You will be able to calculate taxable rental income and the expenses you can deduct.
When Shu Ting went back to work after Wen was born, she and Marcus rented out the spare room in their condo in Bukit Batok to a nurse who worked at the nearby hospital. The rent was S$1,200 a month in this example, paid on the first of each month by bank transfer. It felt like a small arrangement between people who got on well. To IRAS, it was rental income, and it had to go on both their returns.
This lesson covers how rental income is taxed, which expenses you can take off, and how co-owners declare their shares. It applies whether you let a single room or a whole property. Property & Mortgages: buy a home and manage the loan, lesson 7.3, Renting out a room or the whole home, covers the wider decision to rent out and the property tax side. If you own an HDB flat, check HDB's rules on renting out a room or the whole flat before you start, since letting it out needs to meet HDB's conditions.
Rent you receive is taxable, whether it comes from a room, a whole flat or a shophouse unit, and because it is not pre-filled, you declare it yourself in your return, property by property.
The figure you declare first is the gross rent: everything the tenant pays you for the use of the property in the calendar year. If the tenant pays extra for furniture, fittings or services you provide, that is generally part of the rental income too.
From the gross rent you take off the expenses IRAS allows, and what's left, the net rent, is added to your other income and taxed at your normal rates. So, like a relief in reverse, net rent is taxed at your marginal rate.
IRAS allows a deduction for expenses incurred in earning the rent during the period the property is let. The common ones are:
interest on the loan used to buy the property, but not the principal repayments 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
Some costs are not allowed. Renovation and improvements that make the property better than it was are capital costs, so they can't be deducted from rent. The same goes for the purchase price, the stamp duty when you bought, and principal repayments on the loan. The IRAS page on rental expenses gives the full list.
When you rent out only part of your home, as Shu Ting and Marcus did, you can only deduct the share of each expense that relates to the rented part. IRAS explains how to apportion the expenses. A room in a three-bedroom flat doesn't let you deduct all of the mortgage interest.
IRAS gives you a choice for some expenses. You can claim your actual expenses, with receipts for each. Or you can use a simplified option, under which IRAS allows a deemed amount, a set percentage of the gross rent, in place of most actual expenses, with mortgage interest still claimed separately. You can't claim both for the same expenses.
The simplified option saves you collecting every receipt, and it can give a larger deduction when your actual expenses are low. Actual expenses can come out ahead in a year with large repairs. IRAS publishes the current deemed percentage and the rules for switching between methods, so read the current page and run both.
If a property is owned by more than one person, each owner declares their share of the rent and of the expenses, and the shares generally follow the ownership: joint owners usually split equally, while owners holding as tenants-in-common split according to their shares.
Shu Ting and Marcus own their condo jointly, so they each declare half.
Here is their year, with example figures throughout. Twelve months at S$1,200 gave a gross rent of S$14,400. Their share of mortgage interest, property tax, repairs and insurance relating to the room came to S$4,100 under the actual expenses method. The net rent was S$14,400 minus S$4,100, which is S$10,300.
Each of them declared half: S$7,200 of rent and S$2,050 of expenses, giving S$5,150 of net rent each.
Now the tax. Using last year's figures from lesson 1.4, Rebuild your tax bill from scratch, Shu Ting's chargeable income was S$92,000, in the 10% band of the practice table. Adding S$5,150 kept her inside that band, so her tax rose by S$515. Marcus's chargeable income was S$48,000, in the 6% band, and his tax rose by S$309.
They then ran the simplified option, using the deemed percentage on the IRAS page and their actual mortgage interest, and compared the two net figures before choosing. They kept the tenancy agreement, the bank statements showing the rent, and every receipt in a folder for that tax year.
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.
Using an example or real tenancy, calculate the taxable rental income for a year under the current IRAS rules.
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