You will be able to calculate your taxable rental income and the expenses you can deduct.
Rent you receive from a property is taxable income, and it is not pre-filled in your tax return. You declare it yourself, property by property. This applies to a single room, a whole flat or a shophouse unit, and the rules are the same whether you let one room or the whole property. A small, informal arrangement between people who get on well is still rental income to IRAS.
If the property is an HDB flat, check HDB's rules on renting out a room or the whole flat before you let it, because the letting must meet HDB's conditions. Lesson 7.3, "Renting out a room or the whole home", in the course "Property & Mortgages: buy a home and manage the loan", covers the wider decision to rent out and the property tax side.
Start with gross rent, which is everything the tenant pays for use of the property in the calendar year. If you provide furniture, fittings or services and the tenant pays extra for them, those payments are generally part of rental income too.
Next, take off the expenses IRAS allows. What remains is net rent. It is added to your other income and taxed at your normal rates. You can treat it as a relief in reverse: a relief lowers your income and saves tax at your marginal rate, and net rent raises your income and is taxed at your marginal rate.
IRAS allows expenses incurred in earning the rent during the period the property is let. You can deduct: interest on the loan used to buy the property (principal repayments on that loan are not deductible) property tax on the property repairs and maintenance that keep the property in the condition it was in fire insurance and similar insurance on the property
Renovation and improvements that make the property better than it was are capital costs, and you cannot deduct them. You also cannot deduct the purchase price or the stamp duty paid on purchase. The IRAS page on rental expenses gives the full list of allowed and disallowed expenses.
If you let only part of your home, you deduct only the share of each expense that relates to the rented part. This is called apportioning, and IRAS explains how to work it out. For example, if you rent out one room in a three-bedroom flat, you cannot deduct all of the mortgage interest.
For some expenses IRAS lets you choose between two methods. Under the actual expenses method you claim what you really spent, with a receipt for each item. Under the simplified option IRAS allows a deemed amount, a set percentage of gross rent, in place of most actual expenses, and you claim mortgage interest separately. You can't claim the same expenses under both methods.
With the simplified option you don't have to collect every receipt, and it can give a larger deduction when your actual expenses are low. In a year with large repairs, actual expenses can come out ahead. IRAS publishes the current deemed percentage and the rules for switching between methods. Read the current IRAS page and work out net rent both ways before you choose.
Shu Ting and Marcus jointly own a condo in Bukit Batok (an invented example). When Shu Ting goes back to work after Wen is born, they rent out the spare room to a nurse who works at the nearby hospital. In this example the nurse pays S$1,200 on the first of each month by bank transfer, so gross rent for the year is 12 months x S$1,200 = S$14,400.
The expenses relating to the room are their share of mortgage interest, property tax, repairs and insurance. Under the actual expenses method these come to S$4,100 (an example figure). Net rent is S$14,400 - S$4,100 = S$10,300.
They also work out the simplified option: gross rent, minus the deemed percentage of gross rent from the current IRAS page, minus their actual mortgage interest. They compare the two net figures and then pick one.
When a property has more than one owner, each owner declares their own share of the rent and of the expenses. Shares generally follow ownership. Joint owners usually split equally, and tenants-in-common split according to their ownership shares. Because Shu Ting and Marcus are joint owners, each of them declares S$7,200 of rent and S$2,050 of expenses, which gives each of them net rent of S$7,200 - S$2,050 = S$5,150. Each enters this in their own return, under that property.
To find the extra tax, add net rent to your other chargeable income and apply your marginal rate. In lesson 1.4, "Rebuild your tax bill from scratch", Shu Ting's chargeable income for last year was S$92,000, in the 10% band of the practice table. Adding S$5,150 keeps her inside the 10% band, so her tax goes up by S$515 (10% of S$5,150).
Marcus's chargeable income for last year, from the same lesson, was S$48,000, in the 6% band of the practice table. His tax goes up by S$309 (6% of S$5,150). They have the same net rent, and Marcus pays less extra tax because his marginal rate is lower.
They keep the tenancy agreement, the bank statements showing the rent received, and every receipt in one folder for that tax year. The receipts support a claim under the actual expenses method, and the folder lets them show IRAS how they reached their figures if asked.
For the activity, take a real tenancy or an example one and work out the taxable rental income for a year under the current IRAS rules. If it is an HDB flat, check HDB's conditions first. Total the gross rent, list the allowable expenses and leave out the capital and other non-allowable items, apportion if only part of the home is let, calculate net rent under both methods, split it by ownership share if the property is co-owned, and work out the extra tax at the marginal rate.
Take a sample tenancy or your own, and calculate a year of taxable rental income under the current IRAS rules.
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