In the past, there have been calls for the government to ease the burden on multi-property owners and reduce taxes levied on rental income.
For example, KPMG, a multinational network of professional service providers and one of the four major auditing firms, made this demand in its draft budget two years ago.
But do investment property owners have to declare their rental income and expenses? This is a question that many property owners have to grapple with. In addition to paying property taxes, investment property owners must also be aware that any rental income they receive from renting out their property is subject to income tax and must be declared on their income tax return.
Rental income refers to all rent and related payments you receive when renting 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 over after you add up your rental income and deduct all allowable expenses is taxable. Your property will still be subject to property tax, which can be calculated by multiplying the annual value (AV) of the property by the applicable property tax rate.
The rental deposit is generally considered as part of your rental income. The 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. forfeiture of the rental deposit due to damage to property by the tenant), the Inland Revenue Authority of Singapore (IRAS) may consider excluding it as part of the gross rent. When filing your tax return, provide the reasons for the forfeiture of the rental deposit to IRAS.
As for subletting property, some property owners choose to rent out part of their property (e.g. a spare room while continuing to live in their home). This is called “subletting.” The rental income from subletting is taxable. Property owners must apportion the allowable costs incurred based on the number of rooms rented out.
Rental income is subject to taxation from the date it is due and paid to the property owner, not from the date it is actually received.
Example: Your tenant rented your property from October to December 2021. However, he did not pay the rent for this period until January 2022. You must declare the rent for October to December 2021 for the assessment year (YA) 2022, as you are entitled to the rent in 2021.
If a property is owned solely by the owner, 100% of the rental income is taxed by the sole owner of the property. It does not matter whether the sole owner or a third party receives the rent. If a property is co-owned, the rental income is taxed by all co-owners according to their legal share in the property. It does not matter which party receives the rent or whether the owners have paid for the property. The rental loss is also divided between the co-owners according to their legal share in the property.
As far as rental costs are concerned, costs incurred solely to generate rental income and during the rental period can be deducted from tax. The following table lists permissible and non-permissible rental costs:
|
Type of costs |
Allowable expenses |
Non-deductible expenses |
|---|---|---|
|
Home loans |
Interest paid on the loan or mortgage taken out to purchase the rental property. (See Note 1) |
Repayment of the principal loan or mortgage amount (monthly installments). Penalty imposed by banks for late repayment of loans. |
|
Wealth tax |
Accrued during the rental period (e.g. property tax paid for 2017 for a property rented in 2017). |
Accrued outside the rental period. A penalty is imposed if the property tax is paid late or not paid. Balance carried forward from the previous year’s property tax. |
|
Fire insurance |
Premiums paid for fire insurance. |
Insurance capital for real estate. |
|
Repairs |
Repairs carried out during the rental period to return the property to its original condition. |
Initial repairs prior to renting the property. Repairs carried out that result in improvements/additions and alterations. Repairs that occur outside the rental period. |
|
maintenance |
Costs for the maintenance of the property (e.g. painting, pest control, monthly maintenance fees to management companies). |
Costs for renovations, extensions, conversions to the property (e.g. extension of the carport, construction of sewage canals, concreting of walls and floors, installation of window grilles). |
|
Costs of tenant protection |
Brokerage commission, advertising, legal costs and stamp duties for receipt Subsequent tenant. Brokerage commission, advertising, legal costs and stamp duties for the placement of the first tenant of a additional feature is deductible from the rental income of this property (see example 3). |
Brokerage commission, advertising, legal costs and stamp duties for obtaining the First tenant (See note 2). |
|
Costs for supervision or administration fees |
Costs of engaging a third party (e.g. real estate agent/company) to carry out activities such as ensuring timely payment of rent, maintaining and caring for the properties, and dealing with tenant queries and complaints. If management fees are paid to a related party (e.g. relatives or one’s own company), owners must prove that the amount paid is in line with the market price and appropriate for the services provided. |
|
|
Furniture and furnishings |
Restoration of furnishings (e.g. furniture, fittings, electrical appliances) to their original condition. Rental of furniture. |
Depreciation of the furnishings (e.g. furniture, fittings, electrical appliances). New improvements/additions to the furnishings (e.g. furniture, fittings, electrical appliances). |
|
Internet fees/costs |
Paid on behalf of the tenant (unless later refunded by the tenant). |
Paid on behalf of the tenant and subsequently reimbursed by the tenant. |
|
extra costs |
Paid on behalf of the renter (unless subsequently refunded by the renter). |
Paid on behalf of the tenant and subsequently reimbursed by the tenant. |
|
Expenses for properties that do not generate rental income |
N/A |
The costs incurred in respect of such properties, such as rent, utilities, maintenance costs for own accommodation/vacant property, etc., cannot be deducted from rental income from other properties as they are capital costs of a private nature. (See Note 3.) |
You are obliged to keep the receipts for your investment property for at least 5 years for proof purposes.
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