Over 280 landlords caught by Iras for under-reporting income

Apr 10, 2023

There is no better time to be a landlord, with rents rising to the point where even well-heeled expats are screaming for mercy and potential tenants are getting scammed because they are willing to send deposits to strangers even without viewing the properties.

If you are one such lucky owner who is enjoying higher rental income, make sure you report the changes before the April 18 tax filing deadline. Non-compliance can mean a tax audit, which can be a painful process, to say the least.

The Inland Revenue Authority of Singapore (Iras) audited around 450 landlords in the past three years for possible breaches, after their income profiles were flagged by internal checks.

In the end, over 280 cases, or 60 per cent of this cohort, were found to have under-reported rental income or mistakenly lowered it by deducting expenses that were not related to their rentals.

These offenders were ordered to pay due taxes plus penalties amounting to $1.3 million in total.

At first glance, the recovered amount seems low considering that there were close to 300 errant landlords. The reason for this is that not all landlords are equal.

If you are a retiree who rents out a second property, the tax imposed is likely to be low if you do not have other income. But if you are a high-income earner who rents out that same property, you pay higher taxes for that same rent because it will be charged based on your overall income.

When it comes to penalties, the taxman is generally more lenient towards those who make honest mistakes and are quick to make amends voluntarily, especially if they also have good and clean tax records.

But if you are tardy and negligent about your tax filings, be warned: You can face a surcharge of up to 200 per cent of unpaid taxes. The surcharge can go up to 400 per cent for those who try to hide their incomes, in addition to the risk of facing fines and jail time if they are charged in court.

If you think you have under-declared income or made incorrect claims in previous years, you should make a voluntary disclosure via myTax Portal on the Iras website as soon as possible. Penalties for voluntary disclosures may be reduced if the qualifying conditions are met.

Here are five common mistakes that land landlords in trouble with the taxman.

I pay property tax

It seems hard to believe, but there are some property investors who think they don’t have to declare their rental income just because they are automatically charged property taxes.

Property tax, which has nothing to do with rent, is a levy based on ownership, regardless of whether the property is rented out. This means you must declare your rental income separately if you have tenants staying in your unit.

You can, however, claim the property tax paid on the rented unit as a deductible expense to defray your total rental income.

My spouse is the landlord

If you and your spouse jointly own a rental property, you both have to declare half of the total rental income separately. You cannot simply deem your spouse as the sole landlord who reports the total income.

This is because tax on rental income is based on your share of the property. This prevents people from avoiding taxes by delegating the entire income to a co-owner who is not working.

So, if you are working and your spouse is not, you will pay higher taxes on your share of the rental income while your spouse is likely to pay only minimal tax.

I estimate the income

If your neighbours charge lower rents than you, you cannot try to lower your tax by submitting an average or estimated rent based on what others are charging.

The rental income reported in your tax return should be the actual amount you receive, not an estimated figure. Similarly, if you want to deduct expenses from your rental income, you must make claims based on actual outlays, not estimates.

I renovated my unit

If your previous tenant turned your unit into a slum and you have to spend a bomb to renovate and spruce it up, you can consider charging your next tenant higher rent as the unit would be as good as new.

What you cannot do is set off the renovation costs as expenses for your future rental income to lower your tax liability. When it comes to making the property more appealing for tenants, the first point of negotiation should be between you and your tenant.

If your tenant asks for a big-screen TV and you think the request is reasonable because of the high rent he is paying, you should just absorb it as part of your own costs. Such purchases cannot be set off against your rental because these are deemed as “new improvements” to your unit.

But if existing appliances such as washing machines or refrigerators break down, the costs of replacing them can be submitted to Iras.

Ultimately, reasonable and common rental expenses will usually pass, but extravagant claims, such as buying the most expensive brand of appliances on the market, will invite scrutiny by the taxman.

I treat tenants to dinner

It is common for business people to submit bills for entertaining clients as legitimate operating costs. But if you buy your tenants dinner, you cannot claim it because this cost is not directly related to your rental income.

While taking your tenants out for a bite will no doubt improve the relationship, only expenses that concern your property can be claimed, and they must be incurred during the rental period.

Just like your rental income, you can claim only for actual expenses, such as your monthly maintenance charges, not estimated costs.

Things to note

There is an easier way to claim for your rental expenses if you are the sort who dislikes paperwork and keeping receipts. You can take advantage of “deemed rental expense”, which will automatically knock off 15 per cent of your gross rental income. Even after making such deductions, you can still submit a claim for the bank interest that is incurred on the mortgage for your rental unit.

Of course, if your outlay is higher than 15 per cent of your rent, you should track and submit the relevant costs. But note that all records of expenses must be kept for at least five years.

Iras helps landlords with their filing by providing pre-filled records based on information reported in the previous year, or from rental agreements. So landlords should verify if these income details are correct before submitting their tax forms.

“If there was an increase in rental income relative to that reported in the previous year, taxpayers should ensure that they revise their rental income details based on the actual rent received,” says the taxman.

Taxpayers who have rented out a property for only part of the year should also adjust the rental period and report the income received for those months.

When it comes to taxation, there is only one rule to follow – file your returns honestly and on time so that you never have to worry about being audited.

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