(TAX UPDATE) The Rental Income under Business Income 4(a) or Investment Income 4(d)?

Issued: KTP Tax Alert | 11 June 2026

Introduction

Two landlords own identical shop lots on the same street. Same rent, same tenants, same financing. Yet one pays materially less tax than the other and carries forward losses in a bad year, while the other cannot.

The difference is not in the property. It is in what each landlord does with it, and what each can prove.

The line that runs through every rental file

If you own property and rent it out in Malaysia, your rental income is taxed in one of two ways under the Income Tax Act 1967.

It is either business income under Paragraph 4(a), or non-business income under Paragraph 4(d).

This is not a labelling exercise. The category you fall into decides three things that affect real money.

It determines how much you can deduct against your rental income.

It determines whether you can claim capital allowances on plant and machinery.

It determines whether a loss in one year can be carried forward to shelter income in the next.

Paragraph 4(a) is the stronger position on all three counts. Most property owners want to be there. The problem is that wanting to be there is not the test.

What actually puts you under Paragraph 4(a)

Public Ruling No. 12/2018 draws the line, and it draws it clearly.

Your rental income is treated as business income under Paragraph 4(a) only if you provide maintenance or support services on your properties on a basis that is both comprehensive and active. Both words carry weight, and both must be satisfied.

Comprehensive means you do generally all the things necessary to maintain the property. That covers structural elements, stairways, lobbies, lifts, car parks, drains, landscaping and external fixtures. Maintaining one or two of these is not enough. Providing security services alone does not qualify.

Active means you actually deliver those services, either yourself or through a party you engage to do so. Passive ownership does not count. Collecting rent and waiting for the phone to ring is not service provision.

If you do not meet this standard, your income falls under Paragraph 4(d) as non-business income. A common trap sits here. Where the facilities are maintained by a management corporation and you simply pay the fees, those services are passively derived from your ownership rights. They are not services you actively provide. That income stays under Paragraph 4(d), regardless of how comprehensive the maintenance looks on paper.

The court has now tested this

The distinction moved from theory to consequence on 22 April 2026, when the High Court dismissed the appeal of Glenmarie Estates Sdn Bhd against LHDN.

Glenmarie owned 14 properties. On the face of it, a portfolio of that size suggests an active letting operation. But scale is not the test, and the company could not prove comprehensive and active service provision.

The court found two things fatal to the appeal. First, Glenmarie only responded to tenant complaints, which is a reactive posture rather than the active, ongoing provision of maintenance that Paragraph 4(a) requires. Second, the tenancy agreements did not require comprehensive maintenance, so there was no contractual foundation for the services the company claimed to have provided.

The income remained under Paragraph 4(d). The deductions and treatment that come with business income did not follow.

What this means for your file

The lesson from Glenmarie is not that large portfolios lose. It is that undocumented arrangements lose.

The tax treatment of your rental income depends on what you do and what you can prove. Service provision must be real, documented and consistent. Three points deserve attention.

Build the obligation into the contract. Tenancy agreements that are silent on maintenance leave you defending a position the paperwork does not support. If you provide comprehensive maintenance, the agreement should say so.

Maintain proactively, not reactively. Responding to complaints is the hallmark of passive ownership. A schedule of regular maintenance across the full range of structural and common elements is the hallmark of an active operation.

Keep the evidence. Service contracts, maintenance records, invoices and correspondence are what turn a claim into a finding. LHDN and the courts test the substance, and the substance lives in the documents.

KTP's View

Paragraph 4(a) is not a status you elect. It is a position you earn through what you do and substantiate through what you keep.

Too many property owners assume the better tax treatment will be available when they need it, only to discover at audit that the arrangement was never built to support it. Glenmarie is a reminder that the burden sits with the taxpayer, and that the burden is evidential.

If your rental portfolio is structured for Paragraph 4(a) treatment, review your tenancy agreements, your maintenance practices and your records now, while the file is still being written. The worst time to discover a gap is across the table from LHDN.

This article is intended for general information only and does not constitute legal or tax advice. Directors faced with specific enforcement action or seeking to manage their personal exposure should obtain professional advice tailored to their circumstances.

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