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Tax filing for landlords made easy

02 Apr, 2018

Any rental income from letting out a property must be declared for tax purposes, and it helps for owners to know what they can claim for rental-related expenses

A hefty $7.37 million in taxes and penalties have been recovered by the taxman in the past three years following audits on 1,500 taxpayers concerning their rental income.

That alone should serve as a stark reminder that we must declare all sources of income in our annual individual tax returns, including money derived from renting out property.

Recently, two individuals were charged in court after they omitted rental income - a combined amount of $711,021 - from their tax returns. Their omissions meant the taxman missed out on $121,919.95.

Another taxpayer will need to go to court this month for submitting falsified invoices - amounting to $284,308.52 - to the Inland Revenue Authority of Singapore (Iras) to support claims made for rental expenses.

These expenses can include the cash that he forked out on repairs, property tax and fire insurance incurred during the rental period.

Last month, The Sunday Times highlighted eight ways of maximising reliefs to reduce your tax bill. Today, we list some things landlords of residential properties should know about tax filing.

RENTAL INCOME AND RENTAL EXPENSES CLAIMS

REPORTING OF RENTAL INCOME

Any rental income you receive when you let out your property is subject to income tax and must be declared in your income tax returns.

Gross rent refers to the full amount of rent and related payments you receive when you lease your property. This includes rent of the premises as well as any payments a tenant might make for use of the furniture and fittings.

Expenses incurred solely for producing the rental income and during the period of tenancy may be claimed as tax deduction.

There are two ways owners can claim for rental-related expenses. You can opt for a 15 per cent deemed rental expense deduction or claim the actual amount of rental expenses incurred.

Claims for mortgage interest, repairs and maintenance must be substantiated with receipts or invoices. The Iras requires supporting documents on expenses incurred to be kept for a period of five years for verification purposes.

SIMPLIFIED CLAIM FOR RENTAL EXPENSES

To simplify tax-filing and make record-keeping easier, the Iras has pre-filled rental details in your online tax returns so that you would only need to verify the information when you e-file and make amendments if necessary.

And you can opt on a yearly basis to deduct an amount of deemed expenses of 15 per cent of the gross rent in lieu of the actual amount of deductible expenses incurred from the rental income.

On top of the 15 per cent deemed rental expenses, you can still claim the interest on the mortgage taken to buy the tenanted property. Keep supporting documents relating to the interest paid for at least five years.

Since the introduction of the "15 per cent deemed expenses" claim in 2016, more than half of residential property owners who have rented out homes have taken up the option to enjoy seamless tax-filing.

CLAIM FOR RENTAL EXPENSES BASED ON ACTUAL AMOUNT INCURRED

If you prefer to claim actual rental expenses instead of the simplified 15 per cent deemed expenses claims, your claims must be substantiated with proper receipts or invoices. Records of these expenses must be kept for five years.

Here are the expenses that qualify for deduction:

  • Interest on the housing loan: The interest you pay on the rental property's mortgage is probably one of the largest expenses you'll incur on a recurring basis. While you can't make claims for the principal loan or mortgage amount itself, be sure to claim your tax deductions for the interest you pay.
  • Property tax: Property tax you incur during the rental period can be claimed.
  • Repairs: Expenses for repairs done within the rental period that restore the property to its original state are allowable deductions. However, initial work done before the property was rented out cannot be claimed. Nor can any work that resulted in an improvement, addition or alteration to a property.
  • Maintenance: The costs of maintaining the property (such as painting, pest control, maintenance charges paid to management corporations, and so on) are also allowable deductions.

For more details and tips on what to look out for when reporting rental income, please visit Rental Income and Expenses.

Adapted from: The Straits Times, 1 Apr 2018