DIPN 04

ASSESSABILITY OF LEASE PREMIUMS
Premiums on leases are frequently referred to as non-returnable, deposits, key or tea money, construction fees, tenancy rights or other terms. Premium under a lease or tenancy agreement is being regarded as capital expenditure by the payer does not necessarily turn it into a capital receipt in the hands of the recipient.

Taxpayers or their representatives, if they claim the captioned receipts to be capital receipts, have to ascertain and report the precise facts and the exact legal relationship between the parties occasioned by any agreement to receive or pay such items.

Generally accepted accounting practice 1 requires that premium receipts be spread over the term of the lease for the purpose of recognizing them as income. If the accounts are prepared on such basis, the premium receipts will be assessed to profits tax accordingly.

INTERACTION WITH PROPERTY TAX
Under section 5B(4) of the Ordinance, a lease premium is deemed for property tax purposes to be payable in equal monthly instalments during the period of the right of use of the property subject to a maximum period of 3 years. Property tax so paid is available for set-off against the profits tax payable by the owner of the property under section 25 of the Ordinance.

DIPN 14

CHARGE OF PROPERTY TAX
Property Tax is charged on the owner of any land or/and buildings wherever situated in Hong Kong and shall be computed at the standard rate on the net assessable value of such land or/and buildings for each year.

Owner has serveral roles in section 2:
(a) a beneficial owner; (b) a tenant for life;

(c) a mortgagor; (d) a mortgagee in possession;

(e) a person with adverse title to land receiving rent from buildings or other structures erected on that land;
(f) a person holding the land or/and buildings directly from the Government. Under normal