Joseyeon: "Real Estate Tax System Should Strengthen Rental Income Taxation Over Holding and Transfer Taxes"

[Sejong=Asia Economy Reporter Kim Hyun-jung] Among real estate-related taxes, there is a claim that taxation on housing rental income should be strengthened more than holding tax or capital gains tax. The focus of real estate taxation should shift from the owned assets themselves to rental income.

Lee Dong-sik, Non-standing Invited Research Fellow at the Korea Institute of Public Finance (Professor at Kyungpook National University School of Law), argued this in his report titled 'Reform Plan for Housing Rental Income Taxation System' published on the 8th in the Tax and Finance Brief. He pointed out, "Taxation on housing rental income is as important as holding tax or capital gains tax for stabilizing the housing market, but so far, reforms in housing taxation have centered on holding tax and capital gains tax, causing regressive redistribution of wealth and undermining tax fairness."

He emphasized, "In particular, holding tax, which has been used as a means to curb excessive housing ownership, taxes the owned assets themselves regardless of income, leading to strong tax resistance. However, if this is converted to taxation on housing rental income, similar effects can be achieved while reducing tax resistance."

He added, "Although taxation on housing rental income under 20 million won has started from the 2019 tax year, there is still much room for improvement. Since the 2009 amendment of the Income Tax Act, housing rental income has been classified as business income, but housing rental businesses do not actively engage in profit-generating activities, so they should be distinguished from other business incomes." This can be interpreted as suggesting that it is better to tax it as real estate rental income, the previous classification method.

Furthermore, he stressed, "The separate taxation system for housing rental income under 20 million won should be converted to comprehensive aggregation taxation for tax fairness with other incomes," and "The loss aggregation system that allows housing rental income to be combined with other business incomes should be abolished, referring to foreign legislative cases."

Regarding the taxation plan on jeonse deposits, he stated, "The deemed rental income taxation system on housing jeonse deposits currently applies to owners of three or more houses, but like monthly rent, it should exclude deemed rental income taxation for owners of one house and switch to taxation from the second house."