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  • Court Case Study: Hong Kong Property Stamp Duty Refund Claim dismissed Yau Sun Yee v Collector of Stamp Revenue [HCAL 3514/2019]

Let us first set out the important dates of the Court of First Instance Case about Hong Kong Property Sales & Purchase (“S&P”) Agreement:-

Entry of S&P Agreement for acquisition of Second Property (first-hand property not yet ready for use)

Entry of S&P Agreement for sales of First Property

Completion of S&P Agreement for acquisition of Second Property

Application of fund of Stamp Duty and was Rejected by the IRD due to late application

31 October 2017

11 March 2019

20 November 2019

25 November 2019
(5 days later)

The applicant, Mr. Yau, would like to replace his existing property (“First Property”) with a first-hand property (“Second Property”) as his primary home in year 2017. However, Second Property was still under construction at that time.

As such, Mr. Yau continued to live in the First Property for some time. Interestingly, he sold the First Property in March 2019, which was well before the Second Property was available to use in November 2019. Mr. Yau filed the application of Partial Refund of Stamp Duty (being the difference of 15% and Scale 2 charges) on 25 November 2019 (i.e., 5 days after the Second Property was available for him).

Mr. Yau believed that he has already taken immediate actions, but was told that he was late in the Stamp Duty Refund Application.

So when should Mr. Yau lodge the application?

Points to Note

To begin with, let us set out two important deadlines for Stamp Duty Refund in respect of Hong Kong Residential Property Replacement (i.e., the deadline to dispose the First Property (“Disposal Deadline”) as well as the deadline to lodge the Stamp Duty Refund Application (“Application Deadline”):-

  • Disposal Deadline: Within 12 months after the S&P Agreement of the Second Property was completed
  • Application Deadline: Within (i) 2 years after the date of the S & P Agreement of the Second Property was entered into; or (ii) 2 months after the First property is disposed, whichever is later

The IRD acknowledged that very often if the Second Property is a first-hand property, it may not be available for use at the time when the S&P Agreement was entered into. As a concessionary practice, for Disposal Deadline, the time limit of 12 months counted from the completion date of S&P Agreement (i.e., 20 November 2019 in Mr. Yau’s case). This allows taxpayers to continue to live in the First Property before the Second Property was ready for use.

However, such concessionary practice does not apply to Application Deadline. The 2-year time limit mentioned above started the count from the date in which the S&P Agreement of the Second Property was entered into (i.e., 31 October 2017). As such, the Application Deadline in Mr. Yau’s case is 31 October 2019.

To make things easier, we believe taxpayers should lodge the refund application at your earliest convenience after the disposal of the First Property. As long as you submit the application within 2 months from the disposal of the First Property, you do not have to pay attention to the above confusing concept and will not miss the deadline. 

Last but not least, in view of the heavy Stamp Duty liabilities on purchase of Hong Kong properties, you are recommended to purchase property holding companies instead of direct property purchases. Transfer of Hong Kong company shares are subject to Stamp Duty rate of 0.2% only, even when the company is a property-holding entity.

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