Thursday, April 25, 2013

Tax Deductible Expenses against Rental Income - FAQ

Question:-  I have a few properties, one of which is occupied by my son. Do I have to declare that as rental income? If there is another house left empty, do I have to declare that as well?

You only declare when you start to let out your properties.

Question:-  I receive a rental income from my new apartment. What are the deductions I can claim and are there limits?

Expenses which are allowed deduction from rental income are the direct expenses that are wholly and exclusively incurred in the production of the rental income.
Examples of such expenses are as follows assessment and quit rent, interest on loan and fire insurance premium, expenses on rent collection, expenses on rent renewal, expenses on repair and service charges. However, only expenses incurred after the new apartment has been rented out are deductible from the rental income. Initial expenses are not deductible. Examples of initial expenses are the cost incurred to obtain the first tenant, such as advertising cost, legal cost to prepare rental agreement, stamp duty and commission for real property agent.

Question:-  I have two properties under joint ownership with my wife. The rental agreement is in my wife's name and she collects all proceeds. She is unemployed and we have separate assessments as she was working previously.Do we need to submit rental income in both our tax submissions equally divided or can she report all the rental income ?

The registered owners (as evidenced in the title deeds or any equivalent documents to demonstrate ownership) of the properties are the rightful recipients of the rental income. Thus, both you and your wife would be required to declare your respective portion of the rental income in your individual tax returns based on the ratio of your joint ownership.
Question:- I am currently working overseas but own three properties in Malaysia. Do I need to declare anything to the Inland Revenue Board (IRB)?

Generally, Malaysian-derived income is subject to Malaysian income tax. As the properties are located in Malaysia, the rental income from the letting of properties is regarded as Malaysian-derived income. Therefore, you are required to declare the rental income to IRB by completing and submitting the relevant tax return form. The type of tax return to be submitted is dependent on your tax residence for the year concerned. Generally, tax resident individuals are subject to the progressive tax rates and entitled to personal reliefs/deductions and rebates. Non-tax residents are taxed a flat rate of 26% without any personal reliefs/deductions and rebates.

Questions:-  If I have two properties purchased under the DIBS during the qualifying period for housing loan interest deduction, say house A in 2009 (completion 2011) and house B in 2010 (completion 2014), can I claim deduction for house A from 2011 to 2013, and house B from 2014 to 2016? At any one time, I intend to claim deduction for one house only.

The current tax laws only allow an individual who is a Malaysian and tax resident to claim interest expenses on housing loan provided certain conditions are satisfied. Conditions are the claim is limited to only one unit of residential property, the sale and purchase agreement agreement is executed between 10 March 2009 and 31 December 2010, and you do not derived any rental income in respect of that residential property. If you have claimed interest expenses for house A in your 2011 tax return, you will be eligible to claim the interest expenses for house A in your 2012 and 2013 tax returns provided you have fully complied with the stipulated conditions. You would not be able to claim any deduction for house B.

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