# Tax on Rental Income: the Pre-Letting Expense Line

> When a letting commences for tax, why expenses incurred to get the first tenant are never deductible, and what happens in the gap between tenants.

- Category: taxation
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/taxation/rental-income-tax

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The single most common error on a Malaysian rental computation is claiming the
cost of finding the first tenant. The agent's commission, the tenancy agreement
legal fee, the stamp duty, the property listing — all of it, disallowed.

The reason is structural. Those costs create the source of income; they are not
incurred **in producing** it. Public Ruling 12/2018 para 8.3 states it flatly:
initial expenses are not deductible from rental income assessed under either
s.4(a) or s.4(d), and it gives the examples — the cost of obtaining the first
tenant, advertising, legal costs of preparing the tenancy agreement, stamp duty
and agent commission.

Do the same thing for the **second** tenant and it is deductible. Para 8.2(e)
allows expenses incurred to renew a tenancy or change a tenant.

## When the letting commences

The commencement date decides which side of that line each ringgit falls on,
and it is not the same for both paragraphs.

| Source | Commences on | Authority |
| --- | --- | --- |
| s.4(d), non-business letting | The date the property is **first let** | PR 12/2018 para 6.1 |
| s.4(a), business letting | The date the property is **ready to be let** | PR 12/2018 para 6.2 |

Ready to be let means ready for occupation by a tenant **and** steps taken to
let it — advertising, or appointing an agent. In PR 12/2018 Example 9 a
refurbished office block advertised on 1 April, ready on 1 June and actually
let on 1 August commences on **1 June**.

A letting is a s.4(a) business source only where maintenance and support
services are provided comprehensively and actively — lifts, security, cleaning,
central air conditioning. A shophouse let with none of that is s.4(d), even in
the same portfolio as buildings that qualify. Example 12 splits one owner's
three properties across both paragraphs.

## What you can deduct under s.4(d)

Para 8.2 lists the direct expenses allowed against gross rent:

- **quit rent and assessment** paid to the land office and local authority;
- **interest** on the loan taken to finance the purchase of the let property;
- **fire insurance** premiums on the let property;
- **rent collection costs**, including legal expenses to enforce collection;
- **tenancy renewal or tenant replacement** costs;
- **repairs** of an ordinary kind, to keep the property in its existing state.

Repairs that improve rather than maintain are capital and fall outside s.33(1).

## The vacancy period

Expenses incurred while a property is not let are not deductible — unless the
vacancy occurs **after** the property has already been let and it is clearly
available to be let again. Then the expenses run through the gap.

PR 12/2018 Example 20: a house let from 1 January, vacant from 1 September, re-let
1 December. The full year's quit rent and assessment are allowed, because the
vacancy came after letting and the house was available throughout.

Paragraph 8.4.2 extends this treatment where letting stops temporarily for
repair or renovation of the building, or for absence of a tenant for a period
after a tenancy ends.

## Common mistakes

- **Deducting first-tenant costs.** Never allowed, under s.4(a) or s.4(d).
- **Deducting loan principal.** Only the interest is deductible.
- **Claiming renovation as repair.** Improvement is capital.
- **Starting the s.4(d) clock at purchase.** It starts on the date first let.
- **Assuming vacancy kills the deduction.** After the first letting, an
  available property keeps its deductions running.

## What's next

Confirm whether your letting is a s.4(a) or s.4(d) source before you compute,
then check which return form the answer puts you on.

## Sources

- Ketetapan Umum No. 12/2018 — Pendapatan Daripada Sewaan Harta Tanah — https://www.hasil.gov.my/wp-content/uploads/KU_12_2018.pdf (Lembaga Hasil Dalam Negeri Malaysia)
- Income Tax Act 1967 (Act 53), reprint of 21 May 2024 — ss.4(a), 4(d), 33(1), 39(1) — https://www.hasil.gov.my/wp-content/uploads/20240521-akta-cukai-pendapatan-1967-akta-53.pdf (Attorney General's Chambers)

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