Rental income is chargeable to tax under section 10(1)(f) of the Singapore Income Tax Act. But if the income is derived by way of a rental trade or business, it will be chargeable to tax under section 10(1)(a).
Rental income is usually taxable on the legal owner based on the net rental income derived from 1 January to 31 December. However, if the rental income is derived by a business, the period in which the income is taxable is based on the business accounting period.
Example:
Mr Tan owns a rented property. The period in which the rental income is taxable on him is based on the period 1 January 2018 to 31 December 2018 for the year of assessment 2019.
Example:
ABC Ltd. prepares accounts for 31 March annually. The period in which the rental income is taxable is based on the period 1 April 2017 to 31 March 2018 for the year of assessment 2019.
For the purpose of charging rental income under section 10(1)(f), expenses incurred to earn the rental income are deductible in determining the assessable income. Such expenses include property tax, insurance, rent collection fees, repairs and renewals and expenses incurred in the renewal of the lease.
Expenses incurred in obtaining a new tenant and any expenses of a capital nature are not deductible for the purpose of calculating the assessable rental income. The cost of furnishings and improvements of a capital nature are also not deductible.
It is to be noted that only repairs, replacements and renewals are allowable. No deduction will be given in respect of capital expenditure incurred for letting out the furnished property.
In computing the net rental income taxable on residential property, the expenses incurred can be based on the mortgage interest plus 15% of gross rental income.
Example:
Phillip has one property which was rented out. The net rental income after deducting expenses are:
The net rental income taxable on Philip is:
Therefore, the rental income taxable on Phillip is $39,500.
Income from all properties can be assessed as a group. Losses arising from any property in the group may be offset against the income from other properties in the group within the same period. Where a loss arises from the group, the assessable income will be taken as ‘NIL’ and the loss cannot be carried forward nor offset against income from other sources in the same period.
Example:
The assessable income will be $4,000.
I hope my examples have helped you understand more about income tax treatment.
Sincerely yours,
Stephen
