Introduction

In February 2013, the Hong Kong Government introduced new stamp duty measures to curb the overheating property market. One of which was to double the rates of the then existing ad valorem stamp duty (the “AVD”) on the instruments relating to the sale and purchase of both residential and non-residential properties in Hong Kong subject to a number of exceptions. A Hong Kong permanent resident (“HKPR”), being an owner of an existing residential property, purchases a new residential property and then disposes of his original property within six months (the “Buy-first-sell-later Exception”) will be entitled to Scale 2 (lower rate) of AVD in relation to his new property. In the recent case of Ho Kwok Tai v Collector of Stamp Revenue CACV 52/2016, the Court considered the scope of the Buy-first-sell-later Exception to decide whether a Scale 2 AVD should be applied.

Background

Mr. Ho Kwok Tai (“Mr. Ho”) and his wife owned two residential properties. He purchased a new residential property (the “New Property”) and thereafter sold the two residential properties to finance the purchase.  Mr. Ho paid the stamp duty at Scale 1 (higher scale) on the agreement for purchase of the New Property and applied to the Collector for refund of the difference between the stamp duties on Scale 1 and Scale 2 (the “Additional AVD”) pursuant to the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong) (the “Ordinance”).

Issues

The Collector refused to refund to Mr. Ho on the ground that he owned two, instead of one, properties at the time he purchased the New Property. The Court of First Instance considered that Mr. Ho is entitled to a refund of the Additional AVD. The Collector appealed against the decision to the Court of Appeal (“CA”) and CA was asked to decide whether Mr. Ho is entitled to a refund of the Additional AVD when he owns two (or more) residential properties.

Findings

CA adopted a purposive and contextual approach to the statutory interpretation in relation to the relevant sections, namely sections 29DF and 29BB of the Ordinance.

Hypothetical Scenario

CA set a hypothetical scenario in relation to one of the conditions prescribed by section 29DF(2)(b) which must be satisfied before an applicant can obtain a refund of the extra stamp duty:

“had the applicant’s original property been disposed prior to the acquisition of the new property, the applicable instrument would have been chargeable with stamp duty under the Scale 2 (the “Hypothetical Scenario”)”.

CA considered that it is necessary to have regard to the statutory provisions of section 29BB, where the purchaser buys a residential property for the first time, or has disposed of all his existing residential property/properties prior to entering into an agreement for the acquisition, to answer the above question. An important condition under section 29BB is that the applicant must have disposed of all previously acquired residential properties in Hong Kong, if any, prior to the acquisition of the new property.

CA concluded that the Hypothetical Scenario cannot be satisfied in the present case where Mr. Ho is the beneficial owner of two (or more) residential properties because had one of his existing properties been disposed of prior to the acquisition of the new property, the applicable instrument would still have been chargeable at Scale 1 as he was still the owner of some other residential property on the date of the acquisition of the new property.

Original Property Expression

Secondly, the English expression “original property” and “another residential property” of the statutory provisions in section 29DF of the Ordinance in Chinese expression would be “原物業” and “另一”, and CA considered that it clearly indicates that it is not intended to refer to more than one residential property.

Timeframe for Refund

Thirdly, under section 29DF(3)(c), an application for refund must be made by the applicant not later than 2 years after the date of the applicable instrument, or not later than 2 months after the date of conveyance on sale under which the original property is transferred or divested, whichever is the later. If an applicant was the beneficial owner of two (or more) residential properties which he disposed of after the date of the acquisition of the new property within the specified statutory period, and later conveyed them to his purchasers, there would be more than one date of the conveyance on sale under which the “original property” is transferred and divested. Therefore, it would be difficult to determine the precise timeframe for the applicant to make the application for refund. The same also indicates a clear legislative intent to CA that an applicant, owning more than one residential property on the date of the acquisition of the new property, is not entitled to the refund of the extra paid AVD.

Conclusion

The Court found in favour of the Collector and ruled that Mr. Ho is not entitled to the refund of the Additional AVD in relation to the New Property as he was the beneficial owners of two properties. Therefore, readers, being the owners of more than one residential property, should consult their lawyers for the implications of the above rulings under sections 29DF and 29BB of the Ordinance.

New AVD from 5 November 2016

Besides, readers are also advised to consult their lawyers in relation to the new AVD announced by the Hong Kong Government on 4 November 2016. The Ordinance would be further amended to increase the AVD rates for residential property transactions to a flat rate of 15%. Subject to the enactment of the relevant legislation, any instrument executed on or after 5 November 2016 for the sale and purchase or transfer of residential property, unless specifically exempted or provided otherwise, will be subject to the proposed new AVD rate.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.