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A guide on rental income tax for residential properties

With a fast approaching deadline on April 30 for manual submission and May 15 via e-Filing, many will be rushing to complete our tax filing. As you tick off your checklist, you may wonder if you have missed out any taxable items. If you are a property owner who have leased out your premises, do you know you need to declare your rental income as well? 

For those who are unaware, here are some tips in navigating through rental income taxation. 

What is rental income tax? 

Having bought properties for investment purposes, you may mistake the rental returns as investment gains that are tax-exempted, but unfortunately, any rent received is to be declared as taxable income. 

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

What are the deductible expenses?

From the total payments you receive from your tenant within the assessment period, you are entitled to some deductible expenses:

  • Assessment tax 

  • Quit rent

  • Fire insurance premium

  • Expenses incurred on rent collection

  • Expenses incurred on rent renewal

  • Expenses on repairs and property maintenance

  • Interest on home loan

  • Maintenance fee for strata properties

Landlords, take note that these expenses are only claimable with a legal tenancy agreement. Don’t forget to keep the original receipts for all the claimable expenses. 

How to calculate net rental income

Your net rental income is derived after deducting the amount you have spent on the property’s upkeep as listed above. 

As an example, let’s say you have leased out your condominium unit with a monthly rental of RM1,000 for a one-year tenure. If the tenancy agreement starts from January 2021, you will calculate the contract term until year end. If the tenancy starts in February, then the taxable term is 11 months. You have also spent on an annual fire insurance for RM150, assessment tax for RM500, quit rent for RM50 and property repairs of RM5,000. 

Gross rental income

Rent per month

RM1,000

 

Tenancy starts in January

12 months

Deductible expenses

Fire insurance

RM150

 

Assessment tax

RM500

 

Quit rent 

RM50

 

Property repairs

RM5,000

Deductible total

 

RM5,700

Net rental income

(Monthly rent x contract term) - Deductible expenses.

 

(RM1,000 x 12) - RM5,700

= RM6,300

 

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

Are there any 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 tide them through the Covid-19 pandemic.

While the incentives earlier covered only rental reductions provided for small and medium enterprises (SME) from April 1, 2020 to March 31, 2021, it was later expanded under the PERMAI Assistance Package introduced on Jan 18, 2021 to include non-SME and for a period up to June 30, 2021.

However, the “non-SME” refers to businesses such as “a bazaar lot, stall, vehicle park, storage warehouse” (https://lom.agc.gov.my/ilims/upload/portal/akta/outputp/1709370/PUA354_2021.pdf), and 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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