Wednesday, 12 March 2014

Tax On Rental Income

In Malaysia, rental income is taxable.

For most new and small property investors, the rental income is taxed under individual (BE-form).

If Mr.A earns a salary of RM6,000/month  + a rental income of RM1,000/month (total income RM84,000 a year), and assume a total tax relief of RM24,000, the final chargeable income will be RM60,000. So Mr.A's tax rate will be 19%.

If Mr.B earns a salary of RM6,000/month and has no rental income (total income RM72,000 a year), and also has a similar tax relief of RM24,000, his chargeable income will be RM48,000. So his tax rate is at 11%.

Mr.A has to pay a total tax of RM11,400 while Mr.B has to pay RM5,280.

Mr.A earns RM12,000 more than Mr.B in a year, but pay RM6,120 more tax.

In other words, RM510 of the RM1,000 monthly rental income is being "taxed", and Mr.A only earns RM490 more than Mr.B in a month, not RM1,000 he thinks.

Fortunately for property investors, there are deductible expenses from rental income.

These deductible expenses include:
  • assessment
  • quit rent
  • loan interest
  • fire insurance premium
  • expenses on rent collection
  • expenses on rent renewal
  • expenses on repair
  • service charges, maintenance fees, sinking fund, Indah Water bills

However, initial expenses before the property is "officially" rented out are NON-deductible. These include:
  • advertising cost to obtain the tenant
  • legal cost & stamp duty for rental agreement
  • commission for real property agent 

Many people may think that all commission for property agent and stamp duty for tenancy agreement are tax deductible. Actually they are not deductible for the first time you rent out the property. For subsequent renewal of tenancy agreement, they are deductible.

The information above are from limited personal knowledge and experience, and might not be accurate. Please correct me if there are any mistakes.


  1. what about legal fees foe refinancing your mortgage?

  2. Fifi, personally I don't think cost for refinancing is deductible.

  3. Can you explain more about the deductible expenses of service charges? Will the monthly maintenance fee is consider as service charges? Will the Indahwater bill also deductible?

  4. khu, the maintenance fee/sinking fund/indah water bills are deductible expenses.