Income Tax for Rental Income


As a property owner, when you receive rent on your property, you are liable to pay taxes on that rental income. Rental Income refers to the total of rent and other related payments you receive for the rented property. Apart from the rent of the premises, this income may include payments received for maintenance, furniture, and fittings.

IRAS allows you to deduct the expenses you incurred to produce that rental income. These expenses are called Rental Expenses. So, your taxable amount would be the profit or net amount left after you have deducted rental expenses from your rental income.

As per IRAS guidelines, you must declare your gross rental income, deductible expenses, and share of your rent from a jointly-owned property under 'Other Income: Rent from property' in your tax return.

Things to keep in mind while calculating your rental income

  • Forfeited rental deposit: Under normal circumstances, forfeited rental deposit is considered a part of the gross rental income and is taxable. However, under certain situations, IRAS may choose to exclude it from the gross rent. So, it’s always important you mention the reason for such forfeiture while filing your tax return.
  • Subletting of property: When you rent out only a part of your property, it’s called subletting. The income earned from subletting is also taxable.
  • Rental income is taxable on accrual basis: Your rental income will become taxable from the date it is due, and not the date when you actually receive it.
  • Ownership of the property: If you are the sole owner of the rented property, you will be solely responsible for paying taxes on that property, regardless of who received the rent — you or a third party. However, if the property is jointly owned, your rental income will be taxed on the basis of your share in the property.

Allowable and non-allowable expenses

House loans

What’s allowed? The interest you paid on the loan/mortgage taken to buy the property you have rented out.

What’s not allowed? The repayment of the principal loan/mortgage amount. Also, any penalty that you might have paid for late repayment.

Property tax

What’s allowed? The property tax you paid during the rental period.

What’s not allowed? The property tax that you paid for another year. For example, property tax paid for the year 2016, on property rented out in 2017, will not be allowed. Any penalty that you might have paid for non-payment or late payment of that tax will also be not allowed. Any balance from previous year’s property tax is also not allowed.

Fire insurance

What’s allowed? Any premium paid on fire insurance during the financial year.

What’s not allowed? The sum assured on the property.

Repairs

What’s allowed? Any repairs made during the rental period to bring the property back to its original condition.

What’s not allowed? Repairs made before renting out the property, as well as the repairs which resulted in improvement and alterations.

Maintenance

What’s allowed? Any cost incurred to maintain the condition of the property.

What’s not allowed? Renovation costs and any additions/alterations made to the property.

Cost of securing tenant

What’s allowed? Expenses like agent’s commission, legal formalities, advertising, and stamp duties for getting subsequent tenants.

What’s not allowed? Expenses like agent’s commission, legal formalities, advertising, and stamp duties for getting the first tenant.

Cost of supervision or management fees

What’s allowed? Costs incurred for engaging a third party to ensure maintenance of the property and to carry out other day-to-day activities. However, the owner will have to make sure the amount being paid as management fees is justified and is in line with market prices.

Furniture and fittings

What’s allowed? Restoration of furniture, fixtures, and electronic items to their original condition.

What’s not allowed? Depreciation and any expenses incurred to make improvements/additions to the furnishings.

Internet charges

What’s allowed? Internet charges paid for tenant.

What’s not allowed? Internet charges paid for tenant, which the tenant reimbursed later on.

Utility expenses

What’s allowed? Utility expenses paid on behalf of tenant.

What’s not allowed? Utility expenses paid on behalf of tenant, which the tenant paid back later on.

Expenses incurred on properties not generating any rent

What’s not allowed? Expenses incurred on such properties can’t be claimed against rental income generated from other properties.

Things to know about simplified claim for rental expenses

  • For rented out residential properties only: If you have rented out your residential property and are looking to file income tax returns, you can enjoy the convenience of pre-filled rental expenses. Instead of using the actual amount of deductible expenses, this simplified system allows you to deduct a deemed amount of expenses, which is determined on the basis of 15% of the gross rental income. In addition to deemed rental expenses, you will still be able to claim mortgage interest that you have paid on the loan taken to purchase the property. Nevertheless, you can also opt to claim the actual rental expenses incurred.
  • For rented out non-residential properties: In case of non-residential properties, only the actual rental expenses can be claimed. Make sure you have all the supporting documents for at least five years.

Late reporting or not reporting rental income

When you are late to report your rental income or when you do not report your rental income, IRAS may impose penalties on you. However, this penalty may get waived off if you make a voluntary disclosure within a year from the statutory filing date. To qualify for the IRAS’ Voluntary Disclosure Programme (VDP), you will have to submit a self-initiated, timely, accurate, and complete disclosure. It will be considered self-initiated or timely only when you submit it before you receive a notification/query from IRAS.

How to account for rental losses?

IRAS doesn’t allow you to carry forward your rental losses. You also can’t use your rental loss to offset against any other income, which you might have earned during that year. However, you have the option to use the rental loss of one property to offset against rental income from another property during that same year if you rent out all your properties at market rates.


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