Taiwan's Ministry of Finance Extends Tax Benefits for Residential Trust Rental Income, Aligning with Individuals

(CNA, Taipei, 18th, by reporter Lu Yen-tzu) The Ministry of Finance (MOF) today issued new regulations amending the tax system for rental income from real estate trusts. It stipulates that when an individual places a house into a trust, the rental income obtained by the trustee from leasing the property can be reduced by applying the same rule as for natural persons, which allows "43% of rental income to be listed as necessary expenses." This new rule is applicable for filings in May of this year. Currently, there are two ways to declare rental income. The first is to uniformly list 43% of the annual rental income as necessary expenses without needing any supporting documents. The other is to itemize deductions, requiring proof for each reasonable and necessary expense and wear incurred due to leasing, allowing landlords to choose the higher deduction. However, in practice, if people place their homes in a trust, the beneficiary's rental income could not apply the 43% direct deduction rule, potentially disincentivizing the use of trusts for property. Therefore, the Trust Association of R.O.C. has been advocating in recent years for the rules to be relaxed to align with the standard for natural persons. In response, the MOF today issued the "Taxation Regulations on Rental Income from Individuals Using Residences as Trust Property under the Housing Act and the Rental Housing Market Development and Management Act" and a related directive on "Recognition of Necessary Wear, Tear, and Expenses for Rental Income from Individuals Using a House as Trust Property." MOF Vice Minister of the Taxation Agency, Ni Li-hsin, explained at a routine press conference that consolidating the tax regulations for rental income from trust property is intended to encourage homeowners to release vacant properties for public-welfare rentals, social housing, or subleasing/management services, thereby increasing the supply of rental housing. According to the new rules, regardless of whether the beneficiary is the settlor or another individual (i.e., for both self-settled and other-beneficiary trusts), the tax benefits are applicable if they meet one of four conditions. First, for trust residences used for public-welfare rentals, rental income exceeding NT$15,000 per month per unit is taxable. The new rule states that if the trustee can provide solid evidence, necessary expenses can be deducted on an actual basis. If not, the expenses can be calculated at 43% of the taxable rental income. Second, for trust residences used as social housing, rental income exceeding NT$15,000 per month is taxable. In addition to actual deductions, if evidence is not provided, necessary expenses can be calculated at 60% of the taxable rental income. Ni Li-hsin gave an example: Mr. A established a self-settled trust with his residence. During the trust period, the trustee leased it out as social housing with a monthly rental income of NT$25,000 last year. The taxable rental income is NT$120,000. Without providing proof of expenses, the taxable rental income would be NT$48,000 after deducting 60% for necessary expenses. Third, for trust residences under subleasing/management, rental income exceeding NT$6,000 per month is taxable. The trustee can either deduct actual expenses or, if unable to provide proof, deduct 53% of taxable income for rent between NT$6,000 and NT$20,000, and 43% for income above NT$20,000. Finally, for general rental cases of trust residences, there is no tax-exempt amount. According to the new rule, if the trustee can provide evidence, actual expenses can be deducted. If not, expenses can be calculated at 43% of the rental income. Ni Li-hsin gave another example: Mr. B established an elder-care trust with his house, with C as the beneficiary. The trustee rented it out last year for a monthly income of NT$25,000. If the trustee cannot provide proof of expenses, the taxable rental income is calculated at NT$300,000, with necessary expenses at 43% of that, resulting in a taxable rental income of NT$171,000. The MOF reminds that individual beneficiaries filing their consolidated income tax should report based on the rental payment totals and withholding tax amounts stated on the various income statements for trust property issued by the trustee. Since this rental payment total is the taxable rental income after the trustee has deducted tax exemptions and necessary expenses, beneficiaries cannot deduct these exemptions and expenses again when filing. (Editor: Lin Chia-hsien) 1150518