The Star - 17/04/09

MORE TIPS ON LESSENING YOUR INCOME TAX BURDEN

This is the final of a three-part ACCA Easy Guide to Tax Filing for Employees, which looks at income tax threshold, child relief and penalties

FOR YA2008, employees need to make a minimum annual salary of RM26,804 before triggering income tax.

Married couples should ensure that the higher-earning spouse claims child relief to lessen the tax burden. Remember to abide by income tax regulations to avoid heavy penalties.

Income Tax Threshold

For YA 2008, an employee is required to file Form BE by or before April 30 through electronic filing or actual submission of the tax return form to the Pusat Pemprosesan at Pandan Indah, Cheras.

The employee is entitled to the following tax reliefs:

Employees must make a minimum salary of RM26,804 to be liable for income tax for YA 2008.

Example 1: An individual with only EPF contributions as relief.

An employee may not be required to pay tax on employment income exceeding RM26,804 if said individual employee incurred other tax reliefs on books, medical check-ups or life insurance premiums.

Example 2: Assuming an individual with a salary of RM30,062 has tax reliefs other than EPF contributions, he may not be liable for income tax. His tax payable is:

An employee earning annual salary exceeding RM30,062 may also not be liable to pay income tax if he incurred the following expenses:

(a) Medical expenses for parents RM5,000
(b) Medical or educational insurance for taxpayer, spouse, child RM 3,000
(c) Basic supporting equipment for taxpayer, spouse, child, parents RM3,000

An employee with an existing SG income tax reference number may need to file in a nil return on Form BE even though his annual salary for YA 2008 is below RM30,062.
Child Relief

Married couples can claim child relief for maintaining any child during the calendar year 2008 whether the child is their own, a stepchild, or a legally adopted child.

The amount of child relief is:

18-years-old or less (RM1,000); above 18 and studying in university or college (RM4,000).
Child relief is given for any number of children who are not married.

Child relief for disabled children is RM5,000.

An additional RM4,000 is granted if the disabled child is studying in university or college.
To minimise tax payable, child relief should be claimed by either spouse who has the highest taxable income.

Example: Li and Choo have three children below 18 years. Li’s total income is RM90,000 and Choo’s RM60,000 for YA 2008. The child relief entitlement is RM1,000 x 3 = RM3,000. (see charts above)

Penalties

The Income Tax Act 1967 imposes various penalties for non-compliance. These include:

(a) Non-submission of return

Return Form BE for YA 2008 needs to be submitted by or before Apr 30, failing which taxpayers incur a:

(i) Penalty that is 3 times of tax
(ii) Fine between RM300 to RM2,000

In practice, the tax authorities impose 2%-20% on the tax payable as the penalty instead of the statutory formula of 300%.

(b) Non-payment of final tax

The employer deducts the employee’s monthly tax which is paid to IRB on the 10th of every month. The difference between the actual tax and the total tax deducted by the employer must be paid to IRB on / before Apr 30. Failure to pay the final tax on Apr 30 will result in a late payment penalty of 10% being imposed.

An additional 5% will be imposed if the final tax or penalty is still not paid by June 30 (60 days after Apr 30)

(c) Not keeping sufficient records

Under the self assessment system, an employee is required to keep sufficient records on his tax affairs for seven years. Only the tax return Form BE is submitted to IRB by or before Apr 30.

These records comprise a copy of Form BE, salary slips, Form EA (Statement of Employment Income), and credit card statements in relation to petrol claims, travelling, parking, and toll charges incurred in relation to official duties.

Failure to maintain sufficient records is an offence and the penalty will be:

(i) A fine between RM300 to RM10,000 or
(ii) Imprisonment ≤ 1 year.

The Star - 16/04/09

IF YOU PAY MINIMUM EPF, HOW DOES IT AFFECT YOUR TAXES


INDIVIDUAL taxpayers need to be alert to amendments to the income tax regulations relating to bonuses and directors’ fees.

Taxpayers also need to consider the tax consequences if they elect to pay the mandatory minimum contribution of 8% to the Employees’ Provident Fund (EPF).

By opting to contribute 8% to EPF instead of the previous 11%, they lose out on dividends, decrease the potential size of their retirement nest egg, and could suffer additional income tax.
Bonus/directors’ fees.

Employees receiving director fees or bonuses in 2009 in relation to work performed in 2008 or prior to 2008 will only be taxed in year of assessment (YA) 2009 under a new amendment to the Income Tax Act 1967 to ease filing under the self assessment system via the Finance Act 2009 (gazetted on Jan 8, 2009).

These director fees or bonuses would be included in the EA Form 2009 to be submitted on April 30, 2010. They must not be treated as income in 2008 and should never be included in EA Form 2008.

Example 1:
Karmen Sdn Bhd pays a special bonus of RM8,000 to Fionna on April 1, 2009 for her excellent performance in 2008. The bonus of RM8,000 will be treated as income for 2009.

Example 2:
Yie Lin receives director fees of RM300,000 in relation to 2004, 2005, 2006, 2007, 2008 (or five years’ total) on March 1, 2009. The total director fees of RM300,000 will be treated as income in 2009.

The employer is required to deduct the monthly tax deduction in the year 2009 (year of payment) and pay the net amount to the employee or director.

There is a new monthly tax deduction table issued to take effect on Jan 1, namely Income Tax (Deduction From Remuneration) (Amendment) Rules 2008 [PU(A) 468/2008].

Paying bonuses and directors’ fees related to 2008 in year 2009 has the advantage of tax savings of 1% if and only if the annual income of such employees is RM250,000 and above.

EPF contributions: 11% or 8%?

With effect from Jan 1, the EPF Act 1991 has been amended to allow employees to contribute 8% of their salary to EPF.

Previously, the mandatory contribution was 11% of salary.

The employer will continue to contribute an amount equal to 12% of the employee’s salary to EPF.

Under the existing Income Tax Act 1967, income to be assessed remains at 100% of salary although the employee only receives 92% of salary.

Salary 100%
Less: 8% of salary to EPF (8%)
Net salary 92%

The employers’ contribution of 12% is not taxable on employees. The amount of EPF contributed by employees (8%) is available as tax relief.

EPF plus life insurance premiums paid on the life of the taxpayers or their spouses will be granted a maximum tax relief of RM6,000 in a particular YA (EPF + life insurance = RM6,000).

Although the Government meant well by lowering the EPF contribution from 11% to 8% to ease the taxpayer’s financial burden, taxpayers may ultimately end up paying additional tax due to reduced EPF contributions.

Assuming that an individual does not have life insurance premiums, full utilisation of the RM6,000 relief will require an individual to earn an annual salary of RM54,545 (computed as follows: RM6,000/11% = RM54,545).

An individual earning an annual salary below RM54,545 will end up paying additional tax if he reduces his EPF contribution from 11% to 8%.

Example:
Melissa earns an annual salary of RM50,000. She pays 11% of salary, or RM5,500, to the EPF and pays RM500 in premiums on her life insurance. Effective Jan 1, she is required to pay only 8% of RM50,000 to EPF.

The differences in tax payable as a result of contributing either 11% or 8% to EPF are shown in the table

Taxpayers need to think twice before opting to contribute just 8% to EPF.

Although employees whose income exceeds RM54,545 don’t pay additional tax if they contribute 8% to EPF, they risk losing out on a substantial retirement sum since their contributions will be lower by 3% (11%-8%) and interest will compound annually on a smaller lump sum.

EPF paid a dividend of 4.5% in 2008 and 2007. Although the EPF Act 1991 sets the mandatory contribution by employees at 8%, employees have the right to request their employers to continue deducting 11% of their salary for EPF to meet tax savings and retirement planning goals.

The Star - 15/04/09

TIPS FOR FILING YOUR INCOME TAX RETURNS

This first of a three-part ACCA’s Easy Guide to Tax Filing for Employees looks at additional goodies for taxpayers

IT’S tax season again! Employees are required to submit their tax return Form BE for year of assessment (YA) 2008 on or before April 30, where the income assessed is in relation to the basis period of Jan 1 to Dec 31, 2008.

This time around, taxpayers get to enjoy additional tax goodies as part of the Government’s effort to cushion the impact of the economic downturn and higher cost of living on Malaysians.
Specifically, the Government announced via the Budget 2009 proposal and the second stimulus package on March 10, 2009, the following tax benefits for employees, which will take effect in YA2008. These benefits will help reduce taxable income and, consequently, the amount of tax payable.

Compensation for loss of employment

The tax burden is eased for retrenched employees as well as those who opt for voluntary separation schemes.

Employees who are retrenched on or after July 1, 2008 will be granted an income tax exemption of RM10,000 for each completed year of service with the employer or companies in the same group. This also applies to payments for employees who opted for voluntary separation schemes.
Example:
A is a salesperson working in Star New Enterprise from April 1, 2006. Due to the economic downturn in 2009, A was retrenched on Nov 1, 2008 and was paid compensation of RM25,000 for loss of employment. The amount to be taxed in YA2008 will be:
If the retrenchment was before July 1, 2008, then the amount exempted for each year of service will be RM6,000.

Tax-exempt employee benefits — allowances

The following tax benefits provided to employees from Jan 1, 2008 to Dec 31, 2008 will be tax deductible against business income for employers AND exempted from tax on employees. These benefits are also available for YA2009.

(a) Petrol card/petrol allowance/travel allowance
An employer providing petrol cards, petrol allowance or travelling allowance to employees to travel from home to workplace or office will be allowed up to RM2,400 a year.

(b) Meal allowance for working overtime, travelling outstation.

(c) Parking allowance.

(For (b) and (c), the allowance must be reasonable and justifiable depending on the nature of work and position of employee.)

(d) Medical treatment for employees, spouses and children to include traditional medicine such as ayurvedic treatment and acupuncture.

(e) Interest subsidies on housing, car and education. The total loan amount is restricted to RM300,000.

(f) Childcare allowance up to RM2,400 a year.

(g) Employers’ products or services which can be provided free or at a discount which must not exceed RM1,000 a year.

Employers involved in the manufacture of food and car accessories may consider providing the products to employees to reduce their cost of living in the current economic slowdown.

These allowances need to be disclosed in the Form EA as tax-exempt benefits although they are not taxable on employees.

Official duties – travelling allowance

When employers provide petrol cards, petrol allowance or travelling allowance to salaried personnel, such as reporters and other employees, to carry out official duties, this form of allowance is taxable on the employee and must be reflected in their respective EA Forms.

Employees must keep a record of the actual expenses incurred in relation to official duties and set off the amount incurred against the allowance received. This is an added burden and responsibility on the employee. The records have to be kept for a period of seven years.

Employees may end up paying additional tax under the self-assessment system if they report the employment income as per the EA Form without deducting the actual travelling expenses incurred while on official duty to carry out the employers’ business.

In the Budget 2009 announcement, the Government said petrol cards, petrol allowance, travelling allowance and toll cards for official duties up to RM6,000 a year will be tax-exempt.
This means that the employer will exclude RM6,000 a year from the taxable income of employees as reported in the EA Form. However, the employer needs to disclose this RM6,000 as a tax-exempt benefit in the EA Form.

Employees receiving travelling allowances not exceeding RM6,000 a year will no longer be required to keep the required receipts to substantiate their claims.

This incentive applies from YA2008.

However, if the employer provides, for official duties, petrol card, petrol allowance, travelling allowance and toll card exceeding RM6,000 a year, the employer is required to report in Form EA in two sections:

(a) Tax exempt benefits: RM6,000
(b) Part of taxable employment income – salary, bonus, entertainment allowance – and the petrol/travelling/toll amount in excess of RM6,000

In this case, the employee is now required to keep all receipts to substantiate her claims.

Example:
Ming Hui has marketed agricultural products for Duck Rich Sdn Bhd since 2007. She receives a travelling allowance of RM14,000 per year.

For the year ended Dec 31, 2008, the company will provide Ming Hui with Form EA disclosing taxable income of RM8,000 as part of employment income and a tax-exempt benefit of RM6,000.

Ming Hui incurred RM9,000 for travelling expenses to carry out official duties for YA2008. She is required to set off these travelling expenses against the amount received from her employer of RM14,000 (and not RM8,000). The amount taxable on her is RM5,000 (RM14,000 – RM9,000).

Ming Hui is required to maintain the receipts of RM9,000 for a period of seven years.