Calls have gone out in the past urging the Government to reduce the burden on multiple property owners and lower the taxes levied on property rental income.
For example, two years ago KPMG, a multinational professional services network and one of the Big Four accounting organizations, made this call in its Budget proposal.
But should investment home owners declare their property rental income and expenses? This is a question many property owners have to contend with. Besides paying property tax, investment home owners must be mindful that any rent payments they receive when they rent out their property is subject to income tax and must be declared in their income tax return.
Property rental income refers to the full amount of rent and related payments you receive when you rent out your property.
This includes rent of the premises, maintenance, furniture and fittings. Rental income is subject to income tax. This means that any profit or net amount left once you have added together your rental income and deducted any allowable expenses is taxable. Your property is still subject to property tax, which can be calculated by multiplying the Annual Value (AV) of the property to the applicable Property Tax Rate.
The rental deposit is generally considered as being part of your rental income. Forfeiture of the rental deposit is considered as part of your gross rent and is taxable. However, depending on the reason for the forfeiture of the rental deposit (e.g. rental deposit forfeited due to damages to property by tenant), Inland Revenue Authority of Singapore (IRAS) may consider excluding it as part of the gross rent. When filing your tax return, provide IRAS with reasons for the forfeiture of the rental deposit.
As for subletting of properties, some property owners may choose to rent out a portion of their property (e.g. a spare room while still dwelling in their home). This is called “subletting”. The rental income from subletting is taxable. Property owners are required to apportion the allowable expenses incurred based on the number of rooms rented out.
Property rental income is taxable from the date it is due and payable to the property owner, and not the date of actual receipt.
For example, your tenant rented your property from Oct to Dec 2021. However, he only paid the rent for this period in Jan 2022. You need to declare the rent for Oct to Dec 2021 for the Year of Assessment (YA) 2022 as the rent was due to you in 2021.
For sole owners of property, the property rental income is taxed 100% on the sole owner of the property. It does not matter whether the sole owner or a third party receives the rent. For joint owner of property, the rental income is taxed on all the joint owners based on their legal share in the property. It does not matter which party receives the rent or whether the owners paid for the property. The rental loss is also apportioned to joint owners, based on their legal share in the property.
As for rental expenses, expenses incurred solely for producing the rental income and during the period of tenancy may be claimed as tax deduction. The table below lists allowable and non-allowable rental expenses:
| Type of Expense | Allowable Expenses | Non Allowable Expenses |
|---|---|---|
| Housing loans | Interest paid on the loan or mortgage taken to purchase the property that is rented out. (See Note 1) | Repayments of the principal loan or mortgage amount (monthly instalments). Penalty imposed by banks for late repayment of loans. |
| Property tax | Incurred during the rental period (e.g. property tax paid for year 2017, on property rented out in 2017). | Incurred outside the rental period. Penalty imposed for late payment or non-payment of property tax. Balance brought forward from previous year’s property tax. |
| Fire insurance | Premiums paid on fire insurance. | Capital sum assured on property. |
| Repairs | Repairs done during the rental period to restore the property to its original state. | Initial repairs before the property was rented out. Repairs done which result in improvement/additions and alterations. Repairs incurred outside rental period. |
| Maintenance | Cost of maintaining the property (e.g. painting, pest control, monthly maintenance charges to management corporations). | Cost of renovation, additions, alterations to the property (e.g. extension of car porch, construction of drains, cementing of walls and floors, installation of window grilles). |
| Costs of securing tenant | Agent’s commission, advertising, legal expenses and stamp duties for getting subsequent tenants. Agent’s commission, advertising, legal expenses and stamp duties for getting the first tenant of an additional property is deductible against the rental income of that property (See Example 3). | Agent’s commission, advertising, legal expenses and stamp duties for getting the first tenant (See Note 2). |
| Costs of supervision or management fees | Costs in engaging a third party (e.g. property agent / company) to carry out activities such as ensuring rentals are paid promptly, maintenance and upkeep of the properties and attending to tenants queries and complaints. Where the management fees is paid to a related party (e.g. relatives or own company), owners need to justify that the amount paid is at market rate and commensurate with the services rendered. | |
| Furniture and fittings | Replacements of furnishings (e.g. furniture, fixtures, electrical appliances) to its original state. Hiring of furniture. | Depreciation of furnishings (e.g. furniture, fixtures, electrical appliances). New improvements/additions made to furnishings (e.g. furniture, fixtures, electrical appliances). |
| Internet charges/expenses | Paid on behalf of tenant (as long as it is not reimbursed by tenant subsequently). | Paid on behalf of tenant and reimbursed by tenant subsequently. |
| Utility expenses | Paid on behalf of tenant (as long as not reimbursed by tenant subsequently). | Paid on behalf of tenant and reimbursed by tenant subsequently. |
| Expenses incurred on properties that are not generating rental income | N.A. | The relevant expenses incurred on such properties e.g. rent, utilities, maintenance paid for own accommodation/a vacant property, etc. cannot be claimed against the rental income generated from other properties as the expenses are capital and private in nature. (See Note 3). |
You are required to keep the supporting documents of your investment property for at least 5 years for verification purposes.
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