Rental Income

Rental Income
Numerous investors possess real estate in Malaysia, including homes, apartments, condominiums, shophouses, industrial factories, and commercial offices, as a component of their investment portfolios and generate rental income from these properties. In Malaysia, rental income from real estate is subject to taxation under either paragraph 4(a) (business income) or 4(d) (Rental income) of the Income Tax Act 1967. This income is considered business-derived if extensive and active maintenance or support services are associated with the real estate.

However, most Malaysian property owners who lease out their properties do not offer such services, leading to their rental earnings being classified as non-business income (Rental income). This income is taxed on an accrual basis, with losses in a given tax year not being transferable to subsequent years or deductible against other taxable statutory incomes. Moreover, all capital assets, such as furniture, fittings, air conditioners, etc., are ineligible for any tax deductions (Capital allowance).

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 in year of assessment 2018 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.

18 Mar 2024