Rental Income Tax Guide: How Much of Your Rental Income is Taxable?

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Do you have a dream of striking 4D, buying a private property, rent it out for income, and quit your job? We can relate, but did you know that this “plan” is actually taxable? 

That’s right, because renting out your property — while not a job or form of employment — is still considered a source of income. Means you need to pay income tax on your rental yield.

Let’s deep dive into how this works.

 

What is rental income?

According to the Inland Revenue Authority of Singapore (IRAS), rental income is defined as “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”.

Just so you know, your rental income is taxable. Failure to declare and pay your taxes could result in you being charged in court, after which you’ll have to pay both your taxes AND any penalties.

For example, John has a Tenant who is paying the following every month for the whole property:

Base rent — $2,300

Utilities — average $200/month

Once a month, the Tenant has a barbecue in the backyard. John charges additional rent for the use of the barbecue pit — $200 per use

Hence, John collects a gross rental income of $2,700 per month.

 

What else does IRAS need to know?

When you start renting out your property, you’ll need to inform IRAS within 15 days. This is for property tax purposes. However, if you process the lease document digitally via IRAS’ e-Stamping Portal, IRAS will automatically be informed.

And you cannot randomly decide to increase your rent. If the need arises to adjust the rent amount on the existing tenancy agreement, you’ll need to complete and submit the Variation of Lease or Supplemental Agreement within 15 days after the adjustment. Stamp this digitally via IRAS’ e-Stamping Portal and IRAS will automatically be informed.

If e-Stamping is not required or 15 days is too difficult a deadline for you due to whatever circumstances, you’ll also need to inform IRAS — yes, also within 15 days. Any non-compliance of any of the above might get you slapped with a fine of up to $5,000 PLUS an interest on the tax (if any).

To be safe, if there’s anything you’re unsure about, just check with or inform IRAS. Also, IRAS seems to like this magic number 15 a lot — but that makes it easier for us to remember as well.

 

About your property tax

As long as we own a property, we need to pay property tax. Some factors that affect how much we pay are our i) property annual value and ii) if we are staying there or not.

Find out more about property annual value and how to check yours.

Does it make a difference if you are staying in the house or not? What if you’re not staying in the house but are not currently renting it out?

Well, only two things matter to IRAS — if you’re an Owner-Occupier or Non-Owner-Occupier. Typically, you’ll be taxed more if you don’t stay in the property (yes, even if it’s vacant); if you choose to live in the property but rent out part of the home, you’ll pay less tax. There are some exclusions, but these won’t apply to most of us.

Do note that if you’re intending to move back into the property after your Tenant has ended their lease, you’ll need to reapply for owner-occupier tax rates. This is not automatic. Else you’ll still be charged the higher non-owner-occupier residential tax rates.

 

How to calculate rental income tax 

In the rental income example above, $2,700/month was the total rental income, or gross rent.

IRAS taxes you on the net rental income (i.e. gross rent minus any allowable expenses), in which you can opt for a 15% deemed rental expense deduction (on top of mortgage interest; usually pre-filled in your income tax form) or claim the actual amount of rental expenses incurred.

Note: The deemed expenses option is not applicable if:

  • You did not incur any deductible expense apart from mortgage interest
  • The rental income was derived through a partnership in Singapore
  • The rental income was derived from a property held under a trust

 

Rental income tax formula:

Taxable net rental income = [gross rent] minus [allowable expenses (mortgage interest + deemed expenses)]

You can calculate the actual amount of rental expenses incurred, then choose the rental expense deduction route that’ll minimise my taxes.

For example,

  1. i) If actual rental expense deduction is more than 15% — you can use the actual to deduct more and pay less income tax
  2. ii) If actual rental expense deduction is less than 15% — you can use 15% to deduct more and pay less income tax

Those who opt to claim the actual amount of rental expenses incurred should retain all supporting documents such as tenancy agreements, bank mortgage statements, invoices and receipts for at least five years. This is for IRAS’ verification purposes.

If you’re too busy and don’t really bother to maximise your profit and reduce your taxes, using the 15% method is the easiest. 

Adding to the earlier example:

John is a busy man and hence opts for the 15% deemed rental expense deduction, which brings his net rental income to $2,295/month. He’ll be taxed on this amount by IRAS.

Have more than 1 rental property?

If you opt for the 15% deemed expenses route, ALL of your properties will be subject to this claim method during that year of assessment of your income tax.

 

What’s taxable and what’s not?

There are a couple of not-so-clear cut areas on whether something (or someone) is taxable or not, but IRAS has done a pretty good job of listing them out. Here’s a quick summary: 

Rental deposit

Yes, forfeiture of rental deposit is deemed part of your gross rent

Able to appeal for exclusion if reason for forfeiture of rental deposit is due to damages to property by tenant etc. Include the reason(s) when filling up your tax form.

Subletting (rent out rooms while still staying in your property)

Yes, rental income is taxable

Need to apportion the allowable expenses incurred based on the number of rooms rented out.

Insurance claims

Yes, the amount recovered is taxable

-

Rent was due in Dec 2020, tenant only pays in Jan 2021

Yes, taxable under 2020 income (Year of Assessment 2021)

Rental income is taxable from the date it is due and payable to the property owner, NOT the date of actual receipt of payment.

I own the property but I don’t receive the rent

Yes, you’re still taxed as you’re the owner — even if the rent is being paid to someone else

-

I am the co-owner of the property

Yes, taxed according to your legal share in the property (even if you’re not receiving the rent)

-

 

Rental income tax deductions 

For rental income tax deductions, it can get a bit confusing as well. We’ve adapted this table from the IRAS website. Long story short, as long as the cost is incurred by you, during the tenancy period (and in good faith), with no reimbursement from the tenant, it should be tax deductible.

Housing loans

Yes, for interest paid on the loan/mortgage taken to purchase the rental property (apportioned accordingly if it’s also partly personal use)

Doesn’t include repayments of the principal loan or mortgage amount in monthly instalments; doesn’t include penalties imposed for late repayment of loans.

Property tax

Yes, for property tax incurred during the rental period only

Doesn’t include penalties imposed for late payment/non-payment of property tax.

Fire insurance

Yes, for premiums paid

Doesn’t include the capital sum assured on property.

Repairs

Yes, for the cost of repairs done during the rental period

Doesn’t include repairs before/after rental period; doesn’t include improvement works.

Maintenance

Yes, for the cost of maintaining the property (i.e. painting, pest control, monthly maintenance charges to building management)

Doesn’t include improvement works or alterations that are not repairs or maintenance.

Costs of securing tenant

Yes, for the agent's commission, advertising, legal expenses and stamp duties for getting subsequent tenants.

Doesn’t include all the costs of securing the first tenant, unless it’s the first tenant of your additional property (deductible against the rental income of that property).

Costs of supervision or management fees

Yes, for the costs incurred in engaging a third party to manage your property (i.e. rent collection/upkeep/deal with tenants’ queries)

If you’re hiring your own relatives or a company you own, you need to justify that the amount paid is at market rate and commensurate with the services rendered.

Furniture and fittings

Yes, for costs incurred in replacing furnishings to their original state, and renting furniture. 

Doesn’t include the depreciation cost of furnishings or improvements/additions (not for the purpose of repair)

Internet charges/expenses

Yes, if you’ve paid on behalf of your tenant (tenant doesn’t need to pay you back)

-

Utility expenses

Yes, if you’ve paid on behalf of your tenant (tenant doesn’t need to pay you back)

-

Expenses incurred on properties that are not generating rental income

No

These expenses are capital and private in nature

Here are some scenarios:

1. You rent out your property, and pay rent to live elsewhere

Sally owns a property in Orchard, but she just got a job in Jurong. She decides to rent out her entire Orchard property, and stays in a Jurong rental so that she can be close to the office. Sally CANNOT deduct the rent she is paying on her Jurong rental as it is her own private expense.

2. After your tenant left, you struggled for a few months before securing a new tenant

Jill unexpectedly had a tenant terminate the lease agreement early due to his personal reasons. She tried hard to secure a new tenant, through advertisements, engaging an agent and so on, but she only managed to secure a subsequent tenant 3 months later. As a result, her property was left vacant for 3 months.

As Jill has made reasonable effort to look for a subsequent tenant but there were unforeseen circumstances, she is able to deduct the following:

  • Interest on her housing loan, which includes the vacant period, for her Year of Assessment
  • Property tax during the period of tenancy, including the vacant period, for her Year of Assessment
  • Costs of securing the subsequent tenant, which include the agent’s commission, advertising, legal expenses and stamp duties paid

3. You renovate your property before renting it out to its first tenant

Tom buys his first property and decides to renovate it before renting it out. He engages an agent, and successfully finds his first tenant for the property. He CANNOT claim tax deduction on the renovation works, nor the costs incurred to secure his first tenant (only for subsequent tenants, or first tenants of one’s additional properties).

4. You own 2 properties, and are concurrently renting them out

Angeline has a property in Bedok. She buys another in Sengkang. The Bedok property has a long-time tenant, while the Sengkang property needs some repairs before it can be rented out to its first tenant.

Angeline can claim tax deductions for the following:

  • Mortgage interest on both properties, during the respective periods of tenancy
  • Property tax paid for both properties, during the respective periods of tenancy
  • Costs of securing the first tenant of her Sengkang property (first tenant for additional property)

She CANNOT claim tax deductions for the repairs to her Sengkang property as it wasn’t yet tenanted at that time.

5. You stay in your property, and sublet a room in your home

Francis chooses to stay in his property but decides to rent out one of his 3 bedrooms. His net rental income is the gross rent for the Year of Assessment, minus the deductible expenses (divided by the number of bedrooms, or 3). Alternatively, he can just deduct 15% from the gross rent to derive his net rental income.

 

Rental income tax filing for landlords

In summary:

  1. Taxable rental income = gross rent less allowable expenses
  2. Allowable expenses = mortgage interest + deemed expenses

3a. Deemed expenses can be the actual amount of rental expenses incurred OR 15% of the gross rent (simplified)

3b. You cannot claim deemed expenses (whether actual or simplified) if you haven’t incurred any deemed expenses

  1. Method of calculation must be consistent for all of your properties
  2. Keep supporting documents for 5 years
  3. File early to avoid late filing penalties

Visit IRAS’ myTaxPortal to file your income tax; you can also log in directly via the SingPass Mobile app. If you need tax filing assistance, contact IRAS through chatbot AskJamie, send an email via myTax Portal, call 1800 356 8300 or chat online (available Mondays to Fridays, 8am to 5pm).

If you urgently need to visit IRAS itself, make an appointment at least 2 working days in advance. Alternatively, visit the Our Tampines Hub Integrated Public Service Centre (open Mondays to Sundays, 9am to 10pm, except Public Holidays).

 

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This article was written by Mary Wu, who hopes to share what she's learnt from her home-buying and renovation journey with PropertyGuru readers. When she's not writing, she's usually baking up a storm or checking out a new cafe in town.

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