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.

Why LHDN Audits Companies: 8 Warning Signs Every Malaysian Business Must Know

 

Receiving a tax audit notice from LHDN (Lembaga Hasil Dalam Negeri Malaysia) is one of the most stressful events a business owner can face. An audit means months of gathering documents, answering detailed questions, and potentially facing extra tax assessments and penalties.

But here is what most business owners miss: LHDN does not select companies for audit by chance. They look for specific patterns. There are clear risk indicators that consistently draw their attention. Understanding these signs is your first line of defence.

Based on insights from recent tax audit and investigation guidelines, this guide sets out the eight red flags LHDN uses to identify audit candidates. This includes a major development for 2025 and 2026: real-time transaction monitoring through e-Invoice.

Red Flag 1: Unusual Expense Claims

The statutory test for a deductible business expense under Section 33 of the Income Tax Act 1967 is that it must be 'wholly and exclusively incurred in the production of income.' LHDN scrutinises claims that fail this test. Inflated deductions, personal expenses routed through the company, or directors' entertainment costs without clear business justification will trigger questions. If a private element exists, LHDN may disallow the claim and treat the amount as undeclared income.

Red Flag 2: Abnormal Margins or Persistent Losses

LHDN compares your company against industry data. Margins significantly below sector norms, or year-on-year losses without a credible explanation, will attract attention. If related parties are involved, this may point to a transfer pricing issue where profits are shifted to a related entity at non-arm's length prices. Companies with cross-border related-party transactions must maintain contemporaneous transfer pricing documentation under s.140A ITA 1967 and the Transfer Pricing Rules 2012.

Red Flag 3: Significant Related Party Transactions

Management fees, royalty arrangements, and intercompany loans are assessed for commercial substance and arm's length compliance. LHDN will question whether management fees paid to a holding company have genuine substance, whether royalty amounts are commercially justified, and whether intercompany loans carry market-rate interest.

Red Flag 4: Data Inconsistency Across Government Agencies

LHDN cross-references data from SSM (company filings), RMCD (SST returns), and from YA 2025 onwards, MITRS financial statement submissions. The revenue you declare in your SST return to Customs must reconcile to your Form C submitted to LHDN. Any discrepancy — even a legitimate one — will trigger a query. You should reconcile SST output figures to audited revenue before filing Form C, and document any legitimate differences.

Red Flag 4A: e-Invoice — Real-Time Monitoring (The Game Changer)

This is the most significant shift in LHDN's audit capability. Under the MyInvois framework, e-Invoices issued and received are validated and stored on LHDN's platform in real time. LHDN can track your monthly revenue as it happens, cross-match supplier and buyer records automatically, and compare your declared figures against transaction-level data it already holds.

The era of year-end adjustments is effectively over. Your annual return must reconcile to e-Invoice data. The mandatory timeline is rolling out in phases:

• August 2024: Turnover > RM100 million

• January 2025: Turnover > RM25M to RM100M

• July 2025: Turnover > RM5M to RM25M

• January 2026: Turnover up to RM5M

 

Note: Businesses with turnover below RM1,000,000 are exempted from e-Invoice implementation.

Red Flag 5: Director and Shareholder Transactions

Shareholder loans, excessive directors' remuneration, and personal expenses claimed through the company are examined closely. Asset transfers between directors and the company may also trigger RPGT or stamp duty questions. You must verify that directors' remuneration disclosed in the audited accounts is consistent with Form EA and Form C.

Red Flag 6: Significant Revenue or Profit Fluctuations

Sharp changes in revenue or profit that do not match the economic environment draw LHDN's scrutiny. A 40% revenue drop in a stable year, or a sudden profit surge when input costs rose, will raise questions. Maintain contemporaneous records like board minutes, management accounts, and key correspondence. The explanation must exist before the audit, not be constructed after.

Red Flag 7: Cash-Intensive Businesses

Restaurants, retailers, and construction companies handling large cash volumes face higher inherent risk. LHDN applies indirect income estimation methods, comparing declared revenue against electricity consumption, premises size, headcount, or lifestyle indicators. With e-Invoice now rolling out, LHDN will also compare declared cash revenue against e-Invoice-verified purchase volumes. Implement a POS system, maintain complete cash records, and ensure all sub-contractor payments in construction are supported by agreements and receipts.

Your Tax Audit Risk Checklist — Ask Yourself Right Now

1. Are all expense claims supported by invoices and a clear business purpose?
2. Can I explain why margins are low or why the company reported a loss?
3. Is transfer pricing documentation in place for cross-border related-party transactions?
4. Do SST output figures reconcile to audited revenue?
5. Are directors' remuneration disclosures consistent with Form EA and Form C?
6. Is there documentation explaining significant revenue or profit changes?
7. Are cash transaction records complete and systematic?
8. Does the business comply with the e-Invoice mandate, and do accounts reconcile to MyInvois data?

Need Help with Your Tax Audit Risk?

KS Chia & Associates provides tax compliance review, transfer pricing documentation assistance, e-Invoice compliance review, and annual tax compliance for Malaysian businesses.

WhatsApp us: 011-2366 5233

This article is prepared for general information purposes. It does not constitute legal or tax advice for specific circumstances. Readers are encouraged to seek professional advice for their individual situations.

LHDN's New Guidelines for Social Media Influencers: What You Need to Know

The Inland Revenue Board of Malaysia (LHDN) has released new guidelines on the tax treatment of income for social media influencers, effective 14 January 2026. If you earn income from social media, it is important to understand your tax obligations.

This guide breaks down the key points of the new LHDN guidelines to help you stay compliant.

Who is Considered a Social Media Influencer?

According to the guidelines, you are considered a social media influencer if you are involved in activities such as:

•Creating and sharing content: Producing, recording, publishing, or displaying any audio, video, or written content on social media.

•Appearing in events: Participating in any activity, program, or event on social media.

•Promoting products or services: Engaging in advertising or promotional activities on social media.

•Receiving benefits: Accepting any form of payment, gift, or benefit for your involvement in social media.

What Income is Taxable?

All income you receive as an influencer is considered business income and is subject to tax. This includes both monetary and non-monetary payments. The guidelines provide a list of taxable income sources:

All income derived from your activities as an influencer is taxable, regardless of whether the payment comes from within or outside Malaysia.

What Expenses Can You Claim?

You can claim deductions for expenses that are directly related to your income-generating activities as an influencer. These include:

• Internet and data costs

• Filming and editing costs

• Other expenses wholly and exclusively incurred in the production of your gross income

You can also claim capital allowances for any capital expenditure incurred in your activities as an influencer.

Your Tax Responsibilities

As a social media influencer, you are responsible for:

• Reporting all your income: You must declare all income received from your activities as an influencer in your annual tax return.

• Paying your taxes: You are required to pay income tax on your chargeable income at the prevailing tax rates.

• Keeping proper records: You must keep complete and accurate records of all your income and expenses for at least seven years.

Need Help?

Understanding your tax obligations as a social media influencer can be complex. If you have any questions or need assistance with your tax planning, please do not hesitate to contact us.

Whatsapp us: 011 2366 5233

Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Please consult with a qualified tax professional for advice tailored to your specific situation.

Reference: Lembaga Hasil Dalam Negeri Malaysia. (2026, January 14). Guidelines on Tax Treatment on Income of Social Media Influencer. https://www.hasil.gov.my/media/vtllnhxu/20260114-guidelines-tax-treatment-on-income-of-social-media-influencer.pdf

Budget 2026 Malaysia: Essential Tax Changes You Need to Know

 

By: KS Chia & Associates - Licensed Tax Agents, Kuala Lumpur

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⚡ Quick Summary (TL;DR)

Budget 2026 announced 40 tax measures on 10/10/25. Three require immediate action:

1. LLP Partners: NEW 2% tax on distributions >RM100k (Act by 31/12/25 for tax-free window)
2. Businesses: Capital allowance 100% in 2 years - BUT local manufacturers ONLY
3. Individuals: Multiple reliefs expanded (childcare RM2k→RM3k, learning disabilities, CCTV)

👇 Skip to your section: LLP Partners | Business Owners | Working Families

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🚨 URGENT: New LLP Tax (Deadline: 31/12/25)

What's Changing

LLP profit distributions were 100% tax-exempt. From YA 2026: distributions >RM100k taxed at 2%.

Critical Deadline

31 December 2025 = Last day for 100% tax-free distributions (YA 2025)

⚠️ Don't Convert to Sdn Bhd!

Common mistake: "I'll convert my LLP to Sdn Bhd to avoid the tax"

Reality: Sdn Bhd dividends ALSO taxed at 2% (from YA 2025 - already in effect!)

What to Do NOW

✅ Calculate your YA 2026 distribution exposure
✅ Consider accelerating profits to YA 2025 (if cash flow permits)
✅ Review optimal distribution amounts per partner

Need help? Free assessment available 👇

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⚠️ Capital Allowance: The Local Manufacturer Trap

The Good News

Claim 100% capital allowance in 2 years (was 3-10 years):

• Year 1: 20% + 40% = 60%
• Year 2: 40%
• Total: 100% in 2 years

The Catch (CRITICAL!)

Only for machinery from LOCAL manufacturers!

Who Qualifies vs Who Doesn't

Real Impact: RM100k Machinery

Local Manufacturer (2 years):

• Year 1: Claim RM60,000
• Year 2: Claim RM40,000
• Tax saving @ 24%: RM14,400 (Year 1)

Imported (7 years):

• Year 1: Claim RM34,000
• Years 2-7: Spread over 6 more years
• Tax saving @ 24%: RM8,160 (Year 1)

Difference: RM6,240 cash flow advantage in Year 1 for local machinery!

Before You Buy: Verification Checklist

Most Malaysian SMEs import specialized machinery. Don't assume you qualify!

Verify:

1. Is supplier the actual manufacturer or just distributor?
2. Where is machinery manufactured? (Malaysia vs imported)
3. Get manufacturer's SSM registration
4. Obtain written manufacturer declaration
5. Document for LHDN audit

Purchase Deadline: 11/10/25 to 31/12/26 (only 14.5 months)

Our Service: We'll verify your supplier's qualification before you commit. Contact us 👇

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👨‍👩‍👧 Individual Tax Reliefs - What's Expanded

1. Childcare Relief: RM2,000 → RM3,000 ✅

What Changed:

• Increased to RM3,000 (permanent)
• Age limit: Up to 12 years (was 6)
• Includes after-school transit centers

Tax Saving: ~RM240-260 per year

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2. Learning Disabilities: RM6,000 → RM10,000 ✅

Covered:

• Assessment, diagnosis, early intervention
• Rehabilitation for autism, ADHD, GDD, Down syndrome
• Children aged 18 and below

Tax Saving: ~RM2,400 at 24% rate

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3. Life Insurance: Now Includes Children ✅

Previous: RM3,000 for self & spouse only
New: RM3,000 now includes children's life insurance

Child Eligibility:

• Below 18 and unmarried, OR
• 18+ unmarried pursuing tertiary education, OR
• Disabled children (no age limit)

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4. CCTV & Home Safety: RM2,500 Relief ✅

New Items:

• CCTV systems for home
• Food waste grinders

Claim: Once within 2 years (YA2026-2027 only)

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5. Tourist Attractions: RM1,000 Relief ✅

New for YA2026:

• Entrance fees to museums, theme parks, zoos
• Cultural and art programmes

Tax Saving: ~RM240

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🤖 AI Training Incentive for MSMEs

Who: MSMEs (including HRDF contributors)
Benefit: Extra 50% tax deduction on AI training
Frequency: Once every 2 years
Period: YA2026-2027

Example:

• Spend RM20,000 on AI training
• Total deduction: RM30,000 (RM20k + RM10k extra)
• Tax saving @ 24%: RM7,200
• Effective cost: RM12,800

Requirements: Training must be recognized by MyMahir/NAICI

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🏢 Other Key Business Measures

Foreign Income: Extended Exemption

• Dividends & capital gains from overseas
• Extended 4 years (2027-2030)

Bursa Listing: Expanded Eligibility

• Now includes energy & utilities MSMEs
• RM1.5 million deduction on listing costs
• YA2026-2030

Stamp Duty Changes

• Non-citizens: 4% → 8% (residential property)
• First home: Exemption extended to 2027 (up to RM500k)
• Employment contracts: Threshold RM300 → RM3,000

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✅ Your Action Plan

For LLP Partners (URGENT - By 31/12/25)

1. Calculate YA2026 distribution exposure
2. Review cash flow for YA2025 accelerated distributions
3. Assess partnership agreement flexibility

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For Businesses (Before Machinery Purchase)

1. Verify manufacturer location (Malaysia vs imported)
2. Request SSM registration & manufacturing license
3. Get written manufacturer declaration
4. Calculate: local premium vs tax benefit
5. Time purchases within deadline (by 31/12/26)

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For Individuals & Families 

1. Review childcare expenses & documentation
2. Assess learning disability treatment costs
3. Consider CCTV/food waste grinder purchase (YA2026)
4. Plan domestic tourism with entrance fees
5. Review life insurance for children

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For MSMEs (Planning AI Training)

1. Identify AI training needs
2. Verify provider recognition (MyMahir/NAICI)
3. Budget for YA2026 or YA2027
4. Submit application to TalentCorp
5. Document expenses properly

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🚫 Common Mistakes to Avoid

❌ Mistake 1: Converting LLP to Sdn Bhd

Why wrong: Both have 2% tax. LLP actually better (RM100k threshold).

❌ Mistake 2: Assuming All Machinery Qualifies

Why wrong: Only Malaysian-made qualifies. Most machinery is imported.

❌ Mistake 3: Waiting Until December

Why wrong: LLP deadline 31/12/25. Capital allowance deadline 31/12/26. Plan now!

❌ Mistake 4: Incorrect AI Training Calculation

Why wrong: It's EXTRA 50% (not 150% total). Verify training recognition.

❌ Mistake 5: Thinking Budget = Final Law

Why wrong: Finance Bill Part 2 coming. May have changes or additions.

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💼 Need Professional Guidance?

Budget 2026's 40 measures require expert navigation. We're offering:

🎁 FREE Budget 2026 Impact Assessment (30 minutes)

We'll analyze: ✅ Which measures affect your specific situation
✅ Exact RM tax impact calculations
✅ Strategic planning recommendations
✅ Action timeline with deadlines

Our Services:

• LLP distribution optimization
• Capital allowance verification
• Individual tax relief maximization
• Business incentive applications
• Year-end tax planning

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📞 Contact Us 

KS Chia & Associates
Licensed Audit & Tax Firm • Kuala Lumpur

Get Your Free Assessment:

• WhatsApp: +60 11-2366 5233 (fastest response)
• Phone: 03-6258 3692
• Email: info@kschia.com.my
• Website: www.kschia.com.my

Office Hours: Mon-Fri 8.30am-5.30pm

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🎯 Key Takeaways

1. LLP partners: Act by 31/12/25 for last tax-free window
2. Businesses: Verify local manufacturer status BEFORE buying machinery
3. Individuals: Multiple reliefs expanded - maximize your claims
4. MSMEs: AI training offers 50% extra deduction
5. Stay alert: Finance Bill Part 2 coming with more details

Don't wait until December. Strategic planning today saves thousands tomorrow.

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About KS Chia & Associates

Licensed audit and tax firm serving Malaysian businesses since 1995. We specialize in tax planning, audit, and business advisory for SMEs.

Credentials: Licensed by MOF | Approved LHDN tax agents | 30-person professional team | 500+ clients nationwide

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