The biggest grouse that a property owner has comes tax submission season will be the amount of taxes that he has to pay on his property rental income. He will then naturally rummage through all the property expenses he had incurred to determine what is tax-deductible and what is not.
In situations of doubt, I have known of property owners turning to other property owners asking, “do you claim such-and-such expenses in your income tax return?” Well, my sincere hope is that the person he is asking has a good understanding of the tax laws or otherwise, it will be a case of the blind leading the blind and both will end up having to face unnecessary tax penalties when it comes a tax audit.
This article hopes to shed some light on how to determine the tax-deductibility of those expenses.
I have often been asked if there is list of standard expenses that a taxpayer can deduct against the rental income from letting of his investment properties. Quite honestly, there is no ‘standard’ list of allowable tax deductions as the expenses that a taxpayer incurs may be unique to his/her own situation.
Therefore, the taxpayer will have to fall back on the letter of the law to determine if an expense is tax-deductible against rental income. Essentially, the law states that an an expense wholly and exclusively incurred in the production of income under subsection 33 (1) of the Income Tax Act (ITA) 1967 and which is not prohibited under subsection 39 (1) of the ITA, is allowed as a deduction from rental income. What this means in laymen’s terms is, any expenses that you incur for the year to generate the rental income would generally be tax-deductible. This also mean that no private or personal expenses are allowable as a deduction.
Aside from the ‘standard’ list of tax-deductible expenses that a lot of people is asking for, what I can provide you here is a list of COMMON expenses that generally may be claimed as a deduction against rental income, provided that you as the landlord has undertaken to pay for those expenses:
- Advertising for tenants
- Insurance (eg. fire, burglary)
- Interest on loan(s) to finance the purchase of the property being rented out
- Legal expenses (renewal of tenancy agreement, recovery of rental arrears)
- Maintenance/service charges
- Pest control
- Property agent fees/commission
- Quit rent
- Rental collection fee
- Repairs and maintenance
- Replacement of rental assets
Having said that, do ensure that your obligations as a landlord towards the expenses which are to be borne by you, are clearly spelt out in the tenancy agreement to avoid any disputes by the Inland Revenue Board (IRB) against your claims for the said expenses.
Next: Expenses Relating To Rental of Real Property (Pt. 2)