Rental Income: Business Source or Non-Business Source? Malaysia High Court Rules in 2026

A High Court decision on 22 April 2026 has clarified a question that affects many Malaysian companies that own and rent out properties: when does rental income qualify as business income under Paragraph 4(a) of the Income Tax Act 1967 (ITA 1967), and when is it simply passive rental income under Paragraph 4(d)? The answer has significant consequences for how expenses are deducted, whether losses can be carried forward, and whether capital allowances are available.

The Case: Glenmarie Estates Sdn Bhd v Director General of Inland Revenue

Glenmarie Estates Sdn Bhd, a non-listed investment holding company, owns 14 properties that were rented out. The company took the position that its rental income was taxable as business income under Paragraph 4(a). LHDN disagreed and raised additional assessments for financial years 2015, 2016, and 2017 on the basis that the income was non-business rental under Paragraph 4(d).

The Special Commissioners of Income Tax dismissed the taxpayer's appeal on 14/07/2023. The company brought the matter to the High Court of Kuala Lumpur, which dismissed the appeal again on 22/04/2026, with costs awarded to LHDN.

The Legal Test: What Does "Comprehensive and Active" Mean?

Under Public Ruling No. 12/2018 (Income from Letting of Real Property), rental income is treated as a business source under Paragraph 4(a) only if the owner provides maintenance or support services that are both comprehensive and active.

Comprehensive means covering all general upkeep of the property — structural elements, common areas, stairways, lobbies, lifts, car parks, drains, landscape, exterior fittings. Providing security services alone does not meet this standard.

Active means the owner proactively ensures these services are delivered — either directly or through appointed contractors — as an ongoing obligation. Services that are only provided when tenants make a request or complaint do not qualify.

In this case, the court found that the tenancy agreements did not require the company to provide comprehensive maintenance. The evidence showed services were provided reactively — upon request or complaint only. This was insufficient to satisfy the test in PR 12/2018.

The Investment Holding Company Dimension: Section 60F ITA 1967

Because Glenmarie Estates is a non-listed investment holding company (IHC), Section 60F ITA 1967 applies. Under Section 60F, income derived from investments — including rent — is treated as income from a non-business source. This reinforced LHDN's position that the correct treatment is Paragraph 4(d).

If your company is structured as an IHC and rents out properties, the threshold to qualify for Paragraph 4(a) is higher, and the risk of misclassification is greater.

What About PR 12/2018 Applying to Pre-2018 Years?

The taxpayer argued that PR 12/2018, published on 19/12/2018, should not apply to financial years 2015, 2016, and 2017. The court rejected this. PR 12/2018 replaced Public Ruling No. 4/2011, which had been in force since 10/03/2011. The same guidance on the comprehensive-and-active test existed throughout the years under assessment. There was no retrospective application — the law and its interpretation were consistent.

Key Differences: Paragraph 4(a) vs Paragraph 4(d)

• Deductible expenses: Under 4(a), both direct and indirect expenses are deductible. Under 4(d), only direct expenses directly related to earning that rental income are allowed.
• Capital allowances: Claimable under 4(a) on qualifying plant and machinery. Not available under 4(d).
• Rental losses: A 4(a) business loss can be set off against aggregate income from other sources and carried forward. A 4(d) rental loss is restricted — cannot be set off against other sources and cannot be carried forward.

What Property-Owning Companies Should Do Now

• Review your tenancy agreements — do they expressly require you to provide comprehensive maintenance, or only to respond to complaints?
• Review your actual maintenance practices and ensure records exist to show services are delivered proactively and comprehensively.
• Confirm whether your company is classified as an IHC, and whether Section 60F applies to your situation.
• Review your current and prior-year tax filing positions to assess exposure.

Need Help?

KS Chia & Associates advises companies on rental income classification, investment holding company tax treatment, and LHDN audit exposure. If you own properties through a company structure and are unsure whether your tax position is defensible, speak to us before your next filing.

WhatsApp or call us at 011-2366 5233.

Note: Glenmarie Estates retains the right to appeal to the Court of Appeal within 30 days from 22/04/2026. This article reflects the High Court decision. The position may change if the Court of Appeal rules differently.

HASiL Found RM3.5 Billion in Unreported Income Using e-Invoice Data — What Malaysian Businesses Must Know

On 27 April 2026, HASiL (Lembaga Hasil Dalam Negeri Malaysia) announced that cross-referencing e-Invoice transaction records against filed income tax returns identified taxpayers with unreported income. The results confirm that e-Invoice data is now an active tax enforcement tool — not a future risk.

What the Numbers Show

Following HASiL's nudging exercise, 38,906 taxpayers submitted income tax returns (Borang Nyata Cukai Pendapatan / BNCP) declaring RM3.5 billion in previously unreported income, resulting in RM760.7 million in tax payable. Taxpayers who did not respond voluntarily will face audit and enforcement action under the Income Tax Act 1967.

Separately, a National e-Invoice Compliance Operation conducted from 20 to 24 April 2026 identified 108 Phase 1 and 2 businesses — those with annual turnover above RM25 million — still not issuing e-Invoices. These businesses are now subject to enforcement action.

What This Means for Your Business

• Received a nudge letter? Act before it becomes a formal audit notice. Voluntary disclosure at this stage carries materially lower penalty exposure than a post-audit assessment.
• No letter yet? Check whether your declared income for YA 2024 and YA 2025 is consistent with your e-Invoice submission records. A gap is detectable.
• Phase 1 or 2 business not yet on e-Invoice? Enforcement action is already underway. Rectify immediately.
• Phase 4 business (below RM5 million)? The relaxation period runs until 31 December 2027. Use it to prepare — not to defer.

Key Facts at a Glance

Item	Figure
Unreported income identified	RM3.5 billion
Taxpayers who submitted returns after nudging	38,906
Tax payable declared	RM760.7 million
Phase 1 & 2 businesses under enforcement	108
Phase 4 relaxation deadline	31/12/2027

Source

HASiL Press Statement HASiL/2026/04/27 – 25, dated 27 April 2026. Available at www.hasil.gov.my.

Need Help?

If you have received a nudge letter, are unsure whether your records are consistent, or need to assess your e-Invoice readiness, contact us before the situation escalates.

WhatsApp or call: 011-2366 5233
KS Chia & Associates (AF001828)

Form BE Last-Minute Check: 5 Quiet Errors That Draw LHDN Attention (YA 2025)

Form BE e‑filing closes 30 April 2026. LHDN offers a grace period until 15 May 2026. Many salaried employees rush the submission and miss small details. The mistakes that cause issues are not obvious typos. They are quiet gaps that pass initial checks but raise flags later. We review hundreds of files each season. Here are the patterns we see.

Why “Quiet Errors” Matter More Than Typos

LHDN’s system validates your submission in real time. It accepts the form even if figures do not add up perfectly. The mismatch shows up later. You receive a CP500 instalment notice or an information request 3–6 months after filing. Correcting it then takes extra steps. You can file Amended BE Form to fix the record. Catching the error now saves time and removes uncertainty.

Silent Trigger #1: HK‑2 Working Sheet Figures Do Not Match the EA Form

Your employer submits the EA Form to LHDN. You submit the HK‑2 working sheet with your Form BE. LHDN’s system compares the two. A difference of even RM50 triggers a flag. Common causes: manual calculation slips, missing bonus lines, or using last year’s draft template. Solution: request the final EA Form from HR. Match each line to your HK‑2. Keep both documents for seven years.

Silent Trigger #2: Income Placed in the Wrong Section

Dividends, rental income, or side freelance work often land in the employment income section. This happens when taxpayers copy last year’s layout. For YA 2025, dividend income moves to Part BA (Item B8). Actively managed rental belongs on Form B, not Form BE. Passive rental can stay on Form BE. Misclassification changes your tax bracket and relief eligibility. Use the current MyTax portal layout. Do not copy-paste from prior years.

The Other 3 Triggers (Relief Claims & Documentation)

We track three more gaps. They sit in relief claims and supporting documents. They look routine on paper. LHDN checks them against your spending history and employer data.

We keep the exact verification steps, acceptable document formats, and response templates in our internal checklist. It saves clients hours when LHDN sends an information request.

Want the full 5‑point checklist and correction steps? WhatsApp “BE SAFE” to 011 2366 5233. We’ll send the PDF straight to your WhatsApp.

What If You Already Filed?

Do not wait for a notice. Log into MyTax. Compare your filed HK‑2 against your final EA Form. If figures differ, prepare Amended BE Form. LHDN allows penalty-free corrections for YA 2025 errors filed in 2026. If you need a quick review, send us your EA Form and HK‑2 draft via WhatsApp. We’ll check the alignment and flag gaps before they become queries.

Frequently Asked Questions

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Q: What is the Form BE filing deadline for YA 2025?

A: 30 April 2026. LHDN provides an e-filing grace period until 15 May 2026.

Q: What happens if my HK-2 does not match my EA Form?

A: LHDN’s automated system flags the difference.

Q: Can I still correct my Form BE after submission?

A: Yes. Submit Amended BE Form through MyTax. 

Q: Do I need to declare dividends on Form BE for YA 2025?

A: Yes. Report dividends in Part BA (Item B8). If your total dividend income exceeds RM100,000, the excess is subject to 2% tax.

Related Articles

Which form should I file — Form B or Form BE? (10 April 2026)

Danger Zone: Are you copying last year’s tax figures? (22 April 2026)

New 2% Dividend Tax for YA 2025

The Danger Zone: Why You Can't Ignore the New 2% Dividend Tax for YA 2025

For years, Malaysian taxpayers have enjoyed a straightforward rule: under the single-tier system, dividends received from Malaysian companies are tax-free. Because of this, many business owners and investors have developed a habit of simply copying last year's tax figures when filing their Form B. Starting in Year of Assessment (YA) 2025, that habit enters a dangerous new territory.

The Inland Revenue Board (LHDN) has introduced a new 2% Dividend Tax effective YA 2025. Because this is the first year taxpayers have to deal with it, it represents a massive "danger zone" for compliance. Failing to declare this income correctly can lead to severe penalties under Section 112(3) or Section 113(1) of the Income Tax Act 1967 for submitting incorrect returns.

What Changed with Dividend Tax in Malaysia?

To broaden the tax base, the government now imposes a 2% tax on dividend income distributed by a company to individual taxpayers that exceeds RM100,000 per annum. This applies whether the dividend is received in cash or in-specie.

The key facts you must know:

• The tax applies to dividends received from both listed and unlisted shares in Malaysia.
• It affects resident individuals, non-resident individuals, and individuals holding shares through nominees.
• Only the portion of dividend income exceeding the RM100,000 threshold is subject to the 2% tax.

How the Tax is Computed (It's Not Simple)

You cannot just lump your dividend income together with your business or employment income anymore. Under the new rules gazetted on 7 May 2025, dividend tax requires a separate computation.

The portion of your chargeable income attributable to dividends is determined using a specific statutory formula (A/B x C) under Part XXII of Schedule 1. This means your Form B now has a split structure to handle this dual tax computation:

• Part BA (Item B8): You must report your statutory dividend income here, separate from other income sources.
• Part BB (Item B26): The chargeable income subject to the dividend tax is calculated here using the formula.
• Part BB (Item B27): The 2% tax is applied to the calculated dividend amount.
• Part BB (Item B28): Your remaining chargeable income is taxed at normal scale rates.

Getting the mapping wrong between these sections will misstate your tax liability and could trigger an LHDN audit.

The Good News: Exemptions Apply

Not all dividends are caught in this new tax net. The following dividend sources remain exempt and are out-of-scope for the 2% tax:

• Profit distributions from the Employees Provident Fund (EPF / KWSP)
• Distributions from Amanah Saham Nasional Bumiputra (ASNB)
• Distributions from Lembaga Tabung Angkatan Tentera (LTAT) or any unit trusts
• Overseas (foreign source) dividend income
• Dividends from companies enjoying pioneer status or reinvestment allowances
• Dividends distributed by co-operatives

Who Needs to Be Careful?

The taxpayers most at risk of falling into this danger zone are:

Business owners and directors: Those who regularly extract profits from their private companies (Sdn Bhd) via dividends instead of salaries.

High-net-worth investors: Individuals holding significant portfolios of listed shares on Bursa Malaysia.

Joint assessment filers: Spouses filing together must now separately disclose the dividend-earning spouse's statutory dividend income.

Need Help Navigating YA 2025?

Do not assume your dividends are still tax-free. The first year of a new tax law is when the most costly mistakes happen. Let our team review your dividend income position and handle the complex new Form B computations for you.

Contact KS Chia & Associates (AF001828) for professional tax advisory and compliance services. WhatsApp us at 011 2366 5233.

Form C YA 2026: Key Changes

Form C YA 2026: Key Changes and Updates Explained

LHDNM just released the new Form C for YA 2026. If you run a company in Malaysia, you need to understand how these reporting changes affect your annual tax filing. Our team compared the YA 2025 and YA 2026 forms to highlight the most important updates.

 

New Disclosures for Labuan and Venture Capital Entities

The YA 2026 form introduces three new disclosure items in the basic particulars section. Companies must now declare if they are a Labuan company (Item 19), a Venture Capital Company (Item 20), or a Venture Capital Management Company (Item 21). These items did not exist in the YA 2025 form.

LHDNM also added specific lines in the chargeable income section — A21 for Venture Capital Fund Entity income and A22 for Venture Capital Management income. The tax payable section now includes dedicated rate lines: 5% for VC Fund Entities and 10% for VC Management Companies.

Beneficial Owner Section Removed

One major change is the complete removal of the "Beneficial Owner" section from Part G. This removal addresses significant practical challenges raised by industry bodies like CTIM. Previously, tax practitioners struggled to acquire BO information because company secretaries were often restricted from releasing this confidential data without explicit director consent. There was also a timing mismatch between CCM anniversary filings and tax financial year-ends. LHDNM has acknowledged these challenges, and this duplicative reporting requirement is now gone in YA 2026.

Expanded Top-up Tax Reporting

For multinational companies, the reporting for Domestic Top-up Tax (DTT) and Multinational Top-up Tax (MTT) has been expanded. Instead of a simple Yes/No, companies must now specify if they are subject to DTT only, MTT only, both, or neither. The Ultimate Parent Entity's name and jurisdiction are now captured in separate fields.

Declaration Wording Updated

The declaration section now includes "to the best of this company's knowledge" — a new qualifier that was not present in YA 2025. Directors signing the declaration should take note of this change.

Direct Communication with Taxpayers

A very notable addition is the new standalone fields for the company's telephone number (G3) and email address (G4) in Part G. This indicates that LHDNM intends to communicate directly with the taxpayer company, rather than relying solely on correspondence through the appointed tax agent. Companies should ensure the contact details provided here are actively monitored.

Other Changes

The transfer pricing section replaces generic "Others" options with more specific descriptions like "Manufacturer other than the above." The CbCR reporting entity attachment now includes a TIN field for the ultimate holding entity.

Need Help?

Contact KS Chia & Associates (AF001828) for professional advice on your corporate tax filing under the new Form C YA 2026 requirements. WhatsApp us at 011 2366 5233.