Generally, rental income generated from the letting of real property in Malaysia is subject to tax under the Income Tax Act 1967 (ITA). It is crucial to determine whether the rental income is a business source under paragraph 4 (a) or a non-business source under paragraph 4 (d) of the ITA.
The reason for this is because rental income under paragraph 4 (a) and paragraph 4 (d) of ITA receives different tax treatment.
Basically, if the maintenance or support services in relation to the real property are comprehensively & actively provided, then the letting of a real property is deemed as a business source and charged to tax under paragraph 4 (a) of the ITA.
Based on the information given in PR 12/2018, maintenance or support services comprehensively provided means services which include:
✅ Doing generally all things necessary (e.g. cleaning services or repairs) for the maintenance and management of the real property such as the structural elements of the building: stairways, fire escapes, entrances and exits, lobbies, corridors, lifts/escalators, compounds, drains, water tanks, sewers, pipes, wires, cables or other fixtures and fittings; and
✅ Doing generally all things necessary for the maintenance and management of the exterior parts of the real property such as playing fields, recreational areas, driveways, car parks, open spaces, landscaped areas, walls and fences, exterior lighting, or other external fixtures and fittings.
If a person only provides security services or other facilities, that person is not providing maintenance services or support services comprehensively.
Services actively provided means the person who owns or lets out the real property:
(a) Provides himself; or
(b) Hires another person or another firm to provide maintenance services or support services.
The letting of real property is treated as a non-business source and charged to tax under paragraph 4 (d) of the ITA if a person lets out the real property without providing maintenance services or support services comprehensively and actively.