Special Tax Deduction for landlords who waive or reduce rents
The Movement Control Order (MCO) is in phase 4 now, and it has left many tenants and landlords in uncertain positions. Many tenants still concern if they are allowed to reduce their rent or entitled to waiver of rent from their landlord during the MCO period.
Unless otherwise agreed by the landlord or stated explicitly in the tenancy agreement (i.e., covered by a force majeure clause), rent is chargeable according to the tenancy agreement. It has to be paid by the tenants even in the MCO period, failing which, the tenants may be in breach of the tenancy agreement. This would financially burden most of the tenants who are not in business during the MCO period.
As such our Prime Minister Tan Sri Muhyiddin Yassin has announced earlier that landlords who waive or reduce rent for small and medium enterprises (SMEs) for April till June 2020 shall receive the equivalent sum in tax deductions. To qualify for this special additional tax deduction, the reduction of rent provided must be at least 30% of the original monthly rent. This special measure announced by the government has benefited both landlords and tenants.
Who is eligible for this special tax deduction?
· Any taxpayer (corporate, individual, cooperative or other business and non-business entities) who rent the business premises to any qualified SMEs tenants
· The premise rented to the tenant must be used for the purpose of carrying out a business only
· The landlord must be a taxpayer with rental income under Section4(a) and 4(d) of the Income Tax Act 1967.
Definition of SME for this special tax deduction purpose
In accordance to the definition under the National SME, a business can be qualified as SME if it meets one of the criteria as listed below:-
1. Sales turnover; OR
2. The number of full-time employees;
Whichever is lower.
Detailed definition of category, namely Micro, Small and Medium is as follows:
What is the cut-off date used in determining SME criteria?
How is this special tax deduction calculated?
 Assuming no other allowable direct expense claim
Tax rate based on current corporate tax rate
With this special tax deduction, the total tax savings that landlord will enjoy is RM1,800.
For taxpayers other than companies such as individuals, tax savings are based on tax rates based on their respective taxable income ranges.
However, despite the special measure announced by the government, tenants must take note that the said special measure does not obligate a landlord to reduce or waive any rent for his tenants. A tenant shall negotiate with the landlord in respect of the rental and may highlight to the landlord on the special tax deduction. If the landlord rejects the request, and there is no clause dealing with the MCO or COVID-19 situation in the tenancy agreement, the tenant is legally required to pay the rent as stipulated in the Tenancy Agreement.