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.

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

Public Ruling 8/2025: LHDN's Comprehensive Guide to SME Tax Treatment in Malaysia

 

LHDN's Public Ruling 8/2025 consolidates all tax treatments for Malaysian MSMCs in one document. Learn about qualification criteria, preferential tax rates, and the new 20% foreign ownership cap.

Public Ruling 8/2025: LHDN's Comprehensive Guide to SME Tax Treatment in Malaysia

The Inland Revenue Board of Malaysia (LHDN) has released Public Ruling No. 8/2025, titled "Tax Treatment for Micro, Small and Medium Companies." This comprehensive ruling consolidates all existing tax treatments for Malaysian MSMCs into one definitive reference document, making it easier for business owners and tax practitioners to understand and apply the rules.

What is Public Ruling 8/2025?

Public Ruling 8/2025 is a consolidation document that brings together all existing tax treatments for companies and Limited Liability Partnerships (LLPs) that qualify as Micro, Small and Medium Companies (MSMCs) under the Income Tax Act 1967.

It is important to note that most of the tax treatments covered in this ruling have been in effect for several years. The preferential tax rates, paid-up capital requirements, and gross income thresholds were already established through previous practice notes (including Practice Note 4/2020) and legislative amendments. PR 8/2025 now provides a single, comprehensive reference that includes detailed examples and scenarios.

The one key new element introduced is the 20% foreign ownership restriction, which took effect from Year of Assessment 2024.

Who Qualifies as an MSMC Under the Income Tax Act?

To qualify for MSMC tax benefits, a company or LLP must meet the following criteria:

Criteria	Requirement
Residency	Resident and incorporated/registered in Malaysia
Paid-up Capital	Not exceeding RM2.5 million at the beginning of the basis period
Gross Business Income	Not exceeding RM50 million in the basis period
Shareholding Structure	Not controlled by larger entities (>50% by related company with capital >RM2.5m)
Foreign Ownership (from YA 2024)	Not more than 20% owned by foreign entities or non-Malaysian citizens

Key Highlight: 20% Foreign Ownership Cap (Effective YA 2024)

The most notable new element in PR 8/2025 is the 20% cap on foreign ownership, which took effect from Year of Assessment 2024. A company will not qualify as an MSMC if more than 20% of its paid-up capital is owned by:

•Foreign companies incorporated outside Malaysia; or

•Individuals who are not Malaysian citizens.

Impact: Malaysian SMEs with foreign investors exceeding this threshold will lose access to preferential tax rates and other MSMC benefits. This could result in a higher tax liability.

Action Required: If your company has foreign shareholders, review your shareholding structure to determine if you are still eligible for MSMC status.

Preferential Tax Rates for MSMCs (Existing Rates Confirmed)

PR 8/2025 confirms the preferential tax rates that have been in effect since YA 2023:

Chargeable Income	Tax Rate
First RM150,000	15%
RM150,001 – RM600,000	17%
Above RM600,000	24%

Compared to the standard corporate tax rate of 24%, this tiered structure provides substantial tax savings for smaller businesses.

Tax Deduction for E-Invoicing Implementation

PR 8/2025 also covers the tax deduction available for e-invoicing implementation under the ESG (Environmental, Social and Governance) framework:

•Maximum Deduction: RM50,000 per year of assessment

•Period: YA 2024 to YA 2027

•Eligible Expenses:

•Consultation fees for developing customized e-invoicing software

•Fees for external service providers related to e-invoicing implementation

Note: This deduction does not cover planning stage costs or consultation fees for using the MyInvois Portal.

Detailed Scenarios for Gross Income Determination

One of the valuable aspects of PR 8/2025 is the inclusion of detailed scenarios (previously covered in Practice Note 4/2020) with comprehensive examples:

Scenario	Treatment
Business rental income (with comprehensive services)	Counted as gross business income
Passive rental income (without comprehensive services)	NOT counted as gross business income
Business losses	Deemed as NIL gross business income (still qualifies)
Temporary business closure	Deemed as NIL gross business income (still qualifies)
Foreign business income	Included in RM50 million threshold
Income with tax incentives (e.g., pioneer status)	Full gross income counted, regardless of exemptions

Tips for Malaysian SMEs

1. Use PR 8/2025 as Your Reference Document

This Public Ruling is now the definitive guide for MSMC tax treatment. Keep a copy for reference when preparing your tax returns or discussing tax matters with your accountant.

2. Review Your Foreign Shareholding

If your company has foreign shareholders, calculate the total foreign ownership percentage. If it exceeds 20%, consider restructuring options to maintain MSMC eligibility.

3. Plan Your E-Invoicing Implementation

Take advantage of the RM50,000 tax deduction by implementing e-invoicing before the deadline. Ensure your expenses are properly documented and eligible for the deduction.

4. Understand the Gross Income Rules

The distinction between business income and non-business income (e.g., passive rental income) is critical for MSMC qualification. Ensure your income is correctly classified.

How KS Chia & Associates Can Help

Navigating the complexities of Malaysian tax law requires professional expertise. At KS Chia & Associates, we specialize in helping SMEs understand and comply with the latest tax regulations.

Our services include:

•Tax advisory

•Company tax compliance

•E-invoicing implementation guidance

•Shareholding structure review

Contact us today for a consultation:

KS Chia & Associates (AF001828) WhatsApp: +6011 2366 5233

Conclusion

Public Ruling 8/2025 serves as a comprehensive consolidation of all existing tax treatments for Malaysian MSMCs. While most of the rules have been in place for several years, having them compiled in one document with detailed examples provides valuable clarity for business owners and tax practitioners. The key new element to note is the 20% foreign ownership cap effective from YA 2024, which may affect companies with significant foreign investment.

Source : https://www.hasil.gov.my/media/fo1ptejq/pr-8-2025-tax-treatment-for-micro-small-and-medium-companies.pdf

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