Apr 27, 2010
Q&A: Tax on rental income
Attending to a reader's question regarding taxation on rental income is the Chairman of the International Tax Committee of Crowe Horwath International Poon Yew Hoe. Poon has more than 25 years of experience and as the tax partner of Crowe Horwath, he oversees all tax matters including tax advisory and tax planning services in respect of domestic taxes, corporate restructuring, public listing, due diligence exercises, takeovers, mergers and international tax.
If you have any property-related questions, send an e-mail to editor@starproperty.my
Dear Editor,
I have a tough budget to meet every month due to various commitments including my family expenses, child’s tuition, medical bills, insurances, house loan, etc.
Nonetheless, I still provide monthly expenses to both my parents even though my commitments and expenses would add up to more than what I can afford. The amount is so little that it hardly covers their medical bills.
For this reason, I plan to purchase a medium cost apartment with my EPF/savings to provide additional rental income for them. Hopefully by doing that, I can help them to get a steady income.
However, the house will be under me and my wife’s names but the money (rental) goes to my parents. Both of them have already retired with no fixed income.
The question that lingers in my head is that whether in such kind of arrangement, do I still need to declare this as an income and subject it to tax? The rental agreement will be under their names too.
My main concern is that whether I will be taxed for such kind of rental income for my old parents?
Please advice.
Regards,
Chan
Dear Chan,
The arrangement that you have mentioned is quite unusual because you and your wife are the owners of the property but your parents are the ones who entered into the rental agreement with the tenant. The intention is probably to divert the rental income to them as mentioned in your mail.
However, it is not possible to simply divert income in such manner for tax purposes. Although the rental agreement is in your parents' names and the rental income has been received by them, they would have received the income on your behalf.
In such case, the rental income should be treated as you and your wife's income and not your parents' income. In a nutshell, rental income follows the ownership of the property for tax purposes.
However, as a property owner, you should be able to deduct expenses against the rental income such as repairs and maintenance, insurance on the property, loan interest, service charges, quit rent and assessment. Only the net rental income will be subject to income tax.
Good luck.
Regards,
Poon Yew Hoe
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