BDCM-B-Week23-Tax: Rental Income

Rental Income Derived from Property Rented Out

Ø  Rental Income – Rental Expenses = Net Rental Income (To declare for tax).

Ø  Rental Expenses > Rental Income = Rental Loss, which is permanent loss and not allowed deduct from other income generated.

Ø  Rental is taxed based on ownership of property stated in sales and purchase agreement instead of tenancy agreement.

Ø  Direct expenses which are deductible from rental income are as follows :

(a) Assessment and quit rent

                 Annual assessment paid to the local authority and quit rent paid to the land office.

(b) Interest on loan

     Interest paid on loan taken to finance the purchase of property which is rented out.

(c) Fire insurance premium

Fire insurance premium paid in relation to fire insurance policy taken on the     property which is rented out.

(d) Expense on rental collection

Rent collection fee and legal expense incurred to enforce rent collection.

(e) Expense on rent renewal

     Expense incurred to renew tenancy or to change tenant.

(f) Expense on repair

     Expense on ordinary repair to maintain the real property in its existing state.

Ø Initial expense is not allowed deduct from rental income.

Examples of such expenses are cost to obtain the first tenant such as advertising cost, legal cost to prepare rental agreement, stamp duty and commission to property agent.

Ø  If property is not rented out temporarily due to the following circumstances:

(a) repair or renovation of the building;

(b) absence of tenants for a period of 2 years after termination of tenancy;

(c) legal injunction or other official sanction; or

(d) other circumstances beyond the control of the person who rented out property;

Expenses for the period property is not rented out temporarily are allowable provided that property is maintained in good condition and is ready to rent out.