7 Key Facts that Singapore Landlords Must Know about Property Taxes

The upside to being a landlord in Singapore is flexibility – unlike many other countries, the government does not impose restrictions such as how much you can set the rent, or prohibit eviction of non-paying tenants (squatting, while not unheard of, is very improbable in Singapore). However, one downside is that property taxes for non owner-occupied properties are higher; and this should be factored into the overall costs of your rental asset.

In the following, I will list some of the key issues you should know about property taxes, if you wish to rent out your unit:

Fact #1: Property taxes are based on the Annual Value (AV) of your property, which may not match the actual rental rate

The amount of property tax you pay is based on the Annual Value (AV) of the property. The AV is the estimated annual rental income the property would generate, if it were rented out.

For example, if it’s estimated that your property could generate $3,500 in rental income per month, then its AV would be set at $42,000.

The AV is determined by IRAS, and is based on current market rates for the area. As it’s based on market rates, this also means the AV is periodically revised, and can change. IRAS will send you a message, as and when the AV of your home is changed.

The key thing to note is that the AV is not based on the actual rental income that your property generates. For instance, if you were to rent out a property for $45,000 per year, but the AV is $42,000, then it counts as $42,000 for tax purposes.

In some rare cases, it can result in situations where the AV is higher than the rental income generated. For these situations, you can raise an objection to IRAS; the authorities will then evaluate your objection on a case-by-case basis.

Unfortunately, I can tell you the following reasons will not be considered grounds for objection:

  • You feel the property tax rate is too high, relative to what you’re earning from it
  • It is not a rental property (note: property taxes for your personal home are also based on AV, even though it’s not rented out; but you can’t really dispute the tax rate for non-rental assets)
  • You are experiencing financial difficulty

Do call IRAS or visit their website; the objection can be filed online.

Fact #2: Property tax rates are higher if you rent out the property

The property taxes for owner-occupied properties are as follows:

Annual Value ($) Effective 1 Jan 2015 Property Tax Payable
First $8,000
Next $47,000
0%
4%
 $0
$1,880
First $55,000
Next $15,000

6%
$1,880
$   900
First $70,000
Next $15,000

8%
$2,780
$1,200
First $85,000
Next $15,000

10%
$3,980
$1,500
First $100,000
Next $15,000

12%
$5,480
$1,800
First $115,000
Next $15,000

14%
$7,280
$2,100
First $130,000
Above $130,000

16%
$9,380

For non-owner occupied properties, the tax rates are as follows:

Annual Value ($) Effective 1 Jan 2015 Property Tax Payable
First 30,000
Next $15,000
10%
12%
$3,000
$1,800
First $45,000
Next $15,000

14%
$4,800
$2,100
First $60,000
Next $15,000

16%
$6,900
$2,400
First $75,000
Next $15,000

18%
$9,300
$2,700
First $90,000
Above $90,000

20%
$12,000

For example, say a property has an AV of $45,000, and it is owner-occupied. You would pay a property tax of $1,480.

If the same property is non-owner occupied, or rented out, you would pay $4,800 instead.

Do note that you pay the higher tax rate so long as the property is not owner-occupied, which means you would pay it even if the property were vacant. This is why it’s important to minimise any vacancy of your rental unit. If you need urgent help finding a tenant, please contact me directly.

Fact #3: Utility bills, including the wi-fi costs, are tax deductible

For properties that are rented out, you can claim the power, water, wi-fi, and related utility bills as tax deductions. To do this, all you need to do is to prepare the invoices and receipts to show IRAS at the end of the year. The relevant amounts will be deducted from your tax.

Do ensure that you keep all the relevant documents for five years, for validation; this shouldn’t be difficult these days, as such documents can just be stored away in your email.

Also, note that you cannot claim these tax deductions, unless you are the one paying for them. If your tenant already pays for utilities and wi-fi, or your tenant reimburses you, you cannot claim the deduction. IRAS may ask to see the Tenancy Agreement (TA), in which it’s spelled out that you’re the one covering these costs.

As you can deduct these expenses, it’s worth considering covering them for your tenant; this could make your property more attractive to them, and you’re effectively “reimbursed” anyway.

Fact #4: Some – but not all – types of maintenance can be claimed as tax deductions

Repair

Repairs, such as replacing doors, plumbing, electrical repairs etc. can always be claimed as tax deductions. The only requirement is that you must have paid for these while the property was being rented out; not before.

This is quite important to note when you are changing tenants. For example, say tenant A is leaving, and the lease for tenant B will begin seven days after A leaves.

If you want to do tax deductions for maintenance claims, this must be done either before tenant A’s lease is up, or after tenant B’s lease begins. Any maintenance done in the week between tenants will not be claimable.

In addition, note that only repairs, and not improvements or alterations, are tax deductible. This can be a bit of a grey area – for example, if the floor tiles are broken, and you replace them with more expensive marble tiles, this could construe an “improvement” that’s not claimable. For help with these issues, let me know the specifics and I can advise you better.

Next, we come to the complicated topic of property management

The maintenance fees paid to your MCST can always be claimed as tax deductions, that much is clear.

Property management fees are less simple. This is when you have a third party helping to collect rent, manage the tenants, and so forth. This may come in the form of a professional service, or it may even be friends and relatives who live in the unit, and act as managers.

While property management fees are claimable, things get complicated when friends or family are acting as property managers. The government is wary of collusion, such as when you claim to pay excessively high amounts to family for “property management” – they need to be sure you’re not doing this just to max out your tax deductions.

As such, you may be called upon to explain why you pay the given rate, and what services are involved. For this reason, it may be more practical to use a professional service; especially if you own and rent out multiple property assets.

Fact #5: For every tenant after the first, you can claim the service fee you pay to property agents

This is for both for finding new tenants, and lease renewals. The only time you can’t claim is when it’s the first tenant.

If you rent out more than one property however, you can claim the agent fees even for the first tenant of the next property.

For example:

Say you own property A and property B. Both are being rented out for the first time. You cannot claim the agent fees for the first tenant in property A.

Once property is rented out however, you can claim the agent fees for finding a tenant for property B – even if that’s the first tenant for property B.

Yet another good reason to use a property agent. 🙂

Fact #6: You can claim the home loan interest as a tax deduction

This only applies to the interest portion of the home loan. For example, say your monthly loan repayment is $3,500. Of this amount, $1,900 is interest. This is the portion that you can claim as a tax deduction.

To find out how the exact amount of interest, you’ll have to check your bank statements (which you also need to show to IRAS). This amount can vary every year, depending on your home loan rates.

Fact #7: You can just claim a flat 15 per cent of gross rental income as a tax deduction

If you don’t have the time or inclination to do compile all the receipts, well, you can just claim 15 per cent of the gross rent; such as a flat $6,750 out of $45,000. You will find that in many cases, but not all, the expenses come to roughly this amount anyway.

That said, I would advise landlords to keep track of the expenses anyway. At times when the rental expenses exceed the flat 15 per cent, you’ll want to claim the actual amount. This is, at any rate, not difficult to track these days – not with the help of some simple spreadsheet software.

Remember that the lower your property tax, the higher your rental yield and eventual resale gains. Optimising your property returns is a key element of building property wealth. To be sure, this process will become more detailed as you add new properties to your portfolio; but it is quite simple to track for just the first or second unit you let out.

For more help and property investment knowledge, follow me on RonChongProperty.sg.

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