The biggest complaint that property investors generally have is the amount of tax that has to be paid on the their rental income. Naturally, investors will try to find as many expenses as possible to reduce the charge on tax which often leads to risk of incorrect claims and being penalised after a tax audit.

This article is extracted from the book “How to Pay Less Tax Legally” by Richard Oon.

When it comes to tax returns, your motto should be ‘better safe than sorry’ and that means sticking to the law. Under the Income Tax Act (ITA) 1967, an expense must be ‘wholly and exclusively’ incurred in the production of rental income to be tax-deductible. This rules out any private or personal expenses.

Unfortunately, there is no ‘standard’ list of expenses as every circumstance is unique. There is only a list of COMMON expenses which can be claimed for, so long as they are genuine:

• Advertising for tenants



• Assessment



• Insureance (e.g. fire, burglary)



• Interest on loan(s) to finance the purchase of the rental property



• Legal expenses



• Maintenance/service charges



• Pest control



• Property agent fees/commission



• Quit rent



• Rental collection fee



• Repairs and maintenance



• Replacement of rental assets

As well as the types of expenses that are tax-deductible against rental income, you should also take not of the expenses which are not claimable to avoid penalties. Typically, initial expenses are not covered as they are incurred to ‘create a source of rental income’ and not in the ‘production of rental income’.

Examples are as follows:

• The costs of obtaining the first tenant for the property, such as advertising, introducer’s commission and legal fees incurred for the preparation of the tenancy agreement



• Other expenses incurred before the property is rented out



• Renovation and improvement costs

It should also be understood that repairs and maintenance are tax-deductible, while renovations and improvements are not. Repairs and maintenance expenses will not add to the property’s value, nor substantially prolong its useful life, but merely keep it in a good and efficient operating condition.

The IRB’s PR 4/2011 provides a wealth of information for you as a landlord to file your taxes correctly, so do give it a read to equip yourself with the knowledge you need to save the most that you can when paying your taxes.