In this blog we will have a discussion on the implementation of tax policy of Hong Kong under Inland Revenue ordinance, on the different domains of life of a taxpayer as loan debtor, mortgage loan etc.   

Loan Debtor

According to a proper interpretation under Section 26E of Hong Kong tax law, it is not required by the taxpayer to pay the home loan himself. For the purpose of acquiring of property, the specific requirement of Section 26E of Hong Kong tax law only need the loan to have been applied partially or wholly. This property should be held by the taxpayer and used by him as his residence or property. And this should be secured by a contract over that property or any other property of taxpayer of Hong Kong company incorporation. In a case D 9/19 it was observed that before the claim of a person for HLI deduction, there is still a burden on him to prove that the loan that was taken by other person from him was for the acquirement of property, as under Section 68 (4).

Space for Car Parking

As long as any HLI is paved by a person for the cause of home loan that is obtained in respect of residence that is in accordance with his PoR used partially or wholly by him and also the home loan was paid in order to acquire a space for the parking, so the space for car parking shall be considered to be:

  • Used in same manner by that person and to the same scope as residence is used under Section 26E (8).
  •  An essential element of the residence.

There is no need for space of car parking to be valued along with residence together with effect from 25 June 2004, as a single run-down house or apartment that meets minimal standards under barely under Rating Ordinance. That change has retroactive effect from 1998 to 99, as seen in DIPN 35.

Deductible Amount

For an assessment year the amount that is allowable is the lower of:

  • The amount that was prescribed. Under Section 26E (2) and 26E (2) (c), as long as residence is not held by an employer doing business in Hong Kong the amount that is prescribed would be reduced. The amount that is prescribed for the assessment years 1998 to 99 and 2015 to 16 are given below.

Assessment year

Approved amount

1998 - 99 to 2000 - 01


2001 - 02 to 2002 - 03


2003 - 04 to 2015 - 16


  • Where during an assessment year the residence is used by taxpayer exclusively as his/her PoR. The amount that was actually paid by him in the form of HLI or
  • In second case the amount that represent the full amount of HLI that is paid in actual or any part therefrom as in the circumstances of case it is reasonable.

Considering an example. As in the form of mortgage loan from the bank a dwelling was purchased by Mr. Lo. A payment of $30,000 was paid by him in the form of mortgage interest by him by during the year that was ended 31 March 2016. For the assessment year 2015 to 16 a maximum deduction of $100,000 was allowed to him albeit he has paid a loan interest of $300,000.

Tenant Living Jointly

If a residence is held by a person in the form joint tenants, the amount that will be paid by him as HLI would be consider as having paid by joint tenant. And under Section 26E (2) (b) (i), that this amount is paid in proportion to the total number of joint tenants.

It was observed in a case D 5/02 that, it was allowed to taxpayer to claim a deduction of just 50% of the mortgage interest that was paid by her in the form of property that was held as joint tenant by her and her mother. Although the payments of mortgage were financed by that taxpayer working for company incorporation HK herself.

Discussing an example, there were husband and wife named as Hong and Wong respectively. By having the mortgage loan form the bank they bought a residence as joint tenant. As long as payment of interest for mortgage loan is concerned both Hong and Wong would pay half of the loan interest individually.

In-Common Tenant

If a residence is bought by a group of individuals as tenant in-common, then in order to pay the amount of HLI that been imposing on each tenant in common in proportion to share of him/her in ownership in the residence. The reference taken from Section 26E (2) (b) (ii).

A dwelling was purchased by two men named as Jill and Jack by acquiring the mortgage loan from a financial institution as tenants-in-common. The shares of Jill and Jack in term of ownership of dwelling were 30 % and 70 % respectively. As shares of Jill and Jack are not equal in the ownership of dwelling so both of them would be paying 30 % and 70 % respectively for the mortgage loan interest.

Advantageous Owner

In D 22/04 it was observed that under Section 26E, the claim of deduction of home loan interest cannot be done by a taxpayer having HK company formation who is an advantageous owner but not a legal owner of dwelling. It is consideration of board of revenue department that it is not applicable to the advantageous owner. For application of this law on a person a property of Home Ownership was registered in the name of father of taxpayer after it’s purchasing. Now his father is considered as legal owner of the property. The taxpayer wholly, provided the consideration for purchasing of property. And in the trust for taxpayer property was held by the father of taxpayer.

Reduction at Prescribed Amount

If as a joint tenant the residence is held by a person. Then under Section 26E (2) (c) (i) the amount that is prescribed in proportion to the joint tenant would be considered as having been reduced.

In the previous example, the amount that is prescribed would be considered as having been decremented to ($100,000/2) i.e. $50,000. The amount that is prescribed would be considered as having been decremented in accordance with his/her shares of ownership in the residence, in case the dwelling is held as tenant-in-common by a person, as in Section 26E (2) (c) (ii). In the example of Jill and Jack that is described earlier, the amount that is advised will be considered as having been decremented to $30,000 and $70,000 respectively.

Changing of Residence

Home loan interest HLI can be claimed by a taxpayer working for Hong Kong company incorporation, if residence is changed by that taxpayer and the mortgage interest is paid by him in case of both of his properties.

Two properties were held by a taxpayer of Hong Kong named as Mr. Kong. His property A was at Tai Koo Shing while other property B was at Kornhill. PoR of Mr. Kong was moved by him from property A to property B. The mortgage was paid by him in respect of both of his properties i.e. property A and property B. It was allowed to him to claim the deduction of HLI in respect of both properties.

Period of Entitlement for Reduction of Tax

Whether continuous or not the period of entitlement for reduction of tax is increased from 10 to 5 years as from the assessment year 2012 to 13, under Section 26E (4) of Hong Kong tax law.

Nomination of Partner to claim Revocation and Deduction

If under Inland Revenue ordinance a person has no profits or income that is chargeable but he/she has allowable HLI for an assessment year then he/she can nominate his/her partner or spouse to claim the deduction for that assessment year under Section 26F (1). But that partner or spouse should not be living apart from him in order to be nominated for claim of deduction. If a notice is written to CIR then such nomination of spouse can be cancelled within 6 months after the date on which notification is given by CIR for the deduction. The reference is from Section 26F (4) (a). According to Section 26E (6A) even if cancellation is made after 6 year from the expiry of the assessment year to which claim is related, within 2 years of cancellation of claim for HLI an additional assessment can be made by an assessor.

In previous example, it was observed that under Inland Revenue ordinance Wong has no income that was chargeable to income tax while Hong has income from salaries that was chargeable to tax on salaries. Wong was allowable to nominate Hong in order to claim the deduction of her share of HLI. Hong will be allowed to deduction and Wong will not be allowed to deduction in case if such nomination is made by Wong.

Refinancing of Loan for Mortgage

In a case D 123/01 it was observed that a property was purchased as joint tenant by a taxpayer and his wife for use as their residence. The mortgage loan (first loan) of $1,855,000 was applied on this purchasing of residence, in 1990.

A further mortgage loan (second loan) of amount $1,200,000 was obtained by these both joint tenant, in 1995. The third mortgage loan (third loan) was obtained by both of them from a bank in order to return the first and second outstanding loans of amount ($1,187,111) and ($1,138,210) respectively, in 1997. They repaid the third loan of amount ($2,130,000) in 1999 by having another mortgage loan (fourth loan) from a further bank in 1999.

The home loan interest for 1999 to 2000 was allowed by on the basis that the only part of third loan that was used in order to pay off the unpaid balance of first loan i.e. $1,181,711 was accepted after application of acquisition of residence i.e. (45.45 % computed as $1,181,711/2, 600, 00 * 100 % ).

The amount that is deductible for interest for year 1999 to 2000 should be calculated as given below.

This computation for interest paid on third and fourth loan was upheld by board of revenue.

In case D 87/03 it was observed that original loan of a bank was replaced by a loan with other bank. On the subsequent loans as HLI the deduction of percentage of interest was allowed by Inland Revenue department.

For the payment of mortgage loan, the subsequent loans were taken by the taxpayer. The division of interest was adopted by assessor, in the ratio of balance for original loan to the balance of replacement loan. The same thing was also observed in D 22/01, D18/02, D 33/04 and D 123/01. In case D 50/96 the mortgage interest in HK company formation was deducted for purpose of personal assessment under Section 42 (1) proviso.

Deposit into Loan Account after withdrawal

In a case D 40/12 it was observed that there was a husband wife collectively named as T. A property was acquired by them as joint owners in the form of mortgage loan. In further mortgage loan property was acquired as security. Both of these two loans were referred to as ‘Home Smart Account’ or HAS collectively. In order to withdraw extra amounts to meet their financial need and to save on interest it was allowed to T that they can deposit the additional funds. It was the stance of T that interest which was paid by them on the amount that was withdrawn from them for HSAs should qualify for deduction in the form of HLI.

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