Hi sifu sifu sekalian,

Been reading this thread with much interest and I think all sifu sekalian have the experience and knowledge to help me out with my dilemma.

1) What are the tax and risk pros and cons of incorporating a company to hold your companies assuming you have >4 residential properties? or should I just declare it as business income when doing tax returns?

2) If you have incorporated a property holding company, should I incorporate another company to manage it?

3) Is there any capital allowance that can be claimed for residential properties in this instance?

By the way Dr RE, care to share how your friend manage to increase his portfolio to 10mil in just 5 years? Fascinated by his 'success'. Besides being a cut-throat and lan si negotiator, what else did he do?

You mean you paid your mortgage off? So fast?

wow... this thread was sooooo quiet for a long time, and in just 2 days it has grown...

thank you sifu sifu sekalian for answering my questions. I have one more with regards to the depreciation deduction mentioned. Can we actually depreciate residential buildings??? If so, what would be the depreciation rate?

I think, if you can use the depreciation allowance ie capital allowance, then we won't need to pay any taxes at all because most rental after deducting mortgage interest, maintenance, etc., there won't be much taxable income left. This is especially so during your first 10 years of 30 yr mortgage because interest portion is high.

Hope you understand what I'm trying to say

In conclusion, what is the depreciation rate that can be used for residential properties - if we really can use it?

RM150k in 5 years and at your age.. kudos to you. You've done well Many others your age still live with their mamas and drink off their titties.. At least you got your priority right

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Added on March 5, 2009, 10:17 amAny Tax Professionals around to assist????

This post has been edited by SuMo^: Mar 5 2009, 10:17 AM

1) Browse various forums such as this / look up classified and call the RE to ask. You might be a potential buyer and they will and should entertain you. Don't be shy to ask

2) Use the classified to compare the price that you were offered and what is the market price. If not, call your banker and ask them to check with their valuer.

3) Visit the area --> drive or my personal favourite, JOG or again, check out forums / blogs.

4) I always believe in not low-balling on the price i.e. if the seller wants 100, you offer 30. It will just pissed everyone off. Depending on market and seller's situation, first offer 20-30% below the price - just to test water... then the fun begins. You roughly know the market price of the property, you offer a lower price, then they will counter with higher price, then you counter with a lower price, then bingo a strike price is agreed upon.

Hope this helps and maybe other sifu has better nego techniques My philosophy - You don't ask, you don't get. They can always say No.

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Added on March 8, 2009, 3:53 pmI agree with you on your statement and yes, you don't need to set-up a sdn bhd to enjoy such perks. However, my questions was related to depreciation of the property and capital allowance. I know that if you have a business, the building u are running your business in can be depreciated in 20 years. Hence, the depreciated amount can be used to deduct whatever business operation income you have for the year, and thus your taxable income reduces. Its the same for IBA - industrial building allowance.

for eg:
Building = 20 mil
Straightline Depreciation per year = 1mil
Operational Income = 5 mil
Hence, taxable income is reduced to = 4 mil

In your P&L, Gross Operating Profit ("GOP") is 5mil, Income Tax is 1mil (4mil x 25%). Profit After Tax ("PAT") will then be 4 mil.

If you can'T use depreciation, Gross Operating Profit ("GOP") is 5mil, Income Tax is 1.25mil (5mil x 25%). Profit After Tax ("PAT") will then be 3.75 mil.

The benefits of depreciation/capital allowance/IBA is huge tax savings. I'm just not sure if we can do this for the business of renting properties. Anyone knows? Any Personal Tax Advisers care to share?

This post has been edited by SuMo^: Mar 8 2009, 08:41 PM