Thursday, April 7, 2016

Income tax declaration of property rental - which expenses are deductible and which are not?

For most property owners in Malaysia who rented out their property, the rental collected from tenant is regarded as a non-business source of income and therefore is charged to the owner's income tax under section 4(d) of the Income Tax Act, 1967.

The amount of property rental income need to be declared is the gross rental income deducted by certain expenses incurred by the property in order to generate the rental.

The expenses that are income tax deductible including:

  • Assessment
  • Quit rent
  • Property loan interest
  • Fire insurance premium
  • Expenses on rental collection
  • Expenses on rental renewal, including the stamp duty
  • Expenses on repairs and maintenance
  • Expenses on replacement of rental assets
  • Property service charges, maintenance fees, sinking fund, and Indah Water bills
  • Legal expenses on renewal of tenancy agreement, recovery of rental arrears, etc. 
  • Expenses on pest control
  • Property agent fees/commission to renew the tenancy
The expenses that are not income tax deductible are initial expenses before the property is rented out, including:
  • Advertising cost to get the tenant
  • Property agent fees/commission to obtain the tenant
  • Legal cost and stamp duty for initial tenancy agreement
  • Expenses on renovation and improvement to get higher rental or to be more attractive to potential tenant
If the total rental income received is less than the total deductible expenses for the year, which shows that you have rental income loses instead of rental income gains for the year, then your taxable rental income for that particular year will be zero.

Note that rental income losses cannot be used to offset your other taxable statutory income of the year. The losses also cannot be carried forward to the next taxation year.

For more comprehensive information, you can refer to LHDN Malaysia Public Ruling No. 4/2011 : Income From Letting of Real Property.


11 comments:

saimok said... Reply To This Comment

Great sharing. Keep up the good work!

liang_960406 said... Reply To This Comment

Have a question, If I take a loan from the bank and the interest rate is 4.4%, this interest rate is tax deductible? Please help thanks.

Voyager8 said... Reply To This Comment

@liang_960406

Your house loan interest is deductible for rental income declaration only, and you must keep your bank statements as proof.

Inside your monthly bank statement, there will be a record showing how much is the exact interest amount charged for the month.

B Koay said... Reply To This Comment

hi i have a question.
My monthly instalment is 1600 and my rental only 1100. Should I declare it? I thought off declaring it coz I wanted to make my commitment lower

Voyager8 said... Reply To This Comment

@B Koay

Yes. And only the interest part of your instalment is deductable.

If after all the calculation, you get a zero or negative number, just keep all the documents and calculation details for 7 years.

Yoke Tan said... Reply To This Comment

Hi, my property only for investment purpose. Feb'17 collected key and start collected rental income effective Jul'17.
a) Shall i portion out those deductible expenses between period Jul'17 to Dec'17 or include all deductible expenses inccured for the year?
b) If negative calculation, can i carry forward losses to next year?

Voyager8 said... Reply To This Comment

@Yoke Tan

It depends on whether you are declaring under Income Tax Act 1967 paragraph 4(a) or under paragraph 4(d).

Refer to the Public Ruling 4/2011 for more information.

FOO said... Reply To This Comment

Is "cukai taksiran" deductible?

Voyager8 said... Reply To This Comment

@FOO


Yes for cukai tanah and cukai pintu.

Grace Wong said... Reply To This Comment

Hi, I only collected 10 months rental instead of 12 months in year 2017, the remain 2 months rental I received in year 2018 and the tenant had paid 2 months security rental deposit. How much the rental income (10 months rental or 12 months rental) should I declare in year 2017? Thank you.

Voyager8 said... Reply To This Comment

@Grace Wong

The rental income is taxed on received basis.

You can declare the 10 months under 2017 and the 2 months under 2018.

Make sure you keep all the records and evidence for possible audit.

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