Rental Income

Introduction

Many investors own real properties in Malaysia as part of their investment portfolio and receive rental from them. These could include houses, apartment, condominium, shophouses, industrial factory, commercial office and so on.
In Malaysia, income derived from letting of real properties is taxable under paragraph 4(a) (business income) or 4(d) (Rental income) of the Income Tax Act 1967. The income is deemed as a business sources if maintenance services or support services are comprehensively and actively provided in relation to the real property.
Most of the property owners in Malaysia who rented out their properties are not providing maintenance and support services; hence, the rental collected from their tenant is regarded as a non-business source of income (Rental income). These rentals will be taxed on a received basis, and losses in a particular tax year cannot be carried forward to the next year nor offset with other taxable statutory income. All capital assets (e.g. furniture and fitting, air-conditioner and etc) do not qualify for any tax deduction (Capital allowance) too.

Rental Income Deductible Expenses

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 costs of furnishings
  • 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
  • Renewal property agent fees/commission
The expenses that are not income tax deductible are initial expenses before the property is rented out, including:
  • Advertising cost to get the first tenant
  • Property agent fees/commission to obtain the first 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
Tax Exemption On Rental Income From Residential Houses

To encourage Malaysian resident individuals to rent out residential homes at reasonable charges, Malaysia budget 2018 announced that 50% income tax exemption be given on rental income received by Malaysian resident individuals from year of assessment 2018 until year of assessment 2020 subject to the following conditions:

i.       rental income received not exceeding RM2,000 per month for each residential home;

ii.      the residential home must be rented under a legal tenancy agreement between the owner and the tenant; and

iii.     tax exemption is given for a maximum period of 3 consecutive years of assessment.

Frequently Asked Question

1) Do I need to pay income tax if I only receive rental income?
Yes, you shall declare and pay your income tax before 30 April every year.
2) Are the expenses tax deductible if the real property is not let out temporarily?
If the letting ceases temporarily due to the following circumstances:
  1. repair or renovation of the building;
  2. absence of tenants for a period of 2 years after termination of tenancy;
  3. legal injunction or other official sanction; or
  4. other circumstances beyond the control of the person who lets out the real property;
expenses for the period the real property is not let out are allowable provided that the real property is maintained in good condition and is ready to be let out.
3) My properties are in joint name with my wife. Do we need to submit rental income equally or she can report all the rental income?
The rental income shall be declared based on the ratio of your joint ownership.
4) I am staying overseas but owe several properties in Malaysia. Do I need to declare my rental income to Inland Revenue Board (IRB)?
Yes, the rentals are derived from the properties located in Malaysia. Therefore, you are required to submit and pay your income tax to Inland Revenue Board (IRB).
5) Do I entitle progressive tax rates, personal relief/deductions and rebates if I am staying at overseas?
Only tax resident individual entitles for progressive tax rates, personal relief/deductions and rebates. Non-tax resident (e.g. stay in Malaysia less than 182 days) are taxed at flat rate of 28% without any personal reliefs/deductions and rebates.