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Tax deduction for domestic rent
In this part of frequently asked questions, the deduction ceiling refers to the domestic rent basic deduction ceiling amount.
Effective date
1.
Q:
What is the effective date of the tax deduction for domestic rent?
A:
The tax deduction applies to the year of assessment commencing on 1 April 2022 and to all subsequent years of assessment.
Years of entitlement
2.
Q:
Is there a maximum number of years of assessment for which a taxpayer is entitled to the domestic rent deduction?
A:
There is no limit in the number of years that a taxpayer can claim basic deduction of domestic rent. However, each taxpayer may elect in writing to use the additional deduction of domestic rent for an aggregate of 19 years of assessment, whether continuous or not. Please click here for more information on the additional deduction of domestic rent.
Eligible persons
3.
Q:
Who is eligible to claim the domestic rent deduction?
A:
A taxpayer chargeable to salaries tax or tax charged under personal assessment is eligible to claim deduction of the rent paid by him / her as a tenant under a qualifying tenancy of domestic premises.
A taxpayer may be allowed deduction of rent paid by his / her spouse (who is not living apart from the taxpayer) as a tenant under a qualifying tenancy of domestic premises.
The domestic premises must be used by the taxpayer as his / her place of residence.
Eligible premises
4.
Q:
What types of property qualify for the domestic rent deduction?
A:
To qualify for the deduction, the domestic premises must be a building in Hong Kong or any part of such a building that is not prohibited by or pursuant to any law or any specified instrument (including a Government lease, a deed of mutual covenant and an occupation permit) from being used for residential purposes during the term of the Government lease in respect of the building.
If the qualifying tenancy is procured in respect of any domestic premises and a car parking space, and the car parking space is not sublet, the car parking space will be taken to be part and parcel of the domestic premises for the purposes of the deduction.
Qualifying tenancy
5.
Q:
What is “qualifying tenancy”?
A:
A qualifying tenancy of domestic premises is a tenancy (or sub-tenancy) in writing in respect of the right to the exclusive use of the premises that is stamped within the meaning of the Stamp Duty Ordinance (Cap. 117), or under which the right is given by the Government (or the Financial Secretary Incorporated as an agent of the Government) at a rent of a fair market value.
6.
Q:
I verbally agreed with the landlord to lease domestic premises without entering into a written tenancy. Is the verbal tenancy a qualifying tenancy?
A:
No. A verbal tenancy is not a qualifying tenancy.
Tenancy vs. licence
7.
Q:
What is the difference between a tenancy and a licence?
A:
Under a tenancy, the landlord grants the tenant the right to the exclusive use of the property and transfers the proprietary interest in the property to the tenant under the terms of the tenancy, thereby creates the relationship of landlord and tenant. As for a licence, the licensor only allows the licensee the right to use a property, not to exclusively occupy it. A licence does not transfer any proprietary interest in the property to the licensee. Whether a document creates a tenancy or a licence depends on the substance of the agreement and not merely on the form of the document.
Serviced apartment
8.
Q:
Can I claim domestic rent deduction of the rent paid under a licence of a serviced apartment?
A:
As a licence does not confer the right to exclusive use of a property (thereby creating no landlord-and-tenant relationship) and is not an instrument chargeable to stamp duty, it does not fall within the meaning of “qualifying tenancy”. Hence, you cannot claim the deduction of the rent paid under a licence in respect of a serviced apartment.
In any case, the Inland Revenue Ordinance imposes no restriction on the types of domestic premises that are leased for residential purpose and does not exclude serviced apartment from the tax deduction regime. If a serviced apartment is leased under a qualifying tenancy for residential use, the rent paid under the tenancy will qualify for deduction.
Rent
9.
Q:
What is “rent”?
A:
“Rent” is not defined in the Inland Revenue Ordinance and should be given its ordinary meaning, i.e. a payment which a tenant is bound by contract to make to his landlord for the use of the property let.
10.
Q:
Is premium regarded as rent?
A:
Generally, a premium is a sum paid to obtain a lease rather than a sum paid for the use of the property let. Hence, a premium is not a rent even though it may be made payable by instalments.
11.
Q:
Are Government rent, rates, management fee, utility charge like water, electricity or gas charges, or charge on any service provided under a tenancy (incidental charge) regarded as rent?
A:
If any incidental charge is included as rent under the tenancy and the tenant has no obligation under the tenancy to pay the incidental charge (i.e. the landlord is responsible for the payment), it will be taken as part and parcel of the rent. In other words, any incidental charge payable by the tenant is not rent.
Paid in relation to a year of assessment
12.
Q:
What is “contractual period”?
A:
Contractual period of a qualifying tenancy means the period during which the right to the exclusive use of the premises is given under the tenancy. Contractual period covers the rent-free period of a qualifying tenancy.
13.
Q:
I have paid rent. For which year of assessment is the domestic rent deduction allowable?
A:
The deduction is allowable for the year of assessment in relation to which the rent is paid. Whether the liability of the rent arises or the rent is actually paid in the year of assessment is not a relevant consideration.
Generally, rent is paid under a tenancy in relation to the contractual period of the tenancy rather than a year of assessment. However, any rent paid in relation to the contractual period can be apportioned so that such part of the rent attributable to the year of assessment is allowable for deduction for that year of assessment.
Please refer to the illustrative example in Q27 for more details.
Rent paid by a taxpayer’s spouse
14.
Q:
Can a taxpayer claim deduction of rent paid by his / her spouse if the payment is made after they have separated?
A:
No. A taxpayer can only claim deduction of the rent paid by his / her spouse if the payment is made when they are not living apart.
Premises used as a place of residence
15.
Q:
If I claim the deduction of rent paid in respect of any domestic premises, how can I prove that the premises were used as my principal place of residence in Hong Kong?
A:
You should retain documentary evidence showing that the premises were used as your principal place of residence such as utility bills (including water, electricity and gas bills) and resident card. You are not required to provide the above documents when filing your tax return. However, you should retain the documents for verification by the Inland Revenue Department.
16.
Q:
If I leased more than one premises as my places of residence at the same time, can I claim deduction of rent paid for each premises?
A:
You can only claim deduction of the rent paid for each premises for the respective period during which it was used as your principal place of residence.
A taxpayer’s principal place of residence has to be decided on the facts of each case, including the periods and the pattern that the taxpayer and his / her family members have resided in all places of residence. Generally, the place of residence in which the taxpayer and his / her family have spent the majority of their time is taken as their principal place of residence.
17.
Q:
If a married couple each rented a residential flat and used it as their place of residence, can they claim deduction of the rent paid in respect of their respective leased flats?
A:
No. A married couple who are not living apart from each other should have the same principal place of residence. Only one of them can claim deduction of the rent paid in respect of the residential flat which is used as their principal place of residence.
18.
Q:
Following Q17, if the married couple are seperated and divorce proceedings are in progress, can they claim deduction of the rent paid in respect of their respective leased flat?
A:
Since the separation is likely to be permanent, they are treated as having different principal places of residence. Provided that all other conditions are satisfied, they are entitled to claim deduction of the rent paid in respect of their respective leased flat.
19.
Q:
Are adjoining premises treated as one place of residence for the purpose of the domestic rent deduction?
A:
Generally, adjoining premises are leased under one tenancy and used by the tenant(s) as one place of residence. For the purpose of the tax deduction, they will be considered as one place of residence of the tenant(s). However, it does not necessarily follow that adjoining premises leased under more than one tenancy would be treated as separate places of residence of the respective tenants. In coming to a conclusion, all relevant facts and circumstances of each case have to be considered.
Amount of deduction
Not exclusively used as place of residence
20.
Q:
If the premises in respect of a qualifying tenancy are not used exclusively as a principal place of residence at any time during a year of assessment, how will the amount of allowable deduction of rent paid under the tenancy for the year of asessment be determined?
A:
The amount of allowable deduction is such part of the amount of the rent paid that is reasonable in the circumstances of the case.
21.
Q:
I entered into a qualifying tenancy in respect of premises consisting of a front shop and back home with respective usable areas of 800 square feet and 200 square feet. I have all along ran business in the front shop and resided with my family in the back home. I paid total rent of $500,000 under the tenancy for the year of assessment 2023/24. How will the amount of deduction allowable to me be determined for that year of asesssment?
A:
The premises were used partly as your place of residence (i.e. the back home) and partly as your place of business (i.e. the front shop). For the year of assessment 2023/24, the amount of allowable deduction is such part of the amount of the rent paid that is attributable to the back home, which may be calculated by apportioning the amount of the rent paid in proportion to the usable area of the back home (i.e. $500,000 × 200 ÷ (800 + 200) = $100,000).
Principles of determining the amount of deduction
22.
Q:
How is the amount of deduction for domestic rent allowable to a taxpayer be determined?
A:
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 tenancy for the year of assessment, whichever is less.
If the taxpayer is married and not living apart from his / her spouse, the total amount of deduction allowable to the taxpayer or his / her spouse (or both of them) will be the amount of rent paid under the tenancy for the year of assessment, or the deduction ceiling for the tenancy for the year of assessment, whichever is less.
The deduction ceiling for each year of assessment is $100,000.
Please refer to the illustrative examples to understand how the amount of allowable deduction is to be computed under different scenarios.
23.
Q:
If a taxpayer is married during part of a year of assessment, how will the total amount of deduction allowable to the taxpayer or the taxpayer’s spouse (or both of them) be determined for the year of assessment?
A:
The principle set out in the answer in Q22 above for determining the total amount of deduction allowable to the taxpayer or the taxpayer’s spouse (or both of them) will apply to that part of the year of assessment when the taxpayer is married.
24.
Q:
If there is more than one qualifying tenancy in relation to a year of assessment, how will the amount of deduction allowable to a taxpayer be determined?
A:
The amount of deduction allowable to the taxpayer for the year of assessment will be the aggregate of the amount determined in accordance with the principle set out in the answer in Q22 above for each of the tenancies.
25.
Q:
If there is more than one tenant under a qualifying tenancy, how will the amount of deduction allowable to each tenant and the deduction ceiling for the tenancy be determined?
A:
The rent paid and the deduction ceiling for the tenancy are taken to have been paid or shared by each of the co-tenants equally. However, if a married couple (who are not living apart from each other) are the co-tenants of the tenancy, they may claim deduction for the rent paid under the tenancy in unequal shares.
26.
Q:
If the contractual period of a qualifying tenancy only covers part of a year of assessment, how will the deduction ceiling for the tenancy for the year of assessment be determined?
A:
The deduction ceiling will be reduced in proportion to the contractual period of the tenancy that overlaps with the year of assessment.
Rent paid in lump sum
27.
Q:
I entered into a qualifying tenancy for a residential flat with a monthly rent of $10,000 for the contractual period is from 1 July 2023 to 30 June 2025. I paid in advance the total rent of $240,000 in a lump sum upon entering into the tenancy. I have all along used the flat as my principal place of residence. What amount of domestic rent deduction can I claim for the year of assessment 2023/24?
A:
The contractual period of the tenancy that overlaps with the year of assessment 2023/24 was from 1 July 2023 to 31 March 2024 (i.e. 9 months). While the amount of rent paid under the tenancy for the year of assessment 2023/24 is $90,000 (i.e. $240,000 ÷ 24 × 9), the deduction ceiling for the tenancy for that year of assessment is $75,000 (i.e. $100,000 ÷ 12 × 9). As the latter is less than the former, the amount of the domestic rent deduction you can claim for the year of assessment 2023/24 is restricted at the latter (i.e. deduction ceiling of $75,000).
Claims of deduction by married persons
Power to allow a reasonable amount of deduction
28.
Q:
If the total deduction claimed by a taxpayer and his / her spouse exceeds the amount of rent paid by them under the qualifying tenancy or the deduction ceiling for the tenancy, how will the amount of deduction allowed to each of them be determined?
A:
An Assessor may exercise a power to allow an amount of deduction to each of them, as is reasonable in the circumstances of the case, for ensuring the total deduction does not exceed that the amount of rent paid or the deduction ceiling.
29.
Q:
For the year of assessment 2023/24, I and my spouse paid total rent of $150,000 under a qualifying tenancy. Each of us claimed domestic rent deduction in the amount of $75,000 in the 2023/24 Tax Return – Individuals. A deduction of $75,000 was allowed in the assessment raised on me firstly. Will any deduction be allowed in the assessment raised on my spouse subsequently?
A:
The total deduction of $150,000 claimed by you and your spouse, if allowed, exceeds the deduction ceiling of $100,000 for the year of assessment 2023/24. Given that the deduction of $75,000 has already been allowed to you, the deduction subsequently to be allowed to your spouse is restricted to $25,000 (i.e. $100,000 - $75,000).
Right to apply for adjusting an amount of deduction allowed
30.
Q:
Following Q28, if an Assessor has exercised a power to allow an amount of deduction a taxpayer or his / her spouse that is reasonable in the circumstances of the case, what is the deadline for the taxpayer or his / her spouse to apply for an adjustment of the allowed amount?
A:
The taxpayer or his / her spouse can apply in writing for an adjustment of the amount of deduction allowed to him / her within 6 months after the date on which the deduction is allowed to the taxpayer, or after the date on which the deduction is allowed to the taxpayer’s spouse, whichever is the later.
If a taxpayer and his / her spouse are allowed an amount of deduction in accordance with their deduction claims but subsequently either of them wishes to apply for adjusting the amount allowed, he / she must give a notice of objection within one month after the date of the relevant notice of assessment in accordance with section 64 of the Inland Revenue Ordinance.
Power to adjust an amount of deduction allowed
31.
Q:
If a taxpayer or his / her spouse, or both of them, applies for adjusting the amount allowed to either or both of them but no an agreement has been reached between them in relation to their deduction claims, how will the amount of deduction allowed to each of them be adjusted?
A:
An Assessor may adjust the amount of deduction allowed to each of them as may be appropriate in the circumstances. Such adjustment may be made by way of discharge or repayment of tax, or making an assessment despite any time limit for making such an adjustment under the Inland Revenue Ordinance.
If the taxpayer or his / her spouse still disputes the adjusted amount of deduction, he /she must give a notice of objection or appeal against the relevant assessment or Commissioner’s determination in accordance with section 64 or 66 of the Inland Revenue Ordinance.
32.
Q:
Following Q29, if I and my spouse are unable to reach an agreement in relation to our deduction claims but my spouse applies for adjusting the amount of deduction allowed to him from $25,000 to $75,000, how will the amount of deduction allowed to each of us be adjusted?
A:
Although only your spouse applies for an adjustment and no agreement regarding your deduction claims is reached between you and your spouse, the amount of deduction allowed to each of you may be adjusted to $50,000 with regard to the circumstances of the case. If you or your spouse still disagrees with the adjusted amount, you may exercise your right of objection or appeal provided under the Inland Revenue Ordinance.
Circumstances in which deduction is not allowed
Relevant circumstances
33.
Q:
Under what circumstances a deduction for domestic rent is not allowed?
A:
In the following circumstances, no deduction is allowable to a taxpayer in respect of any rent paid under a qualifying tenancy of any domestic premises in relation to a period within a year of assessment notwithstanding that rent has been paid under the tenancy:
| (a) | the rent is allowable as a deduction under any other provision of the Inland Revenue Ordinance; |
|
| (b) | any rent paid in respect of any other domestic premises has been allowed to the taxpayer or the taxpayer’s spouse (who is not living apart from the taxpayer) as a deduction for the period; |
|
| (c) | the taxpayer or the taxpayer’s spouse (who is not living apart from the taxpayer) is provided with a place of residence by his / her employer or an associated corporation of the employer during the period; or the rent payable or paid by the taxpayer or the taxpayer’s spouse in respect of a place of residence for the period is wholly or partly paid or refunded by the employer or the associated corporation; |
|
| (d) | the landlord of the tenancy (or the principal tenant in the case of sub-tenancy) is an associate of the taxpayer or the taxpayer’s spouse (whether or not living apart from the taxpayer), 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; |
|
| (e) | 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 during the period; |
|
| (f) | the taxpayer or the taxpayer’s spouse (who is not living apart from the taxpayer) is a tenant or an authorised occupant of a public rental housing flat of the Hong Kong Housing Authority or the Hong Kong Housing Society during the period; |
|
| (g) | the tenancy concerned is prohibited under any law or a Government lease of the premises; or |
|
| (h) | an option or a right to purchase the premises, or a right of pre-emption in respect of the premises, is conferred to the taxpayer or the taxpayer’s spouse (whether or not living apart from the taxpayer) or both of them under the tenancy. |
|
Rent allowable as deduction under other provision
34.
Q:
I entered into a qualifying tenancy in respect of a residential flat and used it as my principal place of residence. For the year of assessment 2023/24, half of the flat was sublet to my sub-tenant. I paid total rent of $180,000 under the tenancy and received total subletting income of $110,000. Can I claim domestic rent deduction for total rent paid under the tenancy?
A:
Subletting of the flat amounts to a business by definition of “business” in section 2(1) of the Inland Revenue Ordinance (IRO) and profits derived from the subletting business is chargeable to profits tax under section 14(1) of the IRO. In ascertaining the amount of assessable profits derived from subletting of the flat, one-half of the rent paid in the amount of $90,000 (i.e. $180,000 ÷ 2) should be deducted as business expense under section 16(1) of the IRO against the subletting income of $110,000. You can only claim domestic rent deduction for the remaining half of the rent in the amount of $90,000.
Place of residence provided by employer
35.
Q:
For the year of assessment 2023/24, my employer provided me quarters for better performing my duties while I leased another flat as my family’s residence and paid total rent of $180,000 for that flat. I stayed sometimes in the quarters and lived most of the times in the flat. Can I claim domestic rent deduction for the total rent paid for the flat?
A:
Since you were provided with a rent-free place of residence by your employer, you are not entitled to deduction in respect of the rent paid for the flat.
36.
Q:
For the year of assessment 2023/24, I paid total rent of $240,000 in respect of my place of residence and an amount of $180,000 was refunded to me by my employer (i.e. the rent borne by me is $60,000). My net income (excluding the rental refund) derived from my employer was $1,000,000. Can I claim domestic rent deduction for the rent borne by me?
A:
Since the rent paid by you in respect of your place of residence were partly refunded by your employer, you are not entitled to domestic rent deduction in respect of the rent borne by you. The rental value of $40,000 (i.e. $1,000,000 × 10% – $60,000) in respect of your place of residence, instead of the rental refund of $180,000, is included as your assessable income. Hence, the rental value calculation can reduce your tax liability and is already beneficial to you from the tax perspective.
Related-party lease arrangement
37.
Q:
I (as tenant) and my father (as landlord) entered into a qualifying tenancy in respect of a flat which had all along been used as our place of residence. Can I claim domestic rent deduction for the rent paid under the tenancy?
A:
No. The tenancy is one under which the landlord (i.e. your father) is your associate.
Being owner of another domestic premises
38.
Q:
I entered into a qualifying tenancy in respect of a residential flat with a monthly rent of $10,000. I lived in the flat and paid total rent of $120,000 (i.e. $10,000 × 12) for the year of assessment 2023/24. On 1 April 2023, I entered into an agreement for sale and purchase to acquire another residential property. On 1 July 2023, the property was assigned to me upon completion of the sale and purchase transaction. Can I claim domestic rent deduction for the rent paid under the tenancy?
A:
Upon entering into the agreement for sale and purchase of the property on 1 April 2023, you were only the beneficial owner of the property while the seller remained the legal owner of the property. You could only take possession of the property and use it as your place of residence after you became a legal and beneficial owner of the property upon completion of the sale and purchase transaction on 1 July 2023. Therefore, you can only claim deduction of the total rent of $30,000 (i.e. $10,000 × 3) paid for the period from 1 April 2023 to 30 June 2023. No deduction is allowable to you in respect of the total rent of $90,000 (i.e. $10,000 × 9) paid for the period from 1 July 2023 to 31 March 2024.
Subsidized accommodation provided by Government
39.
Q:
Is rent paid under a tenancy held from Hong Kong Housing Authority (HKHA) or Hong Kong Housing Society (HKHS) of a public rental housing flat allowable for deduction?
A:
A tenancy held from the HKHA is not a qualifying tenancy because it is not chargeable to stamp duty under section 39(d) of the Stamp Duty Ordinance (SDO). Hence, any rent paid under such tenancy is not deductible.
A tenancy held from the HKHS is required to be stamped under the SDO and thus falls within the meaning of “qualifying tenancy”. However, any rent paid under such tenancy is specifically prohibited from deduction under the Inland Revenue Ordinance.
Prohibited tenancy
40.
Q:
Is rent paid under a tenancy in respect of a property acquired under the Home Ownership Scheme or Green Form Subsidized Home Ownership Scheme allowable for deduction?
A:
The rent is deductible only if a premium has been paid to the Housing Authority to remove the alienation restriction of the property. If not, the tenancy is prohibited under the Housing Ordinance (Cap. 283) and any rent paid under such a prohibited tenancy is not allowable for deduction.
Lease to purchase arrangement
41.
Q:
I (as tenant) entered into a qualifying tenancy with a property developer (as landlord) in respect of a residential property. Under the tenancy, I was granted an option to purchase the property at a stated price. The purchase option was only exercisable within a specified period of the lease term or it would lapse automatically. If I purchase the property pursuant to the option, one-half of the rent paid under the tenancy would be applied to settle part of the purchase price directly. Can I claim domestic rent deduction for the rent paid under the tenancy?
A:
No. An option to purchase the property from the property developer was conferred to you under the tenancy.
Refund of domestic rent paid
42.
Q:
What if there is a refund of domestic rent paid?
A:
If the refund is made before a taxpayer claims the domestic rent deduction, he / she can only claim the reduced amount of the rent paid. If the refund is made after a taxpayer has claimed the tax deduction, he / she must notify the Department in writing of the refund within 3 months after the date of refund. If the tax deduction has been allowed, an additional assessment will be made on the taxpayer to withdraw the deduction.
43.
Q:
Upon entering into a qualifying tenancy in respect of my dwelling, I paid in advance total rent of $240,000 (i.e. $10,000 × 24) in a lump sum for the whole contractual period from 1 October 2021 to 30 September 2023. The tenancy was terminated by me on 30 September 2022. As such, the rent paid for the period from 1 October 2022 to 30 September 2023 in the amount of $120,000 (i.e. $240,000 ÷ 24 × 12) was refunded to me on 1 October 2022. What amount of domestic rent deduction can I claim for the years of assessment 2022/23 and 2023/24?
A:
For the year of assessment 2022/23, the amount of rent refund for the period from 1 October 2022 to 31 March 2023 is $60,000 (i.e. $240,000 ÷ 24 × 6). As the reduced rent paid for the period from 1 April 2022 to 30 September 2022 in the amount of $60,000 (i.e. $240,000 ÷ 24 × 6) exceeds the reduced deduction ceiling for the same period in the amount of $50,000 (i.e. $100,000 ÷ 12 × 6), the amount of deduction you can claim is capped at $50,000.
If the refund of rent was made after you had claimed the deduction, you should notify the Department in writing of the refund within 3 months after the date of refund (i.e. on or before 1 January 2023). If the deduction had been allowed, an additional assessment would be raised on you to withdraw the deduction.
For the year of assessment 2023/24, the rent paid for the period from 1 April 2023 to 30 September 2023 in the amount of $60,000 (i.e. $240,000 ÷ 24 × 6) has been fully refunded and the deductible amount is reduced to nil. Therefore, you cannot claim deduction for any rent paid.