Taxation Issues

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Rental income is generally regarded as a non-business source of income which is assessed under Section 4(d) of the Income Tax Act, 1967 ITA. In the case where rent is a section 4(d) source, rent from each property is treated as a separate source of income. However, as a concession, in computing the adjusted income from rent, the properties of the person can be grouped into the following categories: •residential properties,

commercial properties, and
vacant land
The date of commencement of renting is on the first day the property is rented out. In the event a rental loss occurs, it becomes a permanent loss because it cannot be set off against other income sources or even other rental income sources. The loss also cannot be carried forward to the subsequent year of assessment. No capital allowance is given for the premise or assets provided to earn the rent. However, expenses incurred wholly and exclusively in earning the rental income are deductible against the rental income. This includes the replacement or repair or maintenance cost related to the premise and other assets used to earn the rent. Furthermore, rental income can also be assessed as Section 4 (a) Business Income under certain situations. This is evident in The case of Per Lord Diplock in the American Leaf Blending Co Sdn Bhd v DGIR (1950-1985) MTSC 28 ( Privy Council ) is the issue of whether rent is assessable under Section 4(a) or Section 4(d) of Income Tax Act where it was held that although rent is assed under section 4(a) income it can be a business source of income if it is received in the course of carrying on a business of renting out the taxpayer’s property. In order for rental income to be assessed as business income and not investment income, two aspects need to be considered. 1.The number of units of property owned.

This consideration however applies only to companies. A company can have its rental income assessed as Section 4(a) business income if it is letting at least...
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