ACCT 4410 Taxation

Take home assignment # 2 (Topic: Property Tax)

Instructions to Students:

1. Students should complete the assignment on his or her own, i.e., on

individual basis.
2. Each student should submit his or her own answers in bullet points form. Do
not write long paragraphs.
3. No cover page is necessary
4. Font type/Size: Times New Roman/11
5. 1.5 lines spacing (for case); no spacing (for computation)
6. Save your file as .pdf for submission purpose
7. Assessment criteria: approach to questions; articulation of arguments; clear
discussion; format and presentation of computation, report organization and
references (where appropriate)
8. The assignment accounts for 5% of total course assessment
9. Deadline for submission: 14th March 2022 – Submit the completed
assignment to the online course platform – canvas; by 5:00 p.m.

Course Instructor: Dr. MAK Kelvin P.

Lecture sessions: L2; L1 and L3 (per weekly class sequence)
Subject: Property Tax
Date: 8th March 2022

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Take home exercise #2 (15 marks): ACCT 4410 Taxation – 2022 Spring Semester
Deadline for submission: 14th March 2022, by 17:00 via Canvas submission
Answer to Take home exercise #2 – Property Tax

Part a) Scope of charge under Property Tax in Hong Kong 4%

1. Property tax shall be charged for each year of assessment on every person being the
owner of any land or buildings
2. Wherever situated in Hong Kong
3. Shall be computed at the standard rate
4. On the net assessable value of such land and/or buildings for each such year
5. Taxpayer, being the owner of such land and/or buildings, let it out for rental income

Part b) How “net assessable value” is defined under the IRO Cap.112 3%

1. Net assessable value is ascertained based on Assessable Value of land and/or buildings
(under Part c)) below less:
2. The Rates paid by the owner; and
3. An allowance for repairs and outgoings of 20% of that Assessable Value after the
deduction of the Rates.

Part c) What “consideration” includes for Property Tax purpose, under IRO Cap.112 2%

1. Consideration includes, in money or money’s worth, payable to the owner

2. In respect of the right of use of that land and/or buildings

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Part d) Based on a), b) and c) above, would Karen be successful to claim management fee paid to vendor
as deductible 3%

1. Based on Part c), all rental income stated in tenancy agreements of Shop 1 and 2 was
consideration (including rates and management fees) received from tenants, for the
right of use of Shop 1 and 2 owned by Karen.
2. Based on Part a) and b), Karen’s property tax liabilities were ascertained by Rental
income less Rates paid and 20% statutory deductions granted by the IRO ONLY
3. Conclusion: Karen’s claim of deducting management fees for property tax purpose is not
likely to be successful. She is not entitled to any other deduction in computing her
liability
4. Since it has been clearly stated and concluded in the tenancy agreements of Shop 1 and
2, quote “Karen [as owner] was responsible for rates and management fees”, i.e.,
liability of paying management fees rests on Karen, but NOT tenants.

Part e) How to rewrite the terms and conditions in future tenancy agreements to assist Karen 3%

1. Issues of Karen’s Case: Management fees received from tenants were included and
assessable to tax; but she was not able to claim a deduction under property tax
2. In future tenancy agreements, it’s advised that the liability or responsibility to pay
management fees to vendors should be clearly stated in the agreements,
based on “user liability” (hence the tenants NOT Karen), such that it would not be a part
of consideration for the use of Karen’s shops.