Mr Go emigrated to Canada several years ago and he owns a residential property and an office in Hong Kong The following information is provided in respect of the properties lease transactions Property A The property was rented to Mr Kan under the following terms Lease period 1 st July 2017 to 30 th June 2019 Monthly rent $20,000 payable in advance at the beginning of each month Premium $100,000 paid on 30 th June 2017 Rent deposit $40,000 paid on 30 th June 2017 The deposit is refundable to Mr Kan upon termination of lease when he returns the property to Mr Go in good condition Rates $2,500 per quarter payable by Mr Go Management fee $1,200 per month payable by Mr Go Mortgage interest $25,000 per month, incurred by Mr Go on a bank loan obtained to acquire the property Renovation $50,000, incurred by Mr Go to a decoration company Property agency fee half of the monthly rental Due to financial difficulty, Mr Kan was unable to pay rent to Mr Go starting from 1 st March 2018 On 1 st May 2018, both parties reached the following new agreement Monthly rent reduced to $15,000 starting from 1 st May 2018 Rent deposit of $40,000 would be used to fully settle the outstanding rent Other terms and conditions of the lease remain unchanged Property B This office was vacant during the period from 1 st March 2018 to 31 st December 2018 Starting from 1 st January 2019, the property was let to Boss Ltd at a monthly rent of $30,000 Rates of $6,100 per quarter and the monthly management fee of $2,800 were payable by Mr Go The assessor accepted the rent of $85,000 owed by the previous tenant for the period of 1 st December 2017 to 28 th February 2018 was irrecoverable when that tenant was declared bankruptcy on 30 th June 2018 Mr Go had never considered any tax reporting in Hong Kong as he believed that he was not subject to Hong Kong tax on the basis that he is no longer a resident in Hong Kong and all rentals are deposited into his bank account in Canada Required a) Advise and explain briefly to Mr Go of his liability to tax under the Inland Revenue Ordinance regarding the above properties b) Compute Mr Gos property tax liability on each property for the year of assessment 2018 2019 Ignore provisional property tax c) Give a brief explanation of the treatment of items (3) and (7) for property tax purpose under the Inland Revenue Ordinance

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Posted on Aug 26, 2024

Mr. Go emigrated to Canada several years ago and he owns a residential property and an office in Hong Kong. The following information is provided

Mr. Go emigrated to Canada several years ago and he owns a residential property and an office in Hong Kong. The following information is provided in respect of the properties lease transactions:

Property A

The property was rented to Mr. Kan under the following terms:

Lease period: 1^st July 2017 to 30^th June 2019
Monthly rent: $20,000 payable in advance at the beginning of each month
Premium: $100,000 paid on 30^th June 2017
Rent deposit: $40,000 paid on 30^th June 2017. The deposit is refundable to Mr. Kan upon termination of lease when he returns the property to Mr. Go in good condition
Rates: $2,500 per quarter payable by Mr. Go
Management fee: $1,200 per month payable by Mr. Go
Mortgage interest: $25,000 per month, incurred by Mr. Go on a bank loan obtained to acquire the property.
Renovation: $50,000, incurred by Mr. Go to a decoration company.
Property agency fee: half of the monthly rental.

Due to financial difficulty, Mr. Kan was unable to pay rent to Mr. Go starting from 1^st March 2018. On 1^st May 2018, both parties reached the following new agreement:

Monthly rent reduced to $15,000 starting from 1^st May 2018
Rent deposit of $40,000 would be used to fully settle the outstanding rent
Other terms and conditions of the lease remain unchanged

Property B

This office was vacant during the period from 1^st March 2018 to 31^st December 2018. Starting from 1^st January 2019, the property was let to Boss Ltd. at a monthly rent of $30,000. Rates of $6,100 per quarter and the monthly management fee of $2,800 were payable by Mr. Go.

The assessor accepted the rent of $85,000 owed by the previous tenant for the period of 1^st December 2017 to 28^th February 2018 was irrecoverable when that tenant was declared bankruptcy on 30^th June 2018.

Mr. Go had never considered any tax reporting in Hong Kong as he believed that he was not subject to Hong Kong tax on the basis that he is no longer a resident in Hong Kong and all rentals are deposited into his bank account in Canada.

Required:

a) Advise and explain briefly to Mr. Go of his liability to tax under the Inland Revenue Ordinance regarding the above properties.

b) Compute Mr. Gos property tax liability on each property for the year of assessment 2018/2019. Ignore provisional property tax.

c) Give a brief explanation of the treatment of items (3) and (7) for property tax purpose under the

Inland Revenue Ordinance.