:
Mr. Ho purchased an office in Mongkok (Kowloon, Hong Kong) in late February 2022; and rent it out on 1 July 2022. You were the tax accountant of Mr. Ho and he gave the following information to you concerning the lease of his property:
1. Term of lease: 5 years from 1 July 2022.
2. Rent : HK$45,000 per month inclusive of a building management fee HK$3,000 payable in advance.
3. Building management fee:HK$3,000 per month, and it was agreed that it was tenant’s liability to pay this building management fee. It was payable through Mr. Hill to the management Company.
4. Initial premium: HK$180,000 payable on 1 July 2022.
5. Rental deposit: Hk$90,000 payable on 1 July 2022. It is used to compensate Mr. Ho if the tenant fails to pay the rent.
6. Rates: HK$6,000 per quarter payable by Mr. Ho to the HKSAR.
7. Government rent: HK$1,500 per quarter payable by Mr. Ho to the HKSAR.
8. Agency fee:HK$22,500 has been paid by Mr. Ho to the property agency company on 1 July 2022.
9. Repairs charges:HK$12,000 for water pipes leakage was paid and be responsible by Mr. Ho. Although the damage was not caused by the tenant, Mr. Ho required the tenant to pay 50% of the repair charges. The tenant eventually paid the stated amount to Mr. Ho.
Note: The tenant did not pay the rent to Mr. Ho from 1 March 2023 onwards. On 31 May 2023, the tenant moved out of the property and could no longer be contacted. Assessor satisfied that the rent previously not coverable was approved to be bad on the same day.
Required:
Briefly explain the tax treatment of the following that were due from the tenant to Mr. Ho:
i. Unpaid rental income
ii. Irrecoverable rental income
South-Western Federal Taxation 2020 Comprehensive
ISBN: 9780357109144
43rd Edition
Authors: David M. Maloney, William A. Raabe, James C. Young, Annette Nellen, William H. Hoffman