Rental income

Generally, rent is regarded as a non-business source of income and is charged to income tax under section 4(d) of the Income Tax Act, 1967 ITA. Where the property concerned is managed and let in such a systematic or organized manner that the letting can be regarded as carrying on a business, the income from the letting can be charged to tax under section 4(a) of the ITA.

Rent as a business source

Where, in conjunction with the letting of a property, a person also provides ancillary or support services/facilities, the letting of the property can be considered a business source of income of that person and the income received is charged to tax under section 4(a) of the ITA.

To qualify for the treatment mentioned in paragraph above, the services/facilities should be actively provided by the person (that is, the services/facilities are procured, managed and/or supplied by the person who lets the property) and not passively or incidentally derived from the ownership or lease of the property, as in the case of services and facilities provided by the management corporation of a subdivided building to the proprietors/tenants of the individual units.

Allowable expenses against rental income

The outgoing and expenses wholly and exclusively incurred in the production of gross income are allowed as deduction from gross rental income [Section 33(1)]. The outgoing and expenses which are deductible include:

ü         Assessment and quit rent;

ü         Repairs & maintenance expenses;

ü         Cost of replacement of furniture/fixtures/fittings included in the rented property;

ü         Interest incurred on loan for purchase of the rented property; and

ü         Rent collection costs/tenancy renewal costs.

Enclosed herewith a  Public Ruling No. 1/2004 - Income From Letting of Real Property issued by Malaysia Inland Revenue Board for further information.