Smart Alert | Hong Kong Tax Update: deduction of domestic rent paid by individuals: a new tax incentive available in Hong Kong

Smart Alert | Hong Kong Tax Update: deduction of domestic rent paid by individuals: a new tax incentive available in Hong Kong

The Inland Revenue (Amendment) (Tax Deductions for Domestic Rents) Ordinance 2022 was enacted on 30 June 2022. It offers a new tax deduction to individuals not currently benefiting from rental reimbursement arrangements from their employers.

The implementation framework of the new deduction is as follows:

Who is eligible to claim this deduction?

Any taxpayer chargeable to salaries tax or tax charged under personal assessment is eligible to claim deduction of the rent paid by him / her (or paid by his / her spouse not living apart from the taxpayer).

However, the deduction for domestic rents will not be allowed in the following circumstances:

• the taxpayer or the taxpayer’s spouse (who is not living apart from the taxpayer) is a legal and beneficial owner of any domestic premises in Hong Kong; or
• the landlord is an associate of the taxpayer or the taxpayer’s spouse (e.g., the landlord is the taxpayer’s spouse, or a parent, child, sibling or partner of the taxpayer or the taxpayer’s spouse, or a corporation controlled by the taxpayer or the taxpayer’s spouse); or
• the taxpayer is provided with a place of residence by his/her employer (or an associated corporation of the employer) or the rents payable or paid by the taxpayer or the taxpayer’s spouse are wholly or partly paid or refunded by the employer (or the associated corporation of the employer).

What sort of premises qualify for the deduction?

To qualify for the deduction, the domestic premises must be a building that is not prohibited from being used for residential purposes.  The premises must also be used by the taxpayer as his / her principal place of residence.

In addition, the tenancy must be stamped within the meaning of the Stamp Duty Ordinance (Cap. 117).

How much can an eligible person claim as deduction?

In general, the amount of deduction allowable to a taxpayer for a year of assessment is the amount of rent paid under a qualifying tenancy for the year of assessment, or the deduction ceiling for the year of assessment, whichever is less. The deduction ceiling for each year of assessment is HKD 100,000. The deduction ceiling may be reduced in specific situations (co-tenants, marriage during the year of assessment, etc.).

What is the effective date of the tax deduction for domestic rent?

The legislation is applicable to the year of assessment commencing on 1 April 2022 and to all subsequent years of assessment.

For more details, please contact our tax team.