Malaysia Taxation on Rental Income

A lot of property investors will rely on rental income of their properties to pay for the monthly mortgage payment and may be gain some positive cash flow. However, those rental income are taxable based on Malaysia Taxation Law.

 Hence, it is important for property investors to understand the actual taxation on rental income before they start to rent their property out.

Income from the letting of real property in Malaysia is named as rental income and is chargeable to tax under section 4(d) of the Income Tax Act 1967. Any person, whether resident or non-resident, citizen or non-citizen, individual or not , who derives rental income from Malaysia is thus subject to income tax.The type of person, or the residence status of the person, determines the tax rate.

In adjusting the income from the rental, all expenses " incurred wholly and exclusively in the basis period in the production of the gross income" are deductible. The deductible expenses can used to adjust the rental income are as following.

 

Malaysia Taxation on Rental Income

Investors like to have rental income as it is stable

income and can gain positive cash flow.

  • mortgage interest ( Please take note that mortgage interest is not equaled to the mortgage payment. Monthly mortgage payment consist of mortgage interest and capital repayment. Mortgage interest is deductible expense but capital repayment is not deductible expense)
  • Repairs
  • Maintenance
  • Quit Rent
  • Assessment
  • Service Charges
  • Legal fees to renew the rental agreement  ( Legal fees for the getting first rental agreement is not deductible expenses, only subsequent renew can be considered as deductible expense )
  • Real Estate Agent  fee to get the subsequent tenant ( same with legal fees, the real estate agent fee to get the first tenant is not deductible expenses )
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    For mortgage interest deduction, the investors need to take note that it only can be deducted after rental source commenced.  For examples, if the investors start to pay the loan since January of the year, but the rental source only commence after April. In this case, only mortgage interest after April can be used as deductible expenses. Indeed, other expenses such as quit rent, assessment and service charge, only the portions relating to that period are tax deductible. However, in the case that previous tenancy agreement was due on May, and then the investor use three month to find the new tenant then only commence the new tenancy contract in August, the mortgage interest and other expenses between May to August can be deducted.

    In other words, if the rental source is ongoing or continuing, expenses for the entire basis period are deductible even if there may be periods when no rental income is produced due to temporary vacancy. To refer more info about Malaysia taxation on rental income, please refer Public Ruling 1 of 2004 ( Income of letting real property ) as below.