Rent Tax Deduction Guide 2023

Did you know that renting can also be tax deductible? For the first time in the 2022/23 tax season, the government has introduced a tax deduction for residential rents, with a maximum deduction of HK$100,000 per person per year, providing residential tenants with an additional avenue for tax deductions. As for how to fill this part in the tax return, we will explain it to you below.

Residential Rent Tax Deduction Draft to be Implemented in 2022

The Legislative Council passed the Taxation (Amendment) (Deduction for Residential Rents) Bill 2022 in 2022, implementing the residential rent tax deduction measure proposed in the 2022-23 Budget to alleviate the burden on salaries tax and personal assessment taxpayers who do not own any residential properties. That is, rents paid from April 1, 2022, can be used for tax deduction purposes.

Taxpayers can report in advance in section 8.5 of the tax return under the "Application for Residential Rent Deduction" item, and the Inland Revenue Department will consider the relevant deduction when calculating the provisional salaries tax for the next tax year.

Eligible resident tenants and their spouses can benefit from tax deduction the maximum rent tax deduction is $100,000

Under the residential rent tax deduction scheme, any taxpayer who rents a qualified residential property as a tenant, he / she and their cohabiting spouse can benefit from the rent deduction limit, with the maximum rent tax deduction for each tax year being HK$100,000. In other words, if the average monthly rent of the property you rent is HK$8,333, theoretically, you can already make full use of the tax-free allowance. The definitions of each item are as follows.

Eligible Individuals for Rent Tax Deduction

Individuals eligible to apply for rent tax deduction include:

• Taxpayers liable to Salaries Tax or Personal Assessment, who pay rent under a qualified lease of a residential premises as tenants
• Taxpayers can claim deductions for rent paid by their cohabiting spouse as tenants under a qualified lease of a residential premises

Rental Tax Deduction Eligible Premises

• The residential premises used as a dwelling, whether it is a building or any part thereof, must not be prohibited for residential use by any law or specified instrument (such as a government lease, occupancy permit). If the taxpayer has more than one dwelling, the premises in question must be their main residence.
• If the lease entered into concerns the rental of any residential premises including a parking space, and the tenant does not sublet the parking space, then the parking space will be considered as part of the residential premises.

Rental Tax Deduction Eligible Leases

To qualify for rental deductions, taxpayers must enter into a written lease or sublease for residential premises. The lease must be stamped (i.e., stamped with stamp duty) under the Stamp Duty Ordinance (Chapter 117).

Rent tax deduction can deduct up to $100,000

Taxpayers can deduct up to HK$100,000 each tax year. For each lease, the upper limit of rent tax deduction will be adjusted according to the following situations:

• If there is more than one tenant under the lease, it will be calculated proportionally according to the number of co-tenants
• If the period for which the rent has been paid is only part of the tax year rather than the entire time, it will be calculated proportionally according to the lease period within the tax year

In addition, there are other situations regarding the amount that can be deducted from rent tax that need attention:

• The tax deduction is based on the smaller of the rent paid by the taxpayer and/or their cohabiting spouse or the upper limit of the rent deduction. If the taxpayer becomes a married person in a certain tax year, this principle will apply to the period after marriage
• If there is more than one lease involved in the tax year, the tax deduction will be the sum of the amounts calculated for each lease according to the above principles
• If there is more than one tenant under the lease, the rent paid is considered to be paid equally by each co-tenant
• If part of the residential premises is used for other purposes, such as a home office or a shop in front and residence at the back for commercial purposes, the tax deduction will be adjusted for the relevant case

For example, Mr. Chan's rent from 2024 to 2025 (12 months) is HK$20,000 per month, and he paid a total of HK$240,000 in rent (20,000 yuan x 12 months) in the 2024/25 tax year. He can get a maximum tax deduction limit of HK$100,000:

Situations Where Rental Tax Deduction Does Not Apply

Even if you are a residential tenant, you are not eligible to apply for rental tax deduction under the following circumstances:

• The taxpayer or their cohabiting spouse is the legal and beneficial owner of the Hong Kong residential property
• The landlord of the lease / the main tenant under a sublease is an associate of the taxpayer or their spouse, e.g., the landlord is the taxpayer's spouse, the taxpayer or their spouse's parents, children, siblings, or partners, or a corporation controlled by the taxpayer or their spouse
• The taxpayer or their cohabiting spouse is provided with accommodation by their employer or an associated corporation of the employer; or part / all of the rent paid is paid or refunded by the employer or associated corporation
• The taxpayer or their cohabiting spouse is a tenant or recognized occupant of a public housing unit
• The lease is prohibited by any law or government lease
• The taxpayer or their spouse has entered into a lease-purchase agreement with the landlord regarding the property
• The residential rent amount can be deducted under any other provision of the Inland Revenue Ordinance (Chapter 112); or the taxpayer or their cohabiting spouse has already obtained a deduction for rent paid for any other residential property during the same period in which the relevant rent was paid

Where to Report Rental Tax Deduction on Tax Form

As the rental tax deduction is a new measure, many may not notice it when filling out the tax form. It is located in 'Section 8.5' of the tax form, named 'Residential Rental Deduction'.

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