8 Things to Be Aware off When Declaring Your Rental Income to LHDN

If you are reading this, perhaps, you could be starting out as a property investor who own and rent out a small apartment unit. Or maybe, you had matured into becoming a seasoned investor who had already amassed a multi-million Ringgit portfolio of real estate and still wondering on how to declare your rental income to LHDN.
handing over keys to rent tenant. Image text contains: 8 Things to Be Aware off When You Are Declaring Your Rental Income to LHDN

Here is a common ground between the two:

– Both are required to declare rental income to LHDN.

However, with that being said, the method of filing and assessing rental income to LHDN differs from one another and hence, requires savvy tax planning. In this article, we’ll share 8 key things to know before declaring rental income to LHDN. They are as followed:

Read also: How to Offset Losses From Your Property Investment.

1. Sources:

Before declaring your rental income to LHDN you should start from the rental income sources. It can be derived from immovable properties and movable properties.

For instance, they include:

Immovable Properties Movable Properties
-Residential Properties
-Commercial Properties
-Plants & Machineries
-Motor Vehicles (Buses, Taxis…etc)

2. Classifications:

Rental income could be assessed either as a business income under the Income Tax Act 1967 Section 4(a) or as a rental income under Section 4 (d), which is non-business income. So, which of the two do you have to declare when filing your rental income to LHDN?

The answer lies in, whether or not, you have treated your letting of the property as a business which you need to declare on your rental income to LHDN . Based on Public Ruling (PR) 12/2018, the rental income is considered to be a business income if you provide support or maintenance services comprehensively and actively to your property. It must be provided by the owner himself or through hiring of a manager.

Section 4 (a) Business Income Section 4 (d) Rental Income
Support & Maintenance Services
Actively & Comprehensive
Support & Maintenance Services
NOT Provided
Actively & Comprehensive

3. Commencement of Rental Income:

If your rental income is assessed as a business income, its starting date is set to be on the date when the property is ready to be let out. But, if your rental income is assessed as a rental income, the commencement date would instead be set on the first day the property is rented out to its tenant. Where should be calculated before declaring your rental income to LHDN

Section 4 (a) Business Income Section 4 (d) Rental Income
The First Day When
Property is Ready to be Let Out
The First Day When
Property is Rented Out to a Tenant

You may also want to read: 5 Rules You Must Know If You Rent out a Property in Malaysia.

4. Assessment Basis:

Rental income is assessed on receipt basis where the income would be deemed to have ‘received’ when it first became receivable and not the actual date when the income is transferred.

Example 1:
For instance, you may rent out a property at RM 1,500 per month. The rent is due and payable on 31 December 2019. But, your tenant settled it on 21 February 2020. In this case, the RM 1,500 in rental income will be assessed under year assessment 2019 and not in the year 2020.

Example 2:
For instance, you have rented out your property at RM 18,000 a year in January 2019. Your tenant paid two years of rental in advance and thus, having received RM 36,000. Thus, the entire RM 36,000 received would be assessed under the year assessment of 2019. It would not be split to be assessed under two years: 2019 and 2020.

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5. Deductible Expenses:

There are a handful of expenses that could be deducted from income derived from renting out your property before declaring your rental income to LHDN. They include:

  • Quit Rent and Assessment
  • Interest on Loan
  • Fire Insurance Premiums
  • Expenses incurred to renew tenancy agreement
  • Expenses incurred to collect rent
  • Ordinary Repairs to Maintain the Property
  • Security Services

Expenses incurred that are not allowed for deduction are made up of cost to obtain your first tenant.

They include:

  • Advertising
  • Agent’s commission.
  • Legal Expenses on the First Rental Agreement

If you have a property where you had stopped to receive rental income temporary but had already incurred the above allowable expenses, the expenses are deductible if:

  • The property is under repair or renovation
  • It has an absence of tenants for two years after termination
  • It faces a legal injunction or other official sanction

The second and third criteria are applicable only if the property is ready to be let out and in good condition.

6. Capital Allowance:

Capital allowance is claimable if the rental income is assessed based on Section 4(a) Business Income. For instance, if you rent out a property, it includes purchases of furniture and installations of air-conditioners on your property.

If your rental income is assessed under Section 4(d), you are not able to claim a capital allowance. But, if you replace a piece of furniture or install a new air-conditioner to replace one which was either destroyed or has malfunctioned, these expenses are deductible under Replacement Cost Basis.

Section 4 (a) Business Income Section 4 (d) Rental Income
Furniture, Plant & Machineries
Provided are Claimable
Under Capital Allowances
Furniture, Plant & Machineries
Provided are Deductible on
Replacement Cost Basis

7. Rental Loss:

If your rental income is assessed as a business income, the rental losses can be utilised either to offset against other income in the same year or to be carried forward to subsequent years. However, if rental income is assessed under Section 4(d), then, rental losses would be considered as a permanent loss.

Section 4 (a) Business Income Section 4 (d) Rental Income
Rental Loss are Used to
Offset against other income or
Carried forward to Next Years
Rental Loss
is deemed to be
Permanent Loss

8. 50% Income Tax Exemptions

The government of Malaysia is offering 50% income tax exemptions for three consecutive years (2018 – 2020) to individuals who rent out their residential properties at a rate not exceeding RM 2,000 per month for each property.


Property investing offers investors many tax benefits and thus, remains as one of the vehicles to build wealth for the long-term.

As such, to maximise your benefits, it would be advisable to consult a qualified tax accountant which specialises in matters relating to property investments and he will be able to help you settle before submitting your rental income to LHDN. If that is you, you may use Joolah.my, a free search tool that quickly refers you to the best accounting, auditing or tax professionals in Malaysia.