The following article was published in The Star newspaper on 22 Mar 2009. It is reproduced here for your reading.
Your tax queries answered
Yes to golf balls and shuttlecocks but no to swimsuits and sports shoes. These are among many specifications related to tax exemption. What makes the cut and what doesn’t, who qualifies and who doesn’t are among the many questions from our readers in response to Sunday Star’s stories last week on how to maximise one’s claims when filing tax returns.
THANKS to the assistance of tax consultant company PremierOne, our readers’ questions have been answered. Below are some of the e-mailed questions. Due to space constraints, the rest will be answered next week.
Q. I AM really confused as to what type of insurance premiums are deductible for life insurance and medical insurance reliefs. I noticed that insurance policies nowadays have both life insurance and medical rolled into one. What is the Inland Revenue Board’s (IRB) new guidelines dated June 6, 2005, on this matter? Where can I get these guidelines? – JOHN LIM
A. THE total tax deduction for life insurance premiums and contribution to an approved pension/employees provident fund is up to a maximum of RM6,000. The total tax deduction for insurance premium for education and medical benefits is up to a maximum of RM3,000.
If you are holding a policy that provides both life insurance and medical coverage, you can request from your insurance company (through the agent that services you) a statement that will show a breakdown of the premium paid in respect of each of the coverage. From these breakdown amount, you may claim a tax deduction for the life insurance premium (together with your EPF contribution) up to a maximum of RM6,000. The medical premium may be claimed (together with the education policy premium, if any) as a tax deduction up to a maximum of RM3,000.
The IRB has issued two Public Rulings and two addenda on the computation of income tax for individuals, including the one you mentioned dated June 6, 2005 (Public Ruling no. 2/2005). The public rulings set out the IRB director-general’s interpretation on the particular tax matters and are issued to provide guidance for the public and IRB officers. All the public rulings can be found and downloaded from the IRB website at www.hasil.org.my under Law and Regulations/Public Rulings.
Q. MY wife and I each bought a personal computer last year and would like to claim the RM3,000 rebate for each computer under our individual names. However, we were told that we are only allowed to claim one personal computer as the rebate is based on family usage and not individual usage.
Can you please clarify this point? Are my wife and I allowed to claim the rebate totalling RM6,000 for both of us as we each bought a new personal computer last year? Our taxes are filed separately. – FAN TEN YAU
A. THE current tax deduction for the purchase of a personal computer for non-business use of up to a maximum of RM3,000 is given on an individual basis once in every three years of assessment.
It is important to note that the RM3,000 maximum claim is for a tax deduction (i.e. to be deducted against your total income to arrive at your chargeable income) and not a rebate (i.e. a rebate is deducted from your income tax charge to arrive at your tax payable). Prior to year of assessment 2007, the relief given was a RM500 rebate given on a household basis once every five years.
In your case, where you and your wife elect for a separate assessment, each of you are eligible to claim a maximum deduction of RM3,000 for your respective purchase to be evidenced by a receipt for the respective claim.
Q. DUE to the increase in petrol/diesel price, other things also increase in price. In order to lighten our expenses, our company pays a monthly allowance, called child transport allowance, for those who have school-going children. This allowance varies depending on the number of children going to school. Can we claim tax exemption on this allowance? – JENNY
A. PURSUANT to the Budget 2009 announcement last year, allowance or subsidies received by employees from their employer for childcare in respect of children will be exempted from income tax with effect from year of assessment 2008. The exemption is restricted to RM2,400 per annum.
Although the relevant statutory order on the allowance is yet to be gazetted to date, the IRB has issued a second addendum to Public Ruling no. 1/2006 (dealing with perquisites from employment) which states that the child must be 12 years of age and below and must be a legitimate child, stepchild or legally adopted child.
The examples given in the ruling sets out situations where the allowance was given to employees for childcare centre, hiring a helper and employing a household domestic maid. Whilst the examples given may not be exhaustive, it is uncertain whether an allowance for child transportation would qualify, until further clarifications from the IRB.
Q. EFFECTIVE from year of assessment 2008, taxpayers are given a relief of up to RM300 yearly for the purchase of sports equipment.
Equipment that are entitled to this relief are those used for sporting activities as defined under the Sports Development Act 1997. I would be pleased if you could provide some examples of the sports equipment that will be entitled to this relief.
It is interesting to note that in the guidebook for the year of assessment 2008 (Buku Panduan Borang B 2008 – pdf version), it is mentioned that sports shoes are excluded.
This may seem as an anomaly as a pair of running shoes may be a major “equipment” used in athletics, a sport defined under the Sports Development Act 1997. – FOOK
A. A TAX deduction is allowed for an amount limited to a maximum of RM300 in respect of expenses expended for the purchase of sports equipment for any sports activity as defined under the Sports Development Act 1997, as evidenced by receipts issued.
The term sports activity is listed in the First Schedule of the Sports Development Act 1997 and ranges from athletics, badminton, canoeing, fencing, golf, recreational, sepak takraw, table tennis to watersport, etc.
You are correct to point out that whilst equipment with short lifespan e.g. golf balls and shuttlecocks have been accepted by the IRB in the Buku Panduan, certain sports attire have specifically been excluded e.g. swimsuits and sports shoes.
Q. MY company, X Sdn Bhd, was formed some time in mid-2006. There are only two directors in the company with equal sharing of the company shares. No profit was made in 2006. However, there was profit at the end of financial year 2007 and dividend was declared and distributed to the shareholders in July 2008.
I would like to know if I am eligible to claim for the difference in the taxed amount as my personal marginal tax is lower than the company tax, which is 20%. Or is it that the dividend distributed is under single-tier tax system of which I don’t even need to declare in the EA and BE form?
My accountant informed me that since the company is new, it should directly be under the new tax system. Is this true? – DARREN
A. IT is not correct to say that since the company is “new”, it would automatically be under the single-tier system.
The single-tier system took effect from year of assessment 2008 onwards. Under this system, there is no need for the company to deduct tax when paying dividends and any dividends distributed by the company will be exempt from tax in the hands of the shareholders.
However, transitional provisions in the tax legislation allow two options for companies with a credit balance in their section 108 accounts as at Dec 31, 2007 when they want to pay dividends to shareholders:
The company can continue to use such credits in the section 108 account to pay franked dividends to shareholders up to Dec 31, 2013 or until the section 108 credits are exhausted whichever comes earlier (subject to certain conditions e.g. dividends must be paid in cash and in respect of ordinary shares.) For small and medium companies, the tax on dividends paid to the shareholders is deducted from the section 108 credit balance based on the highest tax rate for the year of assessment (e.g. 27% for year of assessment 2007).
Alternatively, the company may at any time make an irrevocable election to forgo the right to distribute franked dividends by filing a Form R50 to the IRB and pay dividends under the single-tier system.
Since your personal marginal tax bracket rate is lower than the company tax rate, provided you have sufficient tax credits in the company section 108 accounts, it is more beneficial for the company to declare and pay franked dividends under the transitional provisions, instead of paying single-tier exempt dividend.
Please note that the company, upon paying the dividend, is required to furnish the shareholders with a certificate stating the gross dividend, tax deducted from the dividend and net dividend paid out.
Q. I SEEK further clarification on my following concerns:
i) Travel allowance from home to work place of up to RM2,400: Does this apply to all employees who drive to work daily or only to those provided with such an allowance by the company? If I drive a company car, am I entitled to this exemption?
ii) Telephone and mobile usage: Does this again apply to all who use their mobile phone for company business? Totally or partly?
iii) I drive a company car and use company registered mobile phone. These are translated into income of RM3,000 and RM600 respectively as taxable income. Am I entitled to these extra exemptions? – C.C. YAP
A. THE tax exemption for travel allowance of up to RM2,400 a year is only applicable if you receive such travel allowance from your employer i.e. if your employer provides you such travel allowance, the allowance is not taxable to you. It does not apply to employees where no travel allowance is provided by their employers, though they drive to work.
Similarly, the tax exemption applies where your employer provides you the telephone and mobile phone or pays the bills for the telephone or mobile phone registered in the name of the employee or employer.
You are entitled to the tax exemption on the RM600 mobile phone benefits provided by your employer.
In relation to the company car, we understand that the IRB is currently considering whether to include the benefit value of motor vehicle (in your case the RM3,000) as part of the exempt allowance of up to a maximum of RM2,400 per annum. We anticipate the IRB to issue further guidelines on this.
Q. I WOULD like to know which column in E-filing to fill in details of parking allowance, purchase of own company goods at discounted price and handphone/Internet/phone bills. Are those exempted from tax in YA2008? If so, where do I fill them in as I can’t seem to find an appropriate column to put those in? – ERIC
A. WITH effect from year of assessment 2008 parking allowance, telephone and mobile phone bills, and Internet subscription paid by employers are exempted from income tax.
The purchase of the company’s own goods at discounted price is also an exempted benefit-in-kind, up to a maximum of RM1,000 per year.
Such exempted allowances and benefits-in-kind are not required to be reported in your Form BE or under e- Filing.
Please note that Part G of the Form EA for year ended Dec 31, 2008 provided by your employer would specify the total amount of such exempted allowances/benefits-in-kind/ perquisites.
Q. HOW could we in the private sector cut on our taxes as we fall in the maximum taxable bracket as compared to our peers in the government sector who earn the same and pay less tax as lots of the allowances are non taxable?
A. PURSUANT to the 2009 Budget announcement, with effect from year of assessment 2008, the Government has allowed tax exemptions on various allowances and benefits provided by employers to their employees.
Some examples include subsidised interest given by employers for housing, education or car loan up to RM300,000; travel and petrol allowance for travelling from work to home of up to RM2,400 per year; travel and petrol allowance and toll rate for official duties of up to RM6,000 per year; and allowance for meal, parking and childcare, etc.
Q. I WISH to know whether I can claim on the following:
i) I spent a total of RM7,820.50 for both check-ups and delivery at a hospital for the birth of my son under Section D7 up to maximum RM5,000; and
ii) Cukai Seksyen 110 (lain-lain) dividend received from public listed shares. – CHONG SAU CHAN
A. THE deduction claim under Part D7 is in relation to expenses expended for a complete medical examination which is up to a maximum of RM500. The total deduction for medical expenses on serious diseases under Part D6 is limited to a maximum of RM5,000 and this includes the RM500 for complete medical examination (under Part D7).
The expenses you incurred for check-ups relating to your pregnancy and delivery of your son is not claimable since it does not fall within the two categories of expenses.
If the dividend warrant that you received from the public listed shares shows a gross dividend amount, tax deducted from the dividend and net dividend paid out, it means that the company has to opt to continue using its section 108 tax credits balance to pay franked dividends under the transitional provisions instead of electing to pay exempt dividends under the single-tier system.
Therefore, you should declare the dividend at gross in your tax return: for example, if in 2008 you received net dividend of RM74, you should declare RM100 (and not RM74) as dividend income in your return. However, you can deduct the section 110 tax credits of RM26 against your total tax. Any excess credit will be refunded to you.
Q. I RETIRED in 2007. I have no employment income for YA 2008. My wife is still working. I have a child currently receiving college education. My questions are:
i) Since I have no income for YA 2008, can I elect for combined assessment so that my spouse can claim additional RM3,000 personal relief? Do I have to file separate forms officially to inform the IRB?
ii) Can my spouse claim the child relief as well as all the insurance premiums paid for life and medical policies?
iii) I understand that retirement gratuities received due to medical reason is exempted from income tax. Where do we disclose the amount received as there is no mention in the Borang BE?
iv) Will the retirement gratuities received due to medical reason be taxed if the person later decides to take up a new employment or start a business? – FRANCIS
A. SINCE you have retired and have no income for year of assessment 2008 and if you have received your tax return Form BE from the IRB, you should complete and file a “Nil” return to the IRB, together with a cover letter stating that you have no income for 2008. Your wife should fill code 4 = “Diri sendiri, suami tiada punca pendapatan” under Part A5 – “Jenis Taksiran” in her tax return. Your wife can claim the additional RM3,000 relief for you (as husband).
ii) Yes, your wife can elect to claim the child relief. Your wife is also entitled to a claim up to a maximum of RM3,000 for insurance premium paid for her and/or your medical policies as well as a claim up to a maximum of RM6,000 (together with her EPF contributions) for insurance premium paid for her and/ or your life policies.
iii) Sum received by way of gratuities on retirement from an employment, if the director-general of the IRB is satisfied that the retirement is due to ill-health, is exempted from income tax. In practice, your employer would have issued you a Form CP22A (notification of cessation of employment) and you should have obtained a tax clearance from the IRB before your employer released the gratuity sum to you.
There is no requirement to declare the exempted gratuity amount in your Form BE.
iv) There is no specific provision in the tax legislation to cover this position. However, the legislation clearly provides that the director-general of the IRB must be satisfied that the retirement is due to ill-health. Where this criterion has been met, the gratuity would not be taxable. Whether the subsequent taking up of another employment or starting a business may lead to a review by the IRB will depend on the prevailing facts and circumstances.
Q. MY company is giving fuel card worth RM300 per month and mobile phone benefit of RM120 per month. This will not be included in the salary slip, so how do I fill up the EA form?
Also, how do I fill up for goods that I buy at discounted value for RM1,000?
And what is the tax relief for EPF Annuities scheme? – ANG
i) The fuel card of RM300 per month and mobile phone of RM120 per month provided by your company is exempted from income tax with effect from year of assessment 2008. There is no requirement to declare the exempt income in the Form EA or the Form BE.
ii) The purchase of company goods at discounted value up to a maximum of RM1,000 is exempted and not required to be disclosed in the Form EA or Form BE.
iii) The tax relief for EPF Annuities scheme is up to a maximum of RM1,000 per annum.
Q. I HAVE two questions. Can I claim maternity expenses in 2008 if the expenses were borne by myself and not by my company?
I have a parent in a nursing home. Can I claim the nursing home expenses borne by myself? It is the monthly sum paid to the nursing home for the care of my parent – LINDA
A. TAX deduction for medical expenses expended on own self, spouse or child of up to a maximum of RM5,000 is available only if it is in respect of treatment of serious diseases (see box for definition).
Since maternity expenses do not fall within this definition, it is not claimable as a tax deduction.
For your second question, tax deduction for medical expenses expended for own parents is up to a maximum of RM5,000.
Medical expenses that qualify for deduction would include medical care and treatment provided by a nursing home for your parents. You must keep the receipt(s) from the nursing home certifying that nursing home care was provided to your parents as evidence for your claim.
Q. ONE of the points you highlighted in your article “How to pay Less Tax” (Sunday Star, March 15) was that medical benefits exempted from tax include expenses on traditional medicines such as ayurvedic and accupunture. And you mentioned that it is for the year of assesment 2008.
I would appreciate it if you could elaborate on this a little more. As I am taking my son for ayurvedic treatment, can I put it in?
My husband and I are paying for the treatment from our own savings and we are not asking our employer to cover it as a benefit. So, can we put it in our income tax form? What is the maximum amount we can claim and where do we put it? – TAX QUERY CITIZEN
A. MEDICAL benefits which include expenses on traditional medicines such as ayurvedic and acupuncture that are exempted from tax for employees applies only where such benefits are provided by employers.
In your case, since you (and not your employer) are paying for your son’s ayurvedic treatment, this exemption is not applicable to you.
In order to claim the tax relief for medical expenses for your son of up to a maximum of RM5,000, the expenses have to be expended on “serious diseases” (see definition in box). In addition, you are required to obtain a receipt or certificate from a medical practitioner who is registered with the Malaysian Medical Council.
Unless your son’s ayurvedic treatment is for a serious disease and the ayurvedic practitioner is registered with the Malaysian Medical Council, the expenses will not be deductible.
What is serious disease?
Serious diseases is defined to include AIDS, Parkinson’s disease, cancer, renal failure, leukaemia and other similar diseases such as heart attack, pulmonary hypertension, chronic liver disease, fulminant viral hepatitis, head trauma with neurological deficit, brain tumour or vascular malformation, major burns, major organ transplant and major amputation of limbs.