Ms Fung purchased a property in Yuen Long many years ago. The property was let to Mr. Mok for three years starting from 1 January 2015. The relevant terms of tenancy agreement were extracted below:

Monthly rent: $22,000 payable at the beginning of each month

Rates and government rent: payable by the landlord

Management fees: $1,000 per month payable by the landlord

Rental deposit: $44,000

In July 2015, the property underwent certain repairs and it was agreed that both the tenant and the landlord would share the repair expense equally. The repair works cost $26,000.

Due to financial difficulties, Mr. Mok was unable to pay the rent starting from 1 February 2016. On 15 April 2016, it was agreed that Ms Fung would use the rental deposit to offset part of the outstanding rent and Mr. Mok would settle all rent outstanding and pay the monthly rent on time afterwards. For the months of April 2016 to July 2016, the rents were paid on time.

Starting from 1 August 2016, Mr. Mok stopped paying rent again. He eventually moved out of the property on 31 October 2016 and was then untraceable. The assessor agreed that the outstanding rent was irrecoverable.

Subsequently, the property was re-let to Mrs Cheung on 1 November 2016 under the following terms specified in the tenancy agreement:

Lease period: 1 November 2016 to 31 October 2018

Rent free period: 1 November 2016 to 15 November 2016

Monthly rent: $24,000 payable at the beginning of each month

Premium paid on signing of tenancy agreement:$60,000

Rates and government rent: payable by the landlord

Management fees: $1,000 per month payable by the tenant to the management company

Rental deposit: $48,000

Ms Fung paid the following expenses during the years of assessment 2015/16 and 2016/17:

2015/16 2016/17

$ $

Rates 12,000 14,400

Government rent 7,200 8,640

Outstanding management fees owed by Mr. Mok - 3,000

Renovation expenditure 10,000 50,000

Mortgage loan interest for purchase of the property 52,000 55,000

Ms Fung recovered certain irrecoverable rent from another former tenant, Mr. Ng, of $38,000 and $36,000 on 1 March 2016 and 15 April 2016 respectively. The total rent owed by Mr. Ng was $100,000 which had been fully deducted from the assessable values in previous years of assessment.

Required

a Determine the property tax payable by Ms Fung for the years of assessment 2015/16 and 2016/17. Ignore provisional property tax and any tax or rates waiver or reduction in your calculations.

b According to the provisions in the Inland Revenue Ordinance, there are certain obligations imposed on property owners in Hong Kong. State the obligations affecting property owners with income chargeable to property tax in Hong Kong.

c With respect to the management fees, discuss whether there would be any difference in tax treatment if Ms Fung had, subsequent to the signing of the tenancy agreement, informed Mr Mok to pay the management fee to her instead of making the payment directly to the management company.

Reference

https://www.ird.gov.hk/eng/tax/ind_ppt.htm