Article #26: Claiming Property Related Expenses for Tax Deduction
If you own property in Malaysia, you might be interested to find out what types of expenses can be claimed to reduce your tax liability with regards to the rental income earned from letting the property as well as the capital gain received upon disposal of the property. The rental income is subject to income tax whereas the capital gain is subject to real property gains tax (RPGT).
Where maintenance or support services are not comprehensively and actively provided to tenant, the rental income will be assessed to income tax as non-business source. Generally, only direct expenses that are wholly and exclusively incurred in the production of income from that source can be claimed against the gross rental income to arrive at a lower amount of income to be taxed. Below are some common expenses which can be claimed from the date the property is let out for the first time:
- quit rent
- assessment
- fire insurance premium
- interest on loan to finance the property
Any costs incurred in finding the first tenant, preparing the first tenancy agreement and initial purchase of furnishings are not claimable. Nevertheless, costs incurred in obtaining subsequent tenant, renewing tenancy agreement and replacing furnishings are claimable. Cost of repairs and maintenance of property, such as repair of roof, replacement of broken tiles and repainting are also claimable.
During the months of temporary non-occupation due to change of tenant, in the absence of rental income, the owner can continue claiming the deductible expenses as long as the property is ready to be occupied.
Renovation expenses which enhance the value of property do not help in lowering the rental income to be taxed. However, it helps to reduce the exposure to RPGT by reducing the amount of chargeable gain upon disposal. In addition, incidental costs incurred in purchasing and selling the property help in lowering the chargeable gain too.
Examples of the incidental costs are:
- legal fee
- stamp duty
- brokerage fee
- advertisement cost
Remember to keep the relevant documents to support your claim for tax deduction, regardless whether you are resident or non-resident in Malaysia.
References:
- Public Ruling No. 12/2018 Income from Letting of Real Property issued by the Inland Revenue Board of Malaysia.
- Real Property Gains Tax Act 1976
Contributed by:
C K Ng