A guide to rental income tax for residential properties

With the April 30 deadline fast approaching, many will be rushing to file our tax returns. As you check off your checklist, you may be wondering if you forgot any taxable items. If you are a landlord and you rent your premises, did you know that you must also declare your rental income?

For those unaware, here are some tips for navigating rental income taxation.

What is rental income tax?

After buying properties for investment purposes, you can confuse rental returns with tax-free investment gains, but unfortunately any rent received must be declared as taxable income.

Set in a separate category, rental income tax has its own progressive tax rates of between 0% and 30%. It is also calculated on a net basis, where all claimable expenses can be deducted.

What are the deductible expenses?

Of the total payments you receive from your tenant during the assessment period, you are entitled to certain deductible expenses:

  • Assessment tax

  • stop renting

  • Fire insurance premium

  • Costs incurred by the collection of rents

  • Expenses incurred when renewing the rent

  • Property repair and maintenance costs

  • Interest on real estate loan

  • Maintenance fees for condominium properties

Owners, please note that these expenses can only be claimed with a legal rental agreement. Remember to keep original receipts for all reimbursable expenses.

How to calculate net rental income

Your net rental income is derived after deducting the amount you have spent on maintaining the property as shown above.

As an example, let’s say you have rented out your condominium unit with a monthly rent of RM1,000 for a term of one year. If the rental contract starts from January 2021, you will calculate the duration of the contract until the end of the year. If the rental begins in February, the taxable duration is 11 months. You also spent annual fire insurance for RM150, assessment tax for RM500, starting rent for RM50 and building repairs for RM5000.

Gross rental income

Rent per month

RM1,000

Rental starts in January

12 months

Deductible expenses

Fire insurance

RM150

Assessment tax

RM500

stop renting

RM50

Property repairs

RM5,000

Total deductible

RM5,700

Net rental income

(Monthly rent x duration of the contract) – Deductible expenses.

(RM1,000 x 12) – RM5,700

= RM6,300

Based on the example above, RM6,300 is the taxable amount for rental income.

Are there tax incentives?

You may have heard of tax incentives, where special deductions are given to landlords who give at least 30% rental discounts to their tenants to help them through the Covid-19 pandemic.

While the incentives previously only covered rent reductions granted to small and medium-sized enterprises (SMEs) from April 1, 2020 to March 31, 2021, they were later extended under the PERMAI assistance program introduced on January 18, 2021 for include non-SMEs and for a period up to June 30, 2021.

However, “non-SME” refers to businesses such as “a bazaar lot, a stall, a vehicle fleet, a storage warehouse” (https://lom.agc.gov.my/ilims/upload/portal/akta/outputp/1709370/PUA354_2021.pdf), not residential leases.

So the answer is no, there are no exemptions for residential rental income. So, remember to file your taxes accordingly if you want to avoid any penalties from the Inland Revenue Board (LHDN).

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