Tax on Rental Income

Income Tax Act 1967
http://www.kpmg.com.my/kpmg/publications/tax/22/a0053.htm


http://www.hasil.gov.my/pdf/pdfam/PR3_2011.pdf

INVESTMENT HOLDING COMPANY
PUBLIC RULING NO. 3/2011


http://www.hasil.gov.my/pdf/pdfam/PR4_2011.pdf


10.3 If there is a change in tax treatment of the letting of a real property
from a business source under paragraph 4(a) of the ITA
to a non-business source under paragraph 4(d) of the ITA
in the basis period for a year of assessment,
the person who lets out the real property has two sources of income
a)from the same real property in that basis period, i.e a business source under paragraph 4(a) of the ITA and
b)a non-business source under paragraph 4(d) of the ITA.

If as a result of the change:
10.3.1 a company becomes an investment holding company (IHC), the rental income (business source) would be assessed as income under paragraph 4(d) of the ITA. Therefore, the company is not entitled to claim for capital allowances on plant and machinery since they are not used for the purpose of a business at the end of the basis period for that year of assessment.
10.3.2 a company does not become an IHC, the company still derives rental income under paragraph 4(a) and 4(d) of the ITA in respect of the real property. Even though the company is not an IHC, the company would not be entitled to claim for capital allowances on plant and machinery since they are not used for the purpose of a business at the end of the basis period for that year of assessment. Note: The determination of whether a company is an IHC or not is explained in the Public Ruling No. 3/2011 (Investment Holding Company).