Property Rental Income: Deductible Expenses

In Malaysia, rental income that you received from your real property such as serviced apartment, condominium, flat, shophouses, industrial properties, commercial office, etc is taxable under the Income Tax Act 1967. As such, it is very important as an investor of your real property to learn and take advantage of the deductible expenses so as to reduce the taxable rental income and maximise your return in real estate investment.

What is the deductible expenses?
a) Assessment and Quit Rent
Annual assessment (Cukai Pintu) paid half-yearly to local authority such as Dewan Bandaraya Kuala Lumpur and quit rent (Cukai Tanah) paid to the land office.
b) Interest on loan
Interest paid to banks for a loan taken to finance the purchase of the real property
c) Fire insurance premium
A fire insurance premium paid for fire insurance policy taken to insure the real property
d) Expense on rent collection
Any legal expense or rent collection fee paid for rent collection
e) Expense on rent renewal
Expense paid to renew tenancy or changes of tenant
f) Expense on repair
Expense on repairs to ensure the existing condition of real property is maintained

What are non-deductible expenses?
Non-deductible expenses are initial expense because it is incurred to create a source of rental income and not incurred in the production of rental income. Examples of initial expenses are:-
a) Advertising cost to secure the first tenant
b) Legal cost and stamp duty for initial tenancy agreement
c) Real estate agent commission to secure the first tenant

In addition to the above, the Malaysian government introduced in 2018 budget a new limited-time tax exemption whereby rental income from residential properties would receive a 50% exemption from income tax.

Property investor could apply for the exemption subject to the following requirement:-
a) Residential types of property only
b) Monthly rental of each property is RM2,000 or less
c) Tenancy agreement stamped and executed on or after 1 January 2018
d) Rental income from tenancy during year of 2018 to 2020 (reported between 2019 and 2021)

Contributed by: Patrick Chong

For further details please email patrickchong@hartamas.com