Income tax exemption on rental income now available

LETTER | There have been a number of taxpayers penalised for underreported rental income under Section 113 of the Income Tax Act 1967 (the Act) due to the misconception that rental income is a kind of investment income and therefore not subject to income tax.

This article intends to clarify that misconception and also highlight the exemption available for rental income.

Individuals who own property situated in Malaysia and receive rental income in return are subject to income tax. Such rental income is explained under Section 4(d) of the Act.

Rental income is assessed on a net basis. When computing the rental gain to be disclosed in tax filings, the gross rental income can be reduced by permitted expenses incurred. Individuals need to disclose such net rental gain in their BE or B forms respectively.

Precisely, it is to be reported under the field of ‘Statutory income from rents’ for online submission or part B2 (BE form)/B7 (B form) for manual submission. A rental loss is a permanent loss and need not be disclosed in tax filings.

Some examples of general permitted expenses for rental income are the cost of repair and maintenance (including repainting), security charges, fire or burglary insurance, agent fees incurred for supervision and rental collection, cost of obtaining a new tenant to replace the former tenant, legal fees for new tenancy agreements, quit rent and assessment and also loan interests.

Prior to Jan 1 2018, all rental income was assessed on a progressive tax rate ranging from 0% to 28% without any tax incentive or exemption. In order to promote affordable accommodation to the needful, the Malaysian government through Budget 2018 offered a tax exemption of 50% on statutory income of rental received by Malaysian citizens who reside in Malaysia.

The conditions to be fulfilled would be:

• the property is of residential type;
  
  
• monthly rental received from each property ≤ RM2,000;
  
  
• tenancy agreement has to be stamped, executed on or after Jan 1, 2018; and
  
  
• the tenure of the rental is for any period during the calendar year 2018.

Residential property refers to houses, condominium units, flats and apartments which are built as dwelling houses.

The scope of rental income subject to the restriction of (b) not only refers to the sum paid by tenants for the occupation of such residential properties but also includes the use of parking space, furniture and any other amenities provided by the landlords.

This exemption order was just published on Feb 27, 2019, and it takes effect from Jan 1, 2018.

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