What is deductible from rental income?

Expenses incurred wholly and exclusive in the production of gross income are allowable for deduction. Here are the exact wordings of section 33(1) of the Income Tax Act, 1967:

"........ the adjusted income of a person from a source for the basis period for a year of assessment shall be an amount ascertained by deducting from the gross income of that person from that source for that period all outgoings and expenses wholly and exclusively incurred during that period by that person in the production of gross income from that source, ....."

Section 39 states that " ......no deduction from the gross income from that source for that period shall be allowed in respect of ..

       (a) domestic or private expenses;

(b) any disbursements or expenses not being money wholly and exclusively laid out or expended for the purpose of producing the gross income;

(c) any capital withdrawn or any sum employed or intended to be employed as capital; ..............."

Examples of expenses incurred in the production of rental income are: quit rent, assessment, fire insurance, loan interest, legal fee on renewal of tenancy, repair and maintenance of the property, agency commission, etc. Initial expense are not allowable. And please note that repair expenses are confined to ordinary repairs to maintain the property in its existing state. This does NOT include improvements and additions. Great care must be take to determine whether the repair is an expense or capital expense.

Read more: http://www.hasil.gov.my/pdf/pdfam/PR4_2011.pdf Public Ruling 4/2011: INCOME FROM LETTING OF REAL PROPERTY