Landlords who give rental discounts to SMEs to get tax deductions under SME stimulus package

As announced by Prime Minister Tan Sri Muhyiddin Yassin on 6 April 2020 as part of the Prihatin Stimulus Package for SME, owners of buildings or business spaces that provide a reduction or suspension of rent for tenants of business premises comprising of Small and Medium Enterprises (SMEs) are given special deductions equivalent to the amount of rent reduction for the months of April 2020 until June 2020. This special deduction is given subject to the condition that there is at least a 30% reduction from the normal rate of rent for the specified period.

Here is a summary of the Special Tax Deduction given to Landlords on the rental deduction given to their SME tenants:

1. Who is eligible to claim the special tax deduction?
Any registered taxpayer (corporate / individual / cooperative / business entity) who is renting out their properties to SME tenants.

2. What is the rate of the special deduction?
The rate of special deduction is equivalent to the amount of reduction in rental for business premises of SMEs that satisfies the definition of a SME.

3. What is the minimum rental reduction required to be given in order to enjoy the special tax deduction?
To qualify for the special deduction, the rent reduction given must be at least 30% from the normal rate of rent.

4. Which period is eligible for the special deduction?
April 2020 to June 2020

5. How will the special deduction be provided?

The special deduction will be provided through the Income Tax System.

Example:

A Sdn. Bhd. rented a business premise which is a shop lot to B which is a SME at the rental rate of RM5,000 per month (RM60,000 per year). A Sdn. Bhd. agreed to provide a reduction in rental to B for the months of April, May and June 2020 for as much as RM2,500 per month (50% reduction).

		WITHOUT SPECIAL DEDUCTION	WITH SPECIAL DEDUCTION
Monthly rental		RM5,000	RM5,000
Yearly rental (before reduction)		RM60,000	RM60,000
Rental Reduction of 50% April to June 2020	RM5,000 X 50% X3 months	(RM7,500)	(RM7,500)
Yearly rental (after reduction)		52,500	52,500
Special deduction	RM5,000 X 50% X3 months	Nil	(7,500)
Taxable income		52,500	45,000
Tax payable (assuming 24%)		12,600	10,800

Total tax savings*: RM12,600 – RM10,800 = RM1,800

*Please note that the tax saving will differ between corporate and individual due to different tax % rate.

6. If I reduce rent at varying rates each month, but these rates exceed 30% for each month, am I eligible?

Yes. Calculations are based on monthly basis at which the rates are required to be no less than 30% within the eligible month. However, if there is a rental reduction in the eligible month but the rate is less than 30%, then a special deduction cannot be claimed for the relevant month.

7. What are the supporting documents required?
1. Valid Tenancy agreement
2. Rental income statement
3. Certification of the tenant’s status as a SME company
4. Supporting documents to prove rental reduction (to be announced by LHDN at a later date)

IMPORTANT NOTICE: This is a summarized version.
For full reference, please refer to the statement issued by the Government (source: Cadangan Langkah Cukai Pre 3.0 (SME))