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FAQ :
Home Loan Interest
Questions and Answers
| A dwelling
acquired in the name of a limited company |
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1.
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Q: |
If a person acquires a dwelling in the name of
a limited company and uses it as his place of residence,
is he eligible to claim deduction of the home loan interest
paid on a loan for acquisition of the dwelling?
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A: |
Not eligible. Home loan
interest paid is deductible from a person's assessable
income under salaries tax or from a person's total income
under personal assessment. Therefore the claimant must
be an individual person, and the property must be purchased
in his own name and used as his place of residence.
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| The
dwelling owned by the parents and the monthly instalments
paid by the children |
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2.
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Q: |
The dwelling is owned by the parents
and wholly used by the parents and their children as
their place of residence. The monthly instalments of
the loan on acquisition of the dwelling are paid by
the children. Are the children eligible to claim deduction
of the home loan interest paid?
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A: |
Not eligible. The person eligible
to claim home loan interest deduction is the legal owner
of the dwelling. Although the children are paying the
monthly instalments and use the dwelling as their place
of residence, they are not the legal owners and are
not qualified to claim the deduction.
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| Repay
the monthly instalments by the 'housing allowance' provided
by his employer |
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3.
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Q: |
A taxpayer acquires
a dwelling for his residence and finances the purchase
by a mortgage loan. If he uses the 'housing allowance'
provided by his employer to repay the monthly instalments,
is he entitled to claim deduction of the home loan interest?
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A: |
In normal circumstances, the taxpayer
is entitled to the deduction of the home loan interest
paid by him. However, if he lets his dwelling to his
employer, who then provides it back to him as quarters
(instead of giving him the 'housing allowance'), the
taxpayer is not entitled to home loan interest deduction
because the property then becomes a let property. However,
he may claim deduction for interest payments to produce
rental income from properties in Part 7.2 of B.I.R.
60. |
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| Non-resident
of Hong Kong |
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4.
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Q: |
Is a non-resident of Hong Kong eligible
to claim deduction of home loan interest?
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A: |
A non-resident is eligible to claim
the deduction under salaries tax provided he satisfies
all the criteria laid down in the Inland Revenue Ordinance
relating to home loan interest deduction. However, in
the case of a claim under personal assessment, the claimant
must in the first instance be a person eligible to elect
personal assessment, which means he must either be a
permanent or temporary resident in Hong Kong.
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| Taxpayer
paying tax at standard rate |
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5.
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Q: |
Is a person who is paying
tax at standard rate eligible to claim home loan interest
deduction? |
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A: |
Home loan interest deduction is
a 'concessionary deduction', which means the loan interest
paid, together with any other deductions as applicable,
will be deducted from a person's assessable income under
salaries tax, or from his total income under personal
assessment. The balance will then be subject to progressive
tax rates (after deducting personal allowances) or standard
tax rate. That is to say, a person taxed at standard
rate is also eligible to claim the home loan interest
deduction. |
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| 'Sandwich
Class Housing Loan Scheme' and 'Home Starter Loan Scheme'
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6.
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Q: |
Is interest paid for acquisition of
a dwelling under the 'Sandwich Class Housing Loan Scheme'
and 'Home Starter Loan Scheme' tax deductible?
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A: |
Provided all the conditions mentioned
in Eligibility
For Deduction are satisfied, home loan interest
paid on the above schemes also qualifies for tax deduction.
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| A dwelling
situated overseas |
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7.
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Q: |
Is interest paid on loan
for acquisition of a dwelling situated overseas tax deductible?
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A: |
Not deductible. The definition
of 'dwelling' in the Inland Revenue Ordinance is a rateable
unit under the Rating Ordinance, that is, the dwelling
must be situated in Hong Kong.
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| Two
dwellings used as place of residence |
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8.
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Q: |
If a taxpayer owns
two dwellings both of which are used as his place of
residence, is he entitled to deduction of loan interest
paid for both dwellings?
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A: |
The taxpayer is not entitled to
deduction of interest paid on both dwellings. He will
only be allowed deduction of interest paid for acquisition
of the dwelling which he regards as his principal place
of residence.
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| A couple
each owns a dwelling separately |
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9.
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Q: |
Where a couple
each owns a dwelling separately, are they entitled to
claim deduction of loan interest paid on acquisition
of their dwellings separately?
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A: |
Only one of them is entitled to
claim deduction of interest paid in respect of the dwelling
which they regard as their principal place of residence.
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| Can
a separated couple each claim deduction on their respective
dwelling separately |
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10.
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Q: |
If a husband and
wife are separated and divorce proceedings are in progress,
can they each claim deduction of loan interest paid
on their respective dwelling separately?
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A: |
The Inland Revenue Department will
accept that each of them has different place of residence
because the separation is likely to be permanent. Therefore,
provided that all other conditions are satisfied, they
are each eligible to claim deduction of loan interest
paid on their respective dwelling. (Similarly, in considering
the claim for home loan interest deduction, the Inland
Revenue Department will accept that the couple may each
have different place of residence for the period prior
to their marriage.) |
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| A second
charge, a re-mortgaged loan or an overdraft account |
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11.
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Q: |
Is home loan interest paid
on a second charge, a re-mortgaged loan or an overdraft
account tax deductible? |
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A: |
The point to consider is whether
the loan obtained is directly applied for acquisition
of the claimant's dwelling. For example:
(i) The claimant, in addition to obtaining a bank mortgage
loan on 70% of the cost of his dwelling, is further
granted a second mortgage loan by the developer of the
property, the developer being one approved by the Commissioner
of Inland Revenue under s.26E(9) of the Inland Revenue
Ordinance. In such case, subject to the maximum limit
under sections 26E(2)(a)(ii) and 26E(2)(c), interest
paid on both loans are deductible for tax purposes.
(ii) If the claimant re-mortgaged his property and used
the borrowed money to purchase shares, the interest
paid on the re-mortgaged loan is not tax deductible.
However, if the re-mortgaged loan was used to repay
the original loan which was executed for acquisition
of his dwelling so as to enjoy a lower interest rate,
the portion of loan interest paid, pro-rata to the outstanding
balance of the original loan, is tax deductible.
(iii) Home loan interest paid on bank overdraft account
is tax deductible if the money borrowed is directly
used for acquisition of his dwelling and the overdraft
facility is secured by a mortgage/charge over the dwelling
or any other property in Hong Kong. If the bank overdraft
account is used partly for purposes other than for acquisition
of the dwelling, the amount of deductible home loan
interest would be reduced accordingly. |
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| Government's
Home Finance Scheme, Home Purchase Scheme or Housing Loan
Scheme |
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12.
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Q: |
A civil servant who joins
the Government's Home Finance Scheme, Home Purchase Scheme
or Housing Loan Scheme obtains a downpayment loan from
the Government in addition to the mortgage loan from the
bank. Is the interest paid on these 2 loans tax deductible?
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A: |
(i) Mortgage Loan from the bank
If the mortgage loan is used for acquisition of his
dwelling, the loan interest paid thereon is tax deductible.
(ii) Downpayment Loan from the Government
If the loan is used for acquisition of his dwelling
and is secured by a mortgage/charge over the dwelling
or over any other property in Hong Kong (for example,
a second charge on the property in favour of the Financial
Secretary Incorporated), the loan interest paid thereon
is tax deductible - Section 26E(9) [definition of "home
loan"].
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| 'Penalty
interest' paid to bank for early redemption |
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13.
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Q: |
Is the 'penalty interest'
paid to bank for early redemption of the dwelling deductible?
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Not deductible.
This is a penalty levied by the bank. It is not loan interest.
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| 10
years entitlement |
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14.
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Q: |
Does the "10 years entitlement"
of home loan interest deduction refer to 10 years of assessment
or 120 months? |
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A: |
The "10
years of entitlement" means 10 years of assessment as
chosen by the taxpayer. The 10 years may be continuous
or otherwise. For example: Mr. A paid home loan interest
of $80,000 during the period 1.11.2007 to 31.3.2008.
He claims the deduction for the year of assessment 2007/08.
Although he claims deduction of only 5 months' interest,
he is regarded as having been allowed the deduction
for a year of assessment. |
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| Taxpayer
must be the registered owner of the dwelling |
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15.
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Q: |
I have signed a Provisional
Sales & Purchase Agreement with the developer to acquire
a property for my own dwelling. The developer granted
me mortgage loan. Before the full repayment of the mortgage
loan, the developer remained as the registered owner of
the property. Can I claim for home loan interest deduction
of the interest paid on the mortgage loan? |
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A: |
According
to Inland Revenue Ordinance, the person claiming for
home loan interest deduction must be the registered
owner of the dwelling. Thus, you are not qualified for
the deduction. |
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