Tax time has rolled around again, making it a good time to find out if you know what to file
There are few things that send shivers down our spines as quickly as the words “tax time.” It is one of the things that binds us, and like it or not, one of the reasons so many professionals choose to live in Hong Kong where personal income taxes are relatively low. They still sting nonetheless.
Hong Kong’s Inland Revenue Department breaks personal taxes into two key categories: personal and property tax. Personal income tax returns are due at the end of May, but property tax returns come due a month earlier, something a lot of us forget according to Suzanne Liu Duddek of S. Liu & Co., Certified Public Accountants (Practising). But that’s only one of a few snags commonly encountered by Liu, an accounting veteran who grew up in Australia. She also points out that though native Hongkongers may know there’s no such thing as a property tax as Australians know it (and Brits, and Americans, and Canadians), the concept here can be somewhat alien to new residents.
As a start to clearing up the property tax haze, unlike mortgage lending, there is no difference between what residents and permanent residents pay by way of taxes, however non-residents are not eligible for personal assessments, meaning there is no entitlement to mortgage loan interest claims. And as it turns out, those are key.
Many expatriate residents might expect a flat tax based on the property’s value — hence constant reassessment of a home. But that doesn’t happen in Hong Kong. If you’re living in a flat you own, your property tax is based on what you would earn in rents were you leasing it out. That’s it. The keys to taxes in Hong Kong are a property’s government rates — rental value —gross rental income, and paid and irrecoverable rents as deductions. Those go toward calculating a property’s assessable value. The IRD then takes 80 percent of that as a taxable amount, and the tax is levied at 15 percent.
Sounds easy enough but as with any tax code anywhere in the world there are exemptions and critical boxes on forms to tick, and whether or not you do could be the difference between a respectable tax bill and one that can draw gasps of horror from owners.
Mortgage loan interest entitlements are also a sticking point for the uninitiated. Not only do too many owners neglect to elect for personal assessment and therefore lose that entitlement, many married couples where one spouse is not working forget to claim both halves. Liu reminds that one spouse claiming both is totally acceptable, but a lot of us just to the conclusion that it’s not transferable. That’s wrong.
In addition, if you want to maximise mortgage loan interest, “The owner and the borrower should be identical. When you have a husband working and the wife does not but the ownership is registered in both names, when it comes to bank the wife doesn’t need to be the borrower. So there’s a danger the husband will only get 50 percent of the entitlement. It’s very confusing.” Anomalies are disadvantageous to taxpayers, cautions Liu.
As if the mortgage interest entitlement weren’t boggling enough, Liu mentions the several different property tax returns, and that any given taxpayer may need more than one. Personal property can be declared on personal taxes, but jointly owned and investment properties demand their own filings. But there’s more. Joint assessments demand both spouses’ signatures, and solely owned properties in couples must also be declared separately.
This is really the tip of the property tax iceberg. If you shopped around recently and re-mortgaged a property, did you notify the right agency? “Ugh,” Liu groans.“That happens quite a lot … and people fail to disclose the details,” The result of not notifying a change in mortgage status will likely result in a barrage of letters from IRD. Always fun.
The IRD isn’t going to come after you with a pick-axe, but making sure all your paper work is current and the right offices have been informed of any changes is advisable. Taxes don’t have to be agonising; you can pay too much, but you don’t have to and errors are easily avoided. “There’s no excuse. They’ll ask why you didn’t seek professional advice,” Liu sums up. “It’s not their job to minimise your tax.” And don’t we all know it.