Economic Stimulus Package 3.0 Special Deduction On Rental Reduction Offered To Small And Medium Enterprises Tenants
- Eligibility criteria for the special deduction.
- Mechanism of the special deduction.
In the supplementary stimulus package announced on 6 April 2020 which was targeted to support small and medium enterprises (SMEs), the Prime Minister urged owners of private business premises to provide rental reduction or waiver to tenants that consist of SMEs.
Landlords of business premises that offer reduction or relief of rental payment to SMEs tenants of at least 30% of the existing rental rate from April 2020 to June 2020, are allowed to claim a special deduction equivalent to the rental reduction.
The Inland Revenue Board of Malaysia (IRBM) has issued a ‘Frequently Asked Questions’ (FAQ) on this matter on 25 April 2020 and the following is a summary of the mechanism of the special deduction.
2. Conditions of eligibility
- The rented premises must be used by the tenant for purpose of carrying out his business.
- The landlord must be a taxpayer with rental income under subsection 4(a) and subsection 4(d) Income Tax Act (ITA) 1967
- The rental reduction should be at least 30% of the existing rental rate of the determined period, ie. from April 2020 to June 2020
2. Conditions of eligibility
i. Entities that are public-listed on the main board; and
ii. Subsidiaries of:
- Publicly-listed companies on the main board;
- Multinational corporations (MNCs);
- Government-linked companies (GLCs);
- Syarikat Menteri Kewangan Diperbadankan (MKDs); and
- State-owned enterprises.
c) Related companies
d) Cut-off date used in determining the SME criteria of the tenant
Note: If SME’s basis period ended on 31 December 2019, sales turnover for that period must be used.
4. Meaning of ‘business premises’
- All premises used for carrying out a business, eg, office, workshop, warehouse, childcare and rented lot/bazaar/booth/stall.
- Rental of a residential house used for both residential and business activities, is excluded.
- Special deduction is not applicable to rental of other than ‘premises’ such as machines, motor vehicles, parking spaces, telecommunication towers, etc.
5. Quantum of special deduction
- Subject to fulfilling the conditions of eligibility and the definition of SME, a special deduction of equivalent to the amount of monthly rental reduction offered by the landlord to the eligible SME tenants.
- Even if the landlord reduces the rental amount at a different rate every month, the company is still eligible for the special deduction provided that reduction amount should not be less than 30% for each eligible month.
- If in any of these eligible months, the rental reduction is less than 30%, then the company is not eligible to claim the special deduction for that particular month/months.
6. Calculation of special deduction
A Sdn. Bhd rents a shop lot to B which is an eligible SME for RM5,000 a month (RM60,000 yearly). A Sdn. Bhd. has agreed to offer rental reduction to B for the month April, May and June 2020 of RM2,500 a month.
1 Assuming no other allowable expenses
2 Current corporate tax rate
Total tax savings to be enjoyed by the landlord is as follows:
Tax savings = RM12,600 – RM10,800 = RM1,800.
For other taxpayers such as individuals, the tax savings is according to the taxpayer’s income tax bracket.
7. Rental already received in full for the months of April 2020 to June 2020
The landlord who has received the rental payment for April, May and June 2020 in advance can still claim the special deduction, provided that the landlord offers a rental reduction according to the conditions above.
8. Supporting documents required
i. Valid tenancy agreement;
ii. Rental income statement;
iii. Details of the tenant as SME such as number of business registration, tax file number etc.; and
iv. Details of the rental reduction.
*Items (iii) & (iv) will have to be provided in Working Sheet (HK) of Company Return Form. For the full FAQ, please visit: http://lampiran1.hasil.gov.my/pdf/pdfam/FAQ_PRE3.0_RENTAL_REDUCTION_1.pdf
This special deduction is favourable to taxpayers whose rental income qualifies as a business source under subsection 4(a) ITA 1967, as the taxpayer’s current year business loss (if any) can be utilised to set off against income from all sources in the current year. Any unutilised losses can be carried forward for a consecutive period of 7 years of assessment (YA) to be utilised against income from any other business source.
However, taxpayers whose rental income is assessed under subsection 4(d) ITA 1967 will see lesser or no benefits, as rental loss can only be set off against the rental income of other properties and cannot be deducted against the aggregate income from other sources. Neither can the rental loss be carried forward to subsequent YAs.