Singapore - Taxation on Rental Income

Singapore - Taxation on Rental Income

Rental income from properties in Singapore is subject to income tax and must be reported in an individual's personal tax return (Form B1). Certain expenses can be deducted from the rental income to reduce the taxable amount. These expenses must not be capital in nature and should be incurred in the same period as the taxable rental income.

The Inland Revenue Authority of Singapore ("IRAS") provides flexibility in claiming deductions for rental expenses. Individuals can choose between two options: deemed expenses or actual expenses. However, specific rules must be followed, especially for those with multiple rental properties.

Methods of Reporting Rental Income:

1. Deemed amount of expenses - The deemed expenses amount is set at 15% of the gross rental income received. An individual who chooses this option can also claim a deduction for the mortgage interest paid on the loan used to purchase the property. No other records are required to be kept under this option, except for mortgage interest documentation for the last five years.
2. Actual amount of expenses - Individuals may opt to deduct actual expenses incurred. All supporting documents for these expenses must be retained for the last five years. Allowable expenses include property tax, maintenance fees, agent fees, insurance, and other relevant costs. A complete list of allowable expenses is available on the IRAS website.

Key Points to Consider:

1. IRAS allows individuals to switch between the deemed and actual expense options from year to year. This flexibility in tax planning enables individuals to choose the most tax-efficient method based on their circumstances for a given year.
2. Deemed expense options are not allowable for non-residential properties, and all records and supporting documents for expense claims must be kept for five years. 
3. Individuals with multiple rental properties must apply the same expense option across all properties within the same tax year. For instance, one cannot use the deemed expenses method for one property and the actual expenses method for another in the same year.
4. With effect from Year of Assessment ("YA") 2022, rental expenses incurred during the vacant period between two leases are deductible, provided that reasonable efforts have been made to find new tenants.
5. Initial repair and maintenance costs that result in improvements, alterations, and additions are not allowable expenses.
6. Costs associated with obtaining the first tenants are generally not allowable, but as of a specific date, these expenses are permitted under certain restrictions.
7. Rental losses (when deductible expenses exceed gross rental income) cannot be offset against other sources of income. However, rental losses can be combined to offset rental income from all of the individual's properties, resulting in a total taxable rental. Any unutilised rental losses cannot be carried forward to future years.

Tax Planning Considerations:

Effective tax planning is essential for individuals earning rental income in Singapore. Proper record-keeping for expenses is critical, especially for those with multiple rental properties. Individuals should perform comparative calculations to determine which reporting option is more advantageous each year.

Additionally, since IRAS permits the combination of rental losses from one property with rental income from others when calculating total net rental income, this comparative analysis should be taken into account. For example, if one property incurs high expenses and generates a loss, that loss can help reduce the overall taxable rental income for the year.

If you discover that there have been incorrect claims leading to underreporting, you should make a voluntary disclosure to IRAS to reduce potential penalties (which can range from 200% to 5% per year of delay).

BDO Singapore can assist with reporting rental income in Singapore and review your claims if you suspect they may be incorrect. If you require our assistance or have any questions, please contact Wu Soo Mee at soomee@bdo.com.sg or Viranda Suwanda.

In the next edition, we will touch on Taxation of Accommodation Benefits. Look out for it!