In this blog we will have thorough discussion on the policy of Inland Revenue department in terms of tax return that is applicable on the Joint owners or Co-owners or individual owners of a land and / or buildings in Hong Kong. After that we will see the procedures followed for the calculation of provisional property tax.
Responsibility of Co-Owners and Joint Owners
If a property is owned by two or more persons as a joint owners or owners-in-common for starting a business in Hong Kong or some other purposes, then it is responsibility of all the owners to do all such acts that are required to be under the Inland Revenue ordinance as if those owners are the sole owners, as in Section 56A (3). The ordinance does not affect any obligation or right of owners-in-common or joint owners between themselves, taken from Section 56A (2). If a property tax has paid by a person and for that property tax he is only liable under the provisions of Section 56A (1), then he is allowed to recover the tax from a person who is liable to pay it.
In a case D 52/08 it was observed that, a ‘land lot’ (the land) was being owned by four companies-in-common and among that combo one company was a private company. It was held by board of revenue department that:
Leasing of Common Areas of a Building
The common areas of a building includes external wall, car park, roof top, side shop etc. normally. These common areas of building are collectively owned by individual owner of building or company incorporation HK. If a part of the building that comes under category of common area is leased by the owner of building, then the rental income derived from owner would be chargeable to property tax.
In a case D 80/02 it was observed that, a residential unit was owned by a person individually in a building complex. He was also a co-owner of a car parking space. That car parking space was located in the common area of that building. Due to this reason Section 56A was applicable on him. It is not mandatory for application of Section 56A of Hong Kong tax law that to have an instrument names of all persons who were co-owners of car parking space written on it. Also the claimed difficulties of the above described ruling on the concerned individual owner was not relevant and the construction of Section 56A of Hong Kong tax law could not be effected by it. The key thing to note here is that in this case common areas of building were not owned by corporation of owner.
However, when the corporation was formed by the respective owners, the duties and rights of owners that are related to the common parts of building are provided by Section 16 of the Building Management Ordinance and shall be exercised and performed by the included owners of the building. Due to that reason on the behalf of all owners-in-common of the building the incorporated owner of building is required to report the complete income of corporation and pay the tax.
Provisional Property Tax
In accordance with Section 631 of Hong Kong tax law, a person who is allowable to pay property tax for any assessment year beginning on or after 1 April 1983 is responsible to pay provisional property tax for that assessment year. The property can be used by the owner for starting a business in Hong Kong or for any other legal purpose and there is no such constraints on him / her for the usage of their property.
Calculation of Provisional Property Tax
As long as calculation of amount of provisional property tax allowable to a person is concerned it is normally computed at standard rate on the NAV of the buildings and /or land for the following year, as under the Section 63M (1) of Hong Kong tax law.
Discussing an example to understand such calculation of provisional property tax, a property S was owned by Mr. Cheung in Hong Kong. He leased that property to Mr. Leung on 1 April 2014 for a period of 3 years. Mr. Leung acquired that for starting a company in Hong Kong. The monthly rent was decided to be $ 10,000 and it was payable at the commencing of each month. Under the tenancy agreement it was required by Mr. Leung to pay all the rates. The procedure that was adopted for the calculation of property tax liability for the assessment year 2014 to 15 (final) and 2015 to 16 (provisional) is as follow:
Property tax assessment ---- Property S
Rent (12 * $ 10,000) $ 120,000
Less: Statutory deductions (20 %) $ (24,000)
Net assessable value $ 96,000
Property tax thereon (15 %) $ 14,400
Estimated net assessable value
Based on value of following year $ 96,000
Property tax thereon (15 %) $ 14,400
Tax payable (14400+14400) $ 28,800
Under Section 63M (2) and 63M (3) of Hong Kong tax law, in the first assessment year for which a person is allowable to pay property tax or the following year is not a full year, an estimation can be made by the tax department for the assessment based on the best information that is available to them at that time. In Section 63M (4), normally the assessor will estimate or assess the amount of provisional property tax which is responsibility of an owner to pay after the time limit for embellishing the return has expired.
Considering an example, a property was owned by Mr. Mao. He leased this property to Mr. Ng on 1 October 2014 who require it for starting a company in Hong Kong. The total term for leasing this property was decided to be 2 years. A rent of amount $ 11,000 was payable to Mr. Mao by Mr. Ng each month as a result of such agreement. It was required by Mr. Ng to pay all the rated under the tenancy agreement. The procedure that was adopted for the calculation of property tax liability for Mr. Mao for the assessment year 2014 to 15 (final) and 2015 to 16 (provisional) is as follow:
Property tax assessment ---- Property T
Rent (6 * $ 11,000) $ 66,000
Less: Statutory deductions (20 %) $ (13,200)
Net assessable value $ 52,800
Property tax thereon (15 %) $ 7,920
Estimated net assessable value (rent: 12 * $ 11,000) $ 132,000
Statutory deductions (20 %) $ (26,400)
Estimated net assessable value $ 105,600
Provisional Property tax thereon (at 15 %) $ 15,840
Tax payable (7920+15840) $ 23,760
Holding over of Payment of Provisional Property Tax
If it is considered by a chargeable person that the provisional property tax that is imposed on him is excessive then he / she can lodge an application in written form for holding-over the payment of provisional property tax with the department of CIR. For the lodging of application, it should not be late more than:
The reference for this statement is taken from the Section 63O (1) of Hong Kong tax law.
The grounds on which holding-over of payment for provisional property tax based are:
Powers of Inland Revenue Department to Obtain Returns
Powers to obtain returns under the Section 51 (1)
An assessor for assessing the property or other values of taxpayer is empowered to give a notice to taxpayer in written format requiring him to furnish a return within the time limit that is described earlier in the previous articles and specified by the assessors.
What does it mean by proper return?
As long as return for property tax is concerned the return must be full. In case if it is not full then inland revenue department can refuse to consider it. It is duty of taxpayer to supply all the information that are demanded by the assessor in the form of that return. That return must be signed by, or on behalf of the taxpayer.
In the format of proper return, the information required must be included along with any supporting document that is specified in the return. But in case of return for the profit tax the required documents also include a loss and profit account along with a balance sheet. In case if assessment is on the behalf of a corporation an auditor’s report is also required.
If required document or information is not contained by the return it can be rejected for the failure to comply by assessor under the Section 51 (1). And as a consequence it would be treated by Inland Revenue department as no return has been submitted.
In a case of Mayland Woven Label Factory it was observed that, without including the loss and profit account and balance sheet as a support, profit tax return was submitted by the taxpayer. It was held by board of revenue department that in a valid return there must be included not only the return but also all information and documents required in the return such as documents for set up company in HK for that property. And due to these reason the return was considered invalid.
Types of Tax Returns
The usual types of tax returns that are issued by Inland Revenue department are:
Time Limit for Submission of Returns
Individuals Tax return
On the first working day of March every year, the tax returns are issued in bulk by the Inland Revenue department for the individuals. The tax returns are normally due by the individuals for submission as follow: