Untangling The Taxation Web

The Star - How Tax Cheats Get Caught

2011-08-08T23:09:00.000-07:00

Tuesday August 2, 2011

Comment by Kang Beng Hoe

THE term tax cheat used here refers to the determined tax evader and not to someone who made a good faith mistake due to the complexity of the tax law.

He is someone who sets himself up to evade tax either by not paying at all or regularly underpaying. He is unlikely to have kept books or records, or even if he did, they would likely be inadequate, or he would withhold them from the tax authorities.

Here the tax official is faced with the problem that actual undisclosed income cannot be proven directly. He will have to resort to indirect means to do so.

One of the most powerful tools that the tax official has on hand is the use of the net worth statement also known as capital statement.

The success of the net worth method is premised on the fact that income which has been hidden away will, over time, surface as assets in tangible forms such as landed property, stocks and shares, cars, jewellery etc. Why do you think the local tax office would keep tab of regular notifications from the land office and JPJ evidencing a taxpayer's acquisition of a property or a motor vehicle?

The reasoning behind the net worth approach is quite simple. When a person accumulates wealth in the course of a year, he either invests it in assets or spends it. If there is an increase of net worth over the year, there is the presumption that this represents taxable income.

This presumptive approach has been adopted in parts of many tax systems. Critics say that the approach is confiscatory in nature and is a denial of the basic right of a person to protection of property. The courts though have endorsed the net worth method on the reasonable argument that a person who has accumulated substantial wealth should be able to show where it came from, if it is not from his known income sources.

The basic net worth formula looks at a person's increase in net worth over a year. To this is added expenses, which are not tax deductible, including living expenses. The result is income for the year, which should have been reported. Compare this with what was reported and the taxman would have a figure, which represents understated income.

The use of this formula is repeated over a number of years so that the taxman will be able to determine the understatement of income over those years. The six-year time limit in our tax law will preclude looking beyond six years unless evidence of fraud is present.

An area of common dispute is the taxpayer's living expenses as these are added to the net worth formula.

It is not uncommon for the taxpayer to hold himself out to the tax official as a man of frugal habits until confronted with evidence of lavish spending. The tax official is empowered by case law to make estimates of a taxpayer's living expenses using all available evidence including third party verification.

The preparation of a net worth statement is laborious and time consuming. Expect detailed line-by-line examination of bank statements, financial statements to creditors and other relevant documents evidencing asset purchases or other spending. Safe deposit boxes are not safe hiding places as these could be sealed off pending examination of their contents.

Defences put up range from the typical to the bizarre:

Cash at start of the statement period had been claimed to have been hidden in mattresses, shoeboxes and garden sheds, etc.

Monies were borrowed from relatives, friends and business associates.

Assets were jointly owned by the spouse before the start of the enquiry period, or the taxpayer is the owner in name only and that the real owner may not be under investigation.

Net worth increases were due to gifts, inheritances, insurance proceeds and even gambling or lottery winnings.

The question often asked is whether offshore assets should feature in the net worth statement since offshore income is not taxable. The answer is yes unless it can be shown that the offshore funds were not funded from domestic taxable income.

It has been said that our tax system is founded on levels of trust. At one level, when we pay our taxes, we assume that our fellow citizens will pay theirs too. The tax cheat has thus betrayed this trust making us feel unfairly burdened. Effective enforcement by tax officials, using all available means, including the net worth method, is therefore crucial in any credible tax system.

It is also obvious to many that the net worth method could be used to reveal and prove illegal activities in areas other than tax evasion.

This is because the proceeds from such activities are often invested in visible assets.

When one hears the chorus “how can he afford it?” directed at a public official found flaunting his conspicuous acquisition, the public mind is showing its intuitive understanding of what it takes to show him up.

· Kang Beng Hoe is an executive director of Taxand Malaysia Sdn Bhd, a member firm of Taxand, the first global organisation of independent tax firms. The views expressed do not necessarily represent those of the firm. Readers should seek specific professional advice before acting on the views. Kang can be contacted at kbh@taxand.com.my

Wise ways to save on taxes - The Star

2010-03-21T02:25:00.000-07:00

Sunday March 21, 2010
Wise ways to save on taxes
By ELAINE ANG and JOSEPH LOH
sunday@thestar.com.my

The tax man cometh again but before you file in your returns, look for ways to maximise your tax savings.

THE time for filing tax returns is upon us again and foremost on every taxpayer’s mind now is how to pay the least tax without being penalised – or even imprisoned – for tax avoidance.
So the million-dollar question is how can Malaysian taxpayers pay less tax?

KPMG tax partner Pauline Tam points us to some simple moves.

“Make an effort to be updated with the full list of tax exempt or partially tax exempt allowances or benefits, personal relief, deduction, rebates or tax incentives that we as individual taxpayers are entitled to.

“Start to recap what you spent in 2009 and compile the receipts for purchase of books, magazines, sports equipment, computer and course fees for a degree at Masters or Doctorate level and so forth that you could have chucked away in your drawers.

(Note : There is also the Housing Loan Interest relief as announced in the Mini Budget which was omitted here)

“If you have somehow forgotten what you spent in 2009, it’s never too late to start planning now for 2010,” she advises.

Peter Lim, a senior manager with a multinational company, has a shoebox full of receipts which he plans to sieve through in the coming weeks to offset against his taxable income.

“I aim to take advantage of all the tax reliefs that I am entitled to. My taxes always result in a big hole in my pocket as I tend to lose my receipts and am not updated on the latest incentives and reliefs.

“Hopefully it will result in lower taxes for me this time especially since the Government did not introduce many new incentives for the year of assessment (Y/A) 2009,” he says.

There are few changes in terms of tax incentives, reliefs and rebates for individual taxpayers for Y/A 2009 versus Y/A 2008.

The main changes consist of the reduction of the top marginal tax rate to 27% from 28%; increase in the rebate given to individual taxpayers whose chargeable income does not exceed RM35,000, to RM400 from RM350; and tax exemption on interest income from Syariah-compliant savings bonds issued by the Government.

The withholding tax rate on non-corporate investors including residents and non-residents for income from real estate investment trusts listed on Bursa Malaysia was reduced to 10% from 15%.

In addition, bonus and directors’ fees are to be taxed in the year such income are received.
Therefore, tips for individual taxpayers to pay less tax would definitely come in handy. (See: Important points to consider and Quick Tips chart)

Employers’ role
KPMG’s Tam says employers might wish to educate their employees on the types of reliefs and tax deductions that they are entitled to, as well as the types of records that employees should maintain to substantiate the claims.

“This would go a long way in assisting employees. The tax awareness programme could involve either inviting Inland Revenue Board (IRB) officials or their tax agents to conduct briefings on a yearly basis or whenever there are tax changes.

“The programme could also include guidance on how to e-file their tax returns and to have a better understanding of their rights and obligations under the tax laws,” she adds.

Employers should also consider the available tax exempt benefits and allowances when reviewing the annual remuneration package for their employees to reduce their financial burden.
However, these would have to be weighed against the additional cost and administrative tasks in implementing the benefits.

PricewaterhouseCoopers Taxation Services Sdn Bhd managing consultant Hilda Liow concurs.
“Malaysian employers are mostly quite receptive to employee tax incentives announced by the Government and do actively consider structuring their employees’ remuneration for tax effectiveness.

“However, the usual constraint is in ensuring that there is no increase of cost to the employer in implementing a tax efficient remuneration structure,” she says.

She stresses that Malaysian employers have to begin to appreciate the overall attractiveness of their employee remuneration and incentives programmes as an important tool for recruiting and retaining talent.

New incentives for Y/A 2010
Incentives that taxpayers should look out for this year are as follows.

Firstly, the top tax rate on chargeable income exceeding RM100,000 is 27% for Y/A 2009, with a reduction to 26% for Y/A 2010.

Secondly, personal relief will be increased from RM8,000 to RM9,000.

In addition, there are new tax reliefs like a tax relief of up to RM500 per year for broadband subscription fees from 2010 until 2012.

The relief for life insurance premiums/approved fund contributions would be increased to RM7,000 from RM6,000.

The additional RM1,000 is given solely to annuity scheme premium from insurance companies contracted with effect from Jan 1, 2010.

The Budget 2010 announcement also saw the unprecedented introduction of a flat reduced tax rate incentive on the employment income of a knowledge worker in a specified economic region (the knowledge worker, qualified activity and specified region must be approved by the Finance Minister).

“The employment income of a Malaysian and foreign knowledge worker residing in Iskandar Malaysia and working in qualifying activities will be taxed at a flat rate of 15%,” Liow explains.
“This incentive applies to knowledge workers applying for and commencing employment in Iskandar Malaysia between Oct 24, 2009 and Dec 31, 2015.”

However, the IRB has yet to issue guidelines on the definition of “knowledge workers” and neither has it provided clear guidelines as to the application process and the documentation to support the application with the Finance Ministry.

To sustain a progressive nation, Liow says the Government would need to enhance the competitiveness of individual taxes.

“There is still the 1% gap between the top personal tax rate of 26% (effective from Y/A 2010) and the corporate tax rate of 25% (effective from Y/A 2009).

“An eventual harmonisation of the top personal and corporate tax rates could provide a competitive advantage in attracting investment and providing greater flexibility for individuals in business to determine their business structure,” she adds.

According to Liow, it is also timely for the Government to expand green tax incentives to the individual consumer especially with the continued focus on green issues and the need for countries to work together to lower their carbon footprint and reduce gas emissions.

Currently, the only incentive enjoyed by an individual is the stamp duty exemption announced in Budget 2010 on the costs incurred to obtain the Green Building Index certificate by the first owner of a residential building.

“More incentives for the individual taxpayer could include residential energy efficient reliefs for energy efficient households, such as the usage of solar heating systems and circulating fans as well as fuel vehicle reliefs for the usage of personal hybrid vehicles,” Liow says.

Tam highlights that widening the income band in each income bracket for the respective progressive tax rates or granting more reliefs or deduction would have a substantial impact in easing the tax burden for individuals.

She reckons the Government could introduce parent relief in recognition of taxpayers supporting their aged and handicapped dependants with further parent relief if the taxpayer lived with the dependant.

“They can also allow taxpayers to claim the full amount of donations given to approved charitable organisations without any restriction. Currently, the deduction of donations is limited to 7% of aggregate income,” she says.

In addition, Tam says, the Government could consider reinstating the deduction of interest paid to finance the acquisition of real property as part of the incidental cost to the acquisition price for computing real property gains tax payable.

For a limited time only, Sunday Star with the assistance of PremierOne Tax Consultants Sdn Bhd. will answer questions from readers who want to know more about filing their tax returns. E-mail your queries to: taxsunday@thestar.com.my

Borang CP500

2010-02-26T00:05:00.000-08:00

Many taxpayers received the Borang CP500 in 2010 requesting them to make instalment payments in 2010. This, it seems, is beacuse these taxpayers received other incomes other than employment (eg. rental, dividends, etc) and declared them in "Other Income" column in 2009's Borang B/BE.

Therefore, the instalments payments under CP500 is the tax for these income from 'other sources', which is crazy beacuse 'other income' received in 2008 may vary very differently from the amount received in 2009.

The Star carried a 'clarification' from the IRB on 23 Feb 2010, which raises more questions and does not clarify much actually.

Tuesday February 23, 2010
Get CP 500 notice cancelled if you don’t earn extra income

PETALING JAYA: If you receive a notice of instalment payment (CP 500) from the Inland Revenue Board, do not panic!

The notice, which states the amount, due date and number of instalments, is meant for taxpayers with earnings other than monthly salaries such as income from business and rentals as well as commissions from multi-level marketing or insurance.

Those with a fixed salary, but without other earnings, should go to the branch handling their income tax files to have the notice cancelled.

IRB public relations officer Masrun Maslin admitted that IRB had received many complaints from taxpayers without side income who were issued with such notices.

“Do not panic. If you do not have any other means of income other than your monthly salary, just go to the branch handling your file for the notice to be cancelled immediately,” he said.

However, he said taxpayers would still have to provide supporting documents such as the EA form to show that they did not have income other than their monthly salaries.

Masrun said taxpayers without side income were being issued with such notices due to possible errors in their income tax return forms. “For instance, they must have wrongly put dividends, bonuses or pensions in the other earnings column instead of the salary column.

“The system automatically captures the data on the other earnings and thus, the taxpayers will be issued the CP 500 notices.”

He said previously, the IRB would look at the list of those eligible for the tax liability on other earnings before issuing the notice.

A complainant who declined to be identified said he was upset upon receiving the notice.
He said he contacted the IRB branch handling his file and was advised to ignore it.

However, he was asked to call the branch again next month to check whether he would still have to settle the instalment payments.

“The officer told me that he had been receiving a lot of queries and complaints pertaining to the notice,” he added.

Titles In This Blog

2009-12-25T07:10:00.000-08:00

LATEST !

Individual tax

Potongan Cukai Berjadual (PCB) / Schedular Tax Deduction (STD)

Real Property Gains Tax (RPGT)

Others

Is income from Google Adsense taxable ?

Q&As

Q&A with the Income Tax Department

The Malaysian newspapers sometimes run series of Q&As for Income Tax issues. They are compiled as follows :-

The Edge - 27/10/09 - Q&A with Deloitte Malaysia on Budget 2010
The Star - 29/03/09 - Q&As
The Star - 22/03/09 - Q&As
The Star - 15/03/09 - Steps To Lessen The Pain

Feel free to put your comments here on other topics that might interest you or questions that you want answered.

Can RPGT be minimised ?

2009-12-25T07:09:00.000-08:00

By POON YEW HOE

It may be possible by transferring properties to a company, but there are many pitfalls to consider

AT the recently concluded budget seminar of our firm, a major focus of the 650 attendees was the proposed real property gains tax (RPGT) of 5% to be imposed on disposals of property after Jan 1.

Resigned to the inevitability of the tax and the futility of objections, the ingenious ones posed the question to us on the possibility of tax minimisation by transferring their current properties to a company before Jan 1.

The plan calls for properties which were acquired many years ago at a cheap price (say RM1mil) to be transferred to a company controlled by them at the prevailing market price (say RM3mil).
The transfer will be effected before Jan 1, thus attracting no RPGT on the disposal.

In the future when the property is disposed off by the company, the company will only be taxed on the capital gain over and above the new cost of RM3mil.

If the disposal price by the company is RM4mil, the company will only pay tax on the capital gain of RM1mil (RM4mil less RM3mil) at the rate of 5%, thus resulting in RPGT of RM50,000.
A very ingenious idea indeed.

The comparison of taxes payable shows a tax saving of RM100,000 calculated as seen in the table.

Before anyone embarks on such a potentially lucrative move, one has to bear in mind many of the pitfalls, some of which are discussed below.

Date of disposal

For the purpose of this discussion, the term “chargeable assets” is used to refer to properties and other assets that can be caught under RPGT.

Chargeable assets include shares in real property companies which are companies that predominantly hold assets in the form of properties or shares in other real property companies.

Only chargeable assets disposed on Jan 1 or after will be assessed to RPGT. Those disposed of from April 1, 2007 to Dec 31, 2009 will not. A day is literally night and day for tax purposes!

But the term “disposal date” has a technical definition and it is not the date when the sales price is paid over as we usually consider a sale to be. In sales circles, as they say, a sale is not a sale until the money is collected!

However, for RPGT purposes, a sale is a sale on the day a written agreement is entered into.
Hence, the date that a sale and purchase agreement is entered into for the sale of a property is usually the date of disposal for RPGT purposes. But what if there is no written agreement?

The law provides that the date of disposal is the earlier of two dates – the date that the sales price is fully received or the date that the ownership is transferred. Disposals of this nature may have disposal dates being deferred to a later date, which may fall in the 5% taxable period!

Likewise, disposal dates may be deferred even much later if the sale is dependent on securing approvals from the “Government or an authority, or committee appointed by the Government” – for example, the state government, the Securities Commission (SC) or Foreign Investment Committee.

For these “conditional contracts” which are covered by Para 16 of Schedule 2 of the RPGT Act, the disposal date is when the last of the approvals is obtained.

If a sale and purchase agreement is signed in December 2009 that is subject to SC approval which is obtained in February 2010, the disposal will be treated as having taken place in 2010 and thus subject to the 5% RPGT!

Stamp duty on the transfer

Stamp duty is imposed on the documents for the transfer of title; for example, the memorandum of transfer for transfer of property.

The rates applicable are fairly steep for properties which range from 1% to 3% with the highest rate of 3% being applicable for transfer prices which exceed RM500,000.

Transfers of shares attract duty at the rate of RM3 for every RM1,000 of the transfer price or 0.3%.

However, to avoid stamp duty, one may wish to transfer the property without the transfer of title; for example, the owner holds the property in trust for the company.

What if no transfer of title is effected as in these circumstances? Will the issue of tax avoidance then arise? Perhaps.

Anti-tax avoidance in the RPGT Act

Section 25 of the RPGT Act contains the general anti-avoidance provisions which allow the tax authorities to disregard transactions, vary transactions or impose taxes that should have been imposed.

The law specifies that this right is available if the transactions had the effect of “altering the incidence of tax”, “relieving a person from tax liability” or “evading or avoiding any liability which would otherwise have been imposed”.

Besides these general anti-tax avoidance measures which are also found in the Income Tax Act to discourage income tax avoidance, Section 25 of the RPGT Act also provides for persons who provide loans to related parties; for example, Mr A providing loans to Company A which is owned by him.

The law provides that if Company A sells a property and the property was financed by a loan provided by Mr A, the disposal may be regarded as a disposal by Mr A and not by Company A.

However, the cost of acquisition to Mr A is the market value of the property when Company A acquired the property from Mr A. If Company A had acquired the property from Mr A at the true market value, this anti-tax avoidance provision of the RPGT Act should not pose any problem.

Previous rules by Ministry of Finance (MOF)

A few years ago, the Government had granted a similar tax free period from June 1, 2003 to May 31, 2004.

During that period, the MOF had issued some guidelines to curb the avoidance of RPGT by mandating that any disposal of property must be evidenced by a sales and purchase agreement which must be duly signed and stamped within the exemption period.

Sale of property to a company in exchange for shares .

Care should be taken if the property owner transfers a property to a company controlled by him in exchange for shares, or at least 75% in the form of shares. If the transfer is done this way, the shares may be considered to be chargeable assets.

In the future when these shares are sold, the gains will be subject to the RPGT of 5%. The cost of shares for RPGT purposes is not the par value of the shares but the price paid by the property owner for the property plus incidental expenses incurred by him on the acquisition; for example, legal fees.

As such, if Mr B transfers a piece of property acquired for RM1mil to his company (Company B) at market price of RM3mil in exchange for 3 million RM1 shares, and the shares are subsequently sold for RM4mil, the gains on disposal are calculated at RM3mil which is RM4mil sales price less the acquisition price to Mr B of RM1mil.

Indirectly therefore, Mr B is taxed on his full capital gains and not merely on the gains made by Company B owned by him.

RPGT or income tax?

Another aspect which has deep implications is whether the disposer had held the property as stock-in-trade or as a long term investment.

If held as stock-in-trade, the gains on disposal will attract income tax whereas if held as a long term investment, the gains will attract RPGT.

Some property investments which are disposed as part of a quick sale, or as a single isolated transaction in circumstances which give it a cloak of “adventure in the nature of trade”, could be caught under income tax.

Due to space constraints, we are unable to elaborate on this issue. If these disposals are caught under income tax, what then is the advantage of disposing the properties before Jan 1 if the disposer has to pay income tax at 25% on the gains upfront?

The obstacles can be quite challenging as seen above and careful navigation of the tax law is necessary. But I am sure good tax advisers will find a way out of the conundrum!

· Poon Yew Hoe is a partner of Horwath.

Understanding Real Property Gains Tax (RPGT)

2009-12-25T06:43:00.000-08:00

Understanding your tax exposure
By Dr CHOONG KWAI FATT

Exemption order an interim measure to a complete RPGT system

IN Malaysia , real property gains tax (RPGT) is imposed with the intention to curb property speculations. It is imposed on the gains on disposal of Malaysian landed properties and the rate varies from 5% to 30% depends on the holding period.

With effect from April 1, 2007, the Government decided to exempt RPGT in view of the economic slowdown and it was aimed at assisting property developers in disposing of their houses, and spearheading the economic progress.

Prime Minister Datuk Seri Najib Tun Razak, who is also Finance Minister, on Oct 23, however, reintroduced RPGT to put in place a fair administration of taxes.

In a nutshell, an equitable system will now be in place as income tax are imposed on income derived by any person in Malaysia while RPGT, on capital gains on disposal of landed properties. There will not be any loss of revenue to the Government.

In the Budget 2010 speech, the Government’s intention was clear. It is to ensure that the Malaysian tax system is equitable and continue to be able to generate revenue for development purposes. In line with this, the Government proposed that a tax of 5% be imposed on gains from the disposal of real property from Jan 1 2010. Any agreements signed between now till Dec 31 remains RPGT exempted.

Finance Minister II Datuk Seri Ahmad Husni Mohamad Hanadzlah then, exercising his power under section 9(3) of the Real Property Gains Tax Act 1976 (RPGTA), gazetted Real Property Gains Tax (Exemption) Order 2009 which will take effect from Jan 1, 2010.

A fixed RPGT rate of 5% on gains from property gains is achieved through the application of this exemption order.

Malaysian individuals are accorded tax exemption of 10% of the chargeable gain (CG) from the computation of RPGT3. Thus, this would effectively mean that they will be paying less than 5% of RPGT rate while companies continue to pay 5%.

The RPGT Exemption Order exempts any person from the application of Schedule 5 of the RPGTA on the payment of tax on the CG arising from any disposal of assets on or after Jan 1, subject to the condition that the amount of CG exempted shall be determined in accordance with the following formula: A/B x C where:

A = Tax on CG at the appropriate tax rate reduced by the Tax on CG at 5%;
B = Tax on CG at the appropriate tax rate;
C = Amount of CG

Effectively, the exemption formula can be simplified as follows:
Chargeable gain x (Appropriate rate – 5%) / Appropriate rate

The appropriate tax rate to be applied on this exemption order depends on the holding period of the property which is summarised as perTable A.

Illustration: Malaysian citizen individuals

Chia Lat acquired a condominium in Bangsar for RM500,000 on Jan 1, 2008. On March 31, 2010 he decides to dispose the property for RM780,000. The RPGT to be paid by him would be as per Table B.

Illustration: Companies

Using the same example as above, and assuming the taxpayer is a Sdn Bhd, the RPGT payable would be as per Table C.

Mathematical confusion

The mathematical formula stipulated in the RPGT exemption basically restores to the fact that the RPGT is 5% on the CG. This is the mathematical equation:
Assuming the appropriate tax rate is y and CG is x, then the RPGT payable after the RPGT exemption would be :

[x – x(y - 5%)/y ] y =xy – xy + 5% x
= 5% of x

The Government has stated that the purpose of the RPGT is to have a fair administration of taxes. Thus the exemption is an interim measure to begin with RPGT of 5% taxes. In years to come, once the exemption order is revoked, RPGT payable would revert to the original position, ranging from 30% to 5%, depending on the holding period.

Policy reform: Currently, taxpayers are only required to keep accounting records for seven years under the law. It may not be feasible to impose 5% on the chargeable gain on gains derived from holding periods more than seven years. This would mean tax payers are required to keep their accounting records for an indefinite time to justify cost attributable to the acquisition.

It is therefore suggested that the Government impose 2% on selling price instead of holding periods exceeding seven years or as in the past, exempt these gains from RPGT. After all, the underlying purpose of RPGT is to curb speculation of properties rather than tax collection.

Moving forward, the Government may likely further align the taxes on landed transactions to be equitable with the income tax system. Therefore, it is crucial that the rakyat understand the Government’s overall objectives and appreciate that this exemption order is an interim measure to prepare the country for a complete restoration of the RPGT system when the time comes.

Once the country’s economy is paced and sustaining desired growth, this exemption may likely to be revoked and property gains will be back causing gains will be taxed at the appropriate rate.
Till then, this exemption order will continue to allow us to enjoy most of our short-term trading gains from real property transactions.

● Dr Choong Kwai Fatt is deputy dean, Research and Development, Faculty of Business and Accountancy, University of Malaya .

RPGT only for sales within 5 years of purchase

2009-12-25T06:13:00.000-08:00

The following is an extract of a report in The Star newspaper on 24 December 2009.

PUTRAJAYA: The real property gains tax (RPGT) announced during the 2010 Budget will now only apply to property sold less than five years from its purchase, Datuk Seri Najib Tun Razak said.

The Prime Minister said the 5% tax would now only be imposed on property sold within five years of the date of purchase.

He said the decision would cause the Government to lose about RM200mil in revenue, adding the move was made following appeals from the Federation of Chinese Associations of Malaysia (Hua Zong) and the business sector.

“This was also decided upon as the Government wants to see a stronger growth in the property sector next year. We are willing to forgo a substantial amount of revenue so that the sector can expand and grow.

“The property sector has shown signs of improvement but we feel that it requires further impetus so that it can continue to grow from strength to strength.

Q&A with Deloitte Malaysia on 2010 Budget

2009-12-25T05:58:00.000-08:00

Deloitte Malaysia 's Q&A on Budget 2010
by Financial Daily on Tuesday, 27 October 2009 03:40

KUALA LUMPUR: Following the tabling of Budget 2010 last Friday, Deloitte Malaysia worked together with The Edge Financial Daily to enlighten readers on how the various proposals would impact tax payers and consumers. The following are the answers provided by Janice Tan and Lee Chong Hoo of Deloitte Malaysia based on queries sent in by our readers.

Question 1: What is the impact on a worker earning, say, RM5,000 per month pursuant to Budget 2010?

A: He would not benefit from the proposed one percentage point reduction in the personal income tax rate from 27% to 26% as his chargeable income does not exceed RM100,000.

However, he would be entitled to claim the following additional/new tax reliefs proposed:-
• additional personal relief of RM1,000 (an increase from RM8,000 to RM9,000);
• additional relief of RM1,000 for premium paid on annuity scheme from insurance companies (please refer to further details in our answer to question 2 below);
• new relief on broadband subscription fee paid of up to RM500 per year for years 2010 to 2012.

Q2: How does the proposed additional relief of RM1,000 for premium paid on annuity scheme work and what annuity scheme will it encompass?

A: The additional relief of RM1,000 is in respect of premium paid on annuity scheme from insurance companies contracted from Jan 1, 2010 or additional premium paid on existing annuity scheme from Jan 1, 2010.

This is on top of the existing relief for premiums paid on life insurance or annuity scheme and contributions to the Employees Provident Fund (EPF) of RM6,000.

Where the premium paid on the new annuity scheme or the additional premium paid on existing scheme exceeds RM1,000, the excess can be claimed against any unutilised amount for the existing relief of RM6,000, subject to a cap of RM7,000 for the aggregate amount claimed.

The annuity scheme for the purposes of the above relief under Section 49(1) of the Income Tax Act 1967 (ITA) is an annuity scheme contracted for with an insurance company for securing on death a deferred annuity and not the existing annuity purchased through EPF Annuity Scheme. Currently, a separate relief of RM1,000 is given for the premium paid on the EPF Annuity Scheme under Section 49(1C) of the ITA.

Q3: I understand that Real Property Gains Tax (RPGT) will be reinstated from Jan 1, 2010. Is the 5% tax rate as announced in the budget a fixed rate regardless of the holding period of the properties? Will this just apply to an individual?

A: Notwithstanding the proposals in the Finance Bill, the Ministry of Finance has confirmed that a 5% rate of RPGT irrespective of the holding period and category of tax payers, ie whether individuals or companies, will be introduced through a Ministerial Exemption Order effective Jan 1, 2010.

Q4: I have an apartment under the joint names of my son and myself. I wish to change the ownership in the apartment to either be:-
a) jointly owned by my daughter and myself, or
b) solely owned by my daughter.
Will the above proposed transfers be subject to RPGT based on the Budget 2010 proposals?

A: The transfer of ownership from yourself to your daughter under (b) will be regarded as a gift between parent and child and thus will be exempted from RPGT.

However, the above exemption by way of gift does not cover the transfer of ownership from your son to your daughter. Your son may choose to exercise the once-in-a-lifetime exemption from RPGT for disposal of private residence.

Q5: What will be my obligations if I were to acquire a property after Jan 1, 2010 for a total consideration of, say, RM500,000?

A: You would need to withhold the lower of the amount of money consideration or 2% of the total consideration and remit the sum to the Inland Revenue Board (IRB) within 60 days from the date of disposal. Assuming the total consideration of RM500,000 consists wholly of cash, the amount required to be withheld and remitted would be RM10,000. In addition, you would also be required to submit a return on acquisition of chargeable asset under the existing requirement of the RPGT Act 1976.

Q6: Will my obligation be different if my purchase consideration is partly in cash, say, RM5,000 and the balance is paid by way of shares?

A: The amount required to be withheld and remitted to the IRB will be reduced to the whole amount of the money consideration of RM5,000 and not 2% of the total consideration.

Q7: What will happen if I do not fulfil my obligations as an acquirer under the RPGT Act?

A: Failure to comply with the above withholding requirement would result in a 10% penalty to be imposed on the acquirer and the withholding due plus the penalty would be regarded as a debt due from the acquirer to the government.

Q8: If I sell two properties, one at a profit of RM50,000 and another at a loss of RM15,000 in the same year, what is my chargeable gain?

A: It is proposed under Budget 2010 that any allowable loss arising from a disposal of a chargeable asset would be deducted against any chargeable gain arising from subsequent disposals. As such, your chargeable gain would be RM35,000 after deducting the allowable loss of RM15,000.

Q9: Currently I have two credit cards, one from Citibank and the other from CIMB. I am the principal card holder while my wife and two children are secondary card holders from both banks. I heard that I will be imposed a service tax on such cards effective from Jan 1, 2010. How will it affect me?

A: Effective from Jan 1, 2010, service tax of RM50 and RM25 would be imposed annually for each principal and secondary card respectively. As such, you would be subject to service tax totalling RM250 annually [(RM50 x 2) + (RM25 x 3 x 2)] for the above principal and secondary cards

Q10: I understand that tax incentives for health tourism would be enhanced whereby the exemption rate of 50% on the value of increased exports would be increased to 100% subject to 70% of the statutory income for each year of assessment? How does the exemption work and what would constitute exports for the purposes of the above exemption?

A: The amount of income to be exempted is computed based on the increase in the value of qualifying services exported for two consecutive basis periods.
Assuming the values of services qualifying for exemption are RM100,000 and RM200,000 for Year 1 and Year 2 respectively, the value of increased exports would be RM100,000 ie (RM200,000 — RM100,000).

As such, the amount of income to be exempted for the above example under the Budget 2010 proposal would be RM100,000 instead of RM50,000 based on the existing 50% exemption rate.
The above amount exempted would be allowed as a deduction against the person’s statutory business income (SI) in arriving at the chargeable income but is restricted to 70% of the SI for that year of assessment. Any unutilised amount can be carried forward to be deducted against future statutory income. Normally, statutory business income is computed by deducting allowable expenses and capital allowances from the gross income of the business.

To qualify for the aforesaid exemption, the healthcare services must be provided to the following foreign clients in Malaysia :

a) A company, a partnership, an organisation or a cooperative society incorporated or registered outside Malaysia ;
b) Non-Malaysian citizens who do not hold Malaysian work permits; or
c) Malaysian citizens who are non-residents living abroad.

For the purposes of the enhanced incentive, foreign clients would now exclude:

a) A non-Malaysian citizen that participates in Malaysia My Second Home Programme and his dependents;
b) A non-Malaysian citizen holding a Malaysian student pass and his dependents;
c) A non-Malaysian citizen holding a Malaysian work permit and his dependents; or
d) Malaysian citizens who are non-residents living abroad and his dependents.

However, healthcare services providers who are currently providing services to foreign clients who are excluded under the enhanced incentive can continue to enjoy the existing incentives.

This article appeared in The Edge Financial Daily, October 27, 2009.

Budget 2010 - What is there for individual taxpayers

2009-10-23T07:12:00.001-07:00

The Budget 2010 announced on 23 October 2009 has a few changes to individual taxpayers. The Budget Speech can be viewed here with Appendices here.

The sections in the budget speech affecting individual tax payers are :-

24 & 25 IRB will use the MyKad number as a single reference number when dealing with taxpayers, hence doing away with Income Tax Reference Numbers starting with SG or OG.

40 Individual taxpayers will be given tax relief of up to RM500 per year for broadband subscription fees from 2010 to 2012.

88 Re-introduction of Real Property Gains Tax (RPGT) of 5% for gains arising from the disposal of properties from 1 January 2010.

89 Each principal credit card will be charged a service tax of RM50 per year and each supplementary credit card will be charged a service tax of RM25 per year with effect from 1 January 2010.

101 With effect from the Year of Assessment 2010, the maximum rate of individual income tax is reduced by 1% to 26%.

102 Personal Relief increased from RM8,000 to RM9,000

103 & 104 Income tax rate for 'knowledge workers approved by the Ministry of Finance', both Malaysians and foreigners who applied and commenced employment in Iskandar Malaysia between 24 October 2009 and 31 December 2015 be fixed at 15%

117 EPF contributors will be allowed to use Account 2 of their current and future EPF savings to obtain financing, subject to EPF's guidelines, to purchase a residential property. This scheme will be launched in January 2010.

122 & 123 The government will establish a 1Malaysia Retirement Scheme to be managed by the EPF for those retired and self-employed to contribute as savings for their retirement.

124 Employees' contribution to EPF will be reverted to 11% from the current 8%, voluntarily from January 2010 and mandatorily from January 2011.

125 Increase of the EPF/Life Insurance Personal Relief limit from RM6,000 to RM7,000 from the Year of Assessment 2010. However, the increase of RM1,000 is only for annuity premiums paid from 1 January 2010.

The Appendices concerned are Appendix 3, 14, 15, 16 & 17.

Special Telephone Lines for Budget 2010 Queries

2009-10-13T07:16:00.000-07:00

The Prime Minister cun Finance Minister 1 is going to table the Budget 2010 on 23 October 2009.

As usual, the Inland Revenue Board has set up special telephone lines to enable the public to call and have their queries answered on anything announced in the Budget.

The dedicated telephone lines are :-

1. 03-6201 3037
2. 03-6201 3046
3. 03-6201 3048
4. 03-6201 3052
5. 03-6201 3054
6. 03-6201 3058
7. 03-6201 3059
8. 03-6201 3061

From the Media Statement in the website of the IRB, the telephone lines are open on 23 October 2009 from 7.00 pm to 10.00 p.m. only.

Suggestions for Budget 2010

2009-10-13T07:05:00.000-07:00

The Prime Minister cum Finance Minister 1 has invited the public to give suggestions to be considered in the coming 2010 budget to be tabled on 23 October 2009.

The suggestions can be input at http://www.1malaysia.com.my/

I have sent in 4 suggestions on 12 October 2009 and they appeared in the website here. As the pages changes as and when more people give their suf=ggestions, I copied it here as follows :-

gtchye: Increase Personal Reliefs for Income Tax

The personal relief for income tax was increased from RM5,000 to RM8,000 in 1999. There has been no increase for 10 years. With the increasing cost of living, the personal relief should be increased to a minimum of RM10,000. (Sec 46(1)(a) of the Income Tax Act 1967)

Spouse and children's reliefs should also be increased to reflect the increased cost of a sustaining a family. (Sec 47 & 48 of the Income Tax Act 1967)

Life insurance premiums and employees' EPF paid should be separated and each given a limit of RM6,000. Insurance policies are getting too expensive and to encourage savings, premiums paid should be entitled to its own relief instead of combining it with EPF. (Sec 49 of the Income Tax Act 1967)

Relief for medical expenses for parents has not been revised since it was increased from the year of assessment 1996. This should be expanded to include medical expenses for children. (Sec 46(1)(c) of the Income Tax Act 1967)

Let's see if any of these are taken up in the Budget.

Tax residence status of an individual

2009-09-03T08:35:00.000-07:00

In determining the income tax rate (hence the amount of income tax payable) of an individual, it is important to first determine if he/she is a tax resident under the Malaysian Income Tax Act, 1967 (ITA).

Many people seem to have the view that if an individual stays in Malaysia for 182 days or more, he/she is a tax resident under the ITA. Anything shorter than that, then the person is a non-resident and is subject to non-resident tax rate, i.e. a flat rate of 27% (Year of Assessment 2008).

This is far from true ! Section 7 of the ITA clearly provides more than one situations when an individual taxpayer is considered a tax resident.

Section 7 of the Malaysian Income Tax Act says,

7. (1) For the purposes of this Act, an individual is resident in Malaysia for the basis year for a particular year of assessment if-

(a) he is in Malaysia in that basis year for a period or periods amounting in all to one hundred and eighty-two days or more;

(b) he is in Malaysia in that basis year for a period of less than one hundred and eighty-two days and that period is linked by or to another period of one hundred and eighty-two or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that particular year of assessment or in that basis year for the year of assessment immediately following that particular year of assessment: Provided that any temporary absence from Malaysia -

(i) connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad;

(ii) owing to ill-health involving himself or a member of his immediate family; and

(iii) in respect of social visits not exceeding fourteen days in the aggregate, shall be taken to form part of such period or that period, as the case may be, if he is in Malaysia immediately prior to and after that temporary absence;

(c) he is in Malaysia in that basis year for a period or periods amounting in all to ninety days or more, having been with respect to each of any three of the basis years for the four years of assessment immediately preceding that particular year of assessment either-

(i) resident in Malaysia within the meaning of this Act for the basis year in question; or

(ii) in Malaysia for a period or periods amounting in all to ninety days or more in the basis year in question; or

(d) he is resident in Malaysia within the meaning of this Act for the basis year for the year of assessment following that particular year of assessment, having been so resident for each of the basis years for the three years of assessment immediately preceding that particular year of assessment.

(1A) For the purposes of subsection (1), an individual shall be deemed to be in Malaysia for a day if he is present in Malaysia for part or parts of that day and in ascertaining the period for which he is in Malaysia during any year, any day (within subsection (1)(a) and (c)) for which he is in Malaysia shall be taken into account whether or not that day forms part of a continuous period of days during which he is in Malaysia.

The wordings are rather lengthy.

In layman’s terms, it simply means that an individual is considered a Malaysian Tax Resident if he/she is :-

Sec 7(a) in Malaysia for 182 days or more in a calendar year ;

Sec 7(b) in Malaysia less than 182 days and this period is linked to last year or next year of 182 days or more ;

Sec 7(c) in Malaysia for 90 days or more and 3 out of 4 years before, either
( i) is a tax resident ; or
( ii) is Malaysia for 90 days or more

Sec 7(d) 3 years before he/she was tax resident and next year also tax resident.

In order not to re-invent the wheel, I found a good write up and explanation in a website here.

Per diem - Clarification finally

2009-08-27T21:50:00.000-07:00

The IRB has finally issued the Third Addendum to Public Ruling No. 1/2006 on 29 July 2009 (view here) to clarify that per diem received is exempted, thus officially reversing their Second Addendum issued on 25 February 2009.

So what happen to all those taxpayers who included per diem received in 2008 in their tax returns ?

Understanding Income Tax issues are already complicated enough for the ordinary taxpayers, the IRB should stop being so frickle minded and make a public ruling without considering the effects on taxpayers and the to reverse it with another public ruling, especially after the tax filing deadline.

Why the fuss with PCB deductions 2009 ?

2009-08-16T08:01:00.000-07:00

PCB deductions used to be a simple tax collection process imposed by the IRB. How much is your income for a month, follow the table provided by the IRB, follow the amount of estimated income tax payable and that amount is deducted from your monthly salary and remitted to the IRB.

At the end of the year, you receive the Borang EA from your employer and you calculate how much actual tax you have to pay, taking into account the relieves you have, claims, exemptions, rebates, etc and you fill up the Borang BE, send to the IRB and pay the difference between your actual tax and the total PCB deducted for the year.

If your total PCB deducted for the year is higher, then you get a refund from the IRB.

However, things get really complicated since January 2009. The PCB table is changed, calculation of PCB become totally impossible without a payroll software, TP1, TP2, etc.

Why has the PCB turned into something so complicated ?

The reason is this: The Malaysia IRB wishes to follow its counterpart is Singapore in implementing a system where all salaried employees will not have to file their tax returns (Borang BE) in future.

Refer to the Singapore’s Straits Times report on 7 May 2009 below.

http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_373767.html

The system will make the PCB a Final Tax, as opposed to an Estimated Tax as at now.

We are in the first year that the IRB is gearing towards this system. That is why there are so many teething problems and adjustments needed. How long more before the IRB can fully implement the Final Tax via PCB system is yet to be seen.

Rebates to be Deducted Monthly ?

2009-08-16T07:46:00.000-07:00

The following article appeared in The Star newspaper on 6 August 2009.

Thursday August 6, 2009
Taxpayers can now have rebates deducted monthly

KUALA LUMPUR: The Schedular Tax Deduction (STD) scheme has been reviewed to enable the deduction of rebates and relief to be done on a monthly basis, Inland Revenue Board chief executive officer Datuk Hasmah Abdullah said.

Previously, she said rebates and relief were only taken into account when taxpayers claimed for it when they filed their income tax returns annually.

“By deducting on a monthly basis, we can have real-time payment of taxes due,” she said, adding that this was in line with the agency’s policy to provide the best service to the public by emphasising on accuracy of information.

------------------------------------------------------------------------------------
If I refer to the Borang TP1 now, there are already columns to state your rebates for :-

1. Zakat paid (Column D1)
2. Fees/Levy for employment permits paid (Column D2)

The only other rebates not stated is the personal rebates for those taxpayers with Chargeable Income of RM35,000 or less.

However, this rebate would have been taken into account when the employers input the data from Borang TP1 into their payroll system. The payroll system would have incorporated the personal rebates into their calculation to generate a new PCB deduction amount.

This is yet another confusing statement made by the IRB and picked up by the media without any substantial impact on the employees.

New PCB System ?

2009-07-16T22:16:00.000-07:00

The Star newspaper published the following article on 10 July 2009.

No other information is available after the publication. A check in the LHDN’s website also does not show any new PCB system or table. Borang TP1 has been in use since January 2009.
It does not look like there is a ‘new’ tax deduction system from July. This announcement is confusing employees and employers and should be ignored.

Published: Friday July 10, 2009 MYT 9:07:00 PM
New tax deduction system from July
By SARBAN SINGH

PORT DICKSON: A new schedular tax deduction system from this month will eliminate the need for employees to pay an additional lump sum at the year-end to make up for the shortfall in monthly deductions.
Inland Revenue Board (IRB) chief executive officer Datuk Hasmah Adullah said that under the current system implemented in 2004, the board had on many occasions taken a big cut of the individual’s bonus to make up for the shortfall.
“We had cases where an employee’s entire bonus would go to the IRB (to make up for the shortfall). We do not want to do this any more as it is unfair to the taxpayer.
“It is better for us to make higher deductions every month. This is a better arrangement,” she said, adding that under new system, the taxpayer would have paid up almost all his dues by the end of the year.
She added that the new system would also allow for employees to submit their claims for rebates every month, along with a range of new reliefs.
Previously, the taxpayer was allowed to claim relief for himself, his spouse, their children, his Employees Provident Fund and insurance contributions, and zakat payment (if any), and claim other reliefs only when filing his returns at the end of the assessment year.
Under the new system, Hasmah said an employee can submit claims for rebates such as parents’ medical bills, purchase of a computer, tertiary education fees, medical check-ups, and book and sports equipment purchases to his employer every month using the PCB/TP1 form.
“When this is done, the tax to be paid for that particular month will be reduced automatically. This would practically be a real-time tax payment system.
“We want the taxpayer to benefit straightaway rather then wait till the end of the year,” she said.
She said under the new system, the employee could make monthly claims for 17 other reliefs announced in Budget 2009.
The employee, she added, would not have to submit receipts for the claims to the employer.
Among the new reliefs announced are for travelling allowance, petrol claims, parking fees, food allowance, caretaker fee, maternity and traditional medicine treatment (ayurvedic, acupuncture, etc) and subscription to broadband services.
She said taxpayers could submit their claims for rebates monthly, quarterly or twice a year.
Hasmah said employers who needed assistance on the workings of the new structure could enter the board’s website at www.hasil.gov.my and look for the schedular tax deduction (PCB) calculator icon.

Use EPF to Reduce Your Income Tax

2009-07-03T00:23:00.001-07:00

The EPF (Employees Provident Fund) is a compulsory contribution for Malaysian employees and employers. Although foreigners are not required to contribute EPF, they can opt to contribute at the same rate as Malaysians. While the employees’ portion of contribution can be deducted as a relief from income for tax calculations, the employers’ portion is a tax-free income to the employees. It is this part of income that we want to concentrate in.

Employees have 8% (option to increase to 11%) of their salaries deducted and contribute to the EPF whereas employers pay 12%. Employers are allowed to contribute up to 7% more than the statutory rate of 12%, i.e. up to 19% under the Income Tax Act for employers to be able to deduct these contributions from the employers' taxable income. If an employer contributes more than 7% above the statutory rate, the excess is not allowed as a deduction when calculating the employers' income tax.

An employee can arrange for his/her employer to contribute 19% to EPF by lowering his/her salary. For example,

Original salary RM10,000 a month, Employer’s EPF (12%) RM1,200.
Cost of hiring to employer = RM10,000 + RM1,200 = RM11,200

The employee can ask his/her employer to consider paying less basic salary but increase the employer's contribution to EPF as follows :-

Adjusted salary RM9,412 a month, Employer’s EPF (19%) RM1,788
Cost of hiring to employer = RM9,412 + RM1,788 = RM11,200

So there is no difference to the employer, but for the employee, his/her taxable income is RM588 (RM10,000 – RM9,412) less a month, which is RM7,056 a year. If his/her tax bracket is at 27%, the tax saving would be RM1,905.12 a year !

Of course, the employee’s take home pay at the end will be less as well but the difference is credited into the employee's EPF account, which belongs to the employee anyway. The additional contribution to the EPF can be withdrawn for purchasing a house when needed, or as additional retirement fund when he/she retires.

For foreigners, they will be able to withdraw all the money they have in the EPF when they leave Malaysia, together with all earned dividends, tax-free.

Potongan Cukai Berjadual (PCB) / Schedular Tax Deduction (STD) in Malaysia

2009-05-27T06:59:00.000-07:00

What is PCB/STD in Malaysia ? How does it work ? What is the minimum salary to be caught under the PCB net ?

Among the top searches that came to this site is on “PCB/STD”. This posting explains the workings of PCB/STD in Malaysia and how the calculations are computed.

PCB/STD is based on the commonly known “Pay-As-You-Earn” (PAYE) principal practiced in many countries. Before STD/PCB was introduced in Malaysia, taxpayers were subjected to “preceding year assessment” basis, meaning you declare this year, what you earned last year, and you pay tax this year for last year’s income.

For example, you earn salary of RM100,000 in the whole year in 2008. You only submit your income in Form BE in April 2009. As a result, you only pay your income tax in 2009 for your 2008 income.

This practice posed problems for IRB’s collection department mainly due to taxpayers who already spent their money earned in 2008 and they failed to set aside money to pay for their tax.

The PCB/STD was introduced to collect income tax as and when they are earned by taxpayers. Therefore, the IRB has directed employers to deduct a certain amount out of the monthly salaries of taxpayers to pay for their income tax. Hence, Pay-As-You-Earn (PAYE).

With PCB/STD, taxpayers are no longer paying income tax for preceding year’s income. The tax deducted is from the month’s income is to pay for income tax for that month’s salary.

PCB/STD is not a final tax. As income tax is collected based on an employee’s salary, taking into account his/her marital status, whether spouse working or not and number of children, it is only an estimate. What the STD/PCB fails to take into account are other things such as,

- whether or not you have life, medical or education insurance
- claims for purchase of personal computer
- claims for medical expenses for self, spouse or parents
- claims for purchase of books
- claims for purchase of sports equipments
- whether you have other income such as dividends or rental, etc

Therefore, the PCB/STD paid in a year can almost never be exactly the actual income tax payable.

When the final tax is calculated during the submission of Borang BE in April the following year, then only we will know what the actual tax payable is. If the actual tax is more than the accumulated PCB/STD for the year, the difference will have to be settled not later than 30 April the following year. If the accumulated PCB/STD is more than the actual tax, the IRB will repay the taxpayer.

What is the minimum salary a taxpayer earns before he/she is subject to PCB/STD ?

That depends on whether he/she is married, spouse working or not and number of children he/she has. A single person and a married person with 4 kids may earn the same amount of salary but the single person may be subject to PCB/STD but the married person may not.

Similarly, a married man whose wife is working and has 1 child may be subject to different PCB/STD amount compared to a married man whose wife is not working and has 3 kids.

To see if you are subject to PCB/STD, please refer to the table in the IRB’s website.

To calculate the PCB/STD, one must determine his/her category in the table. If an employee is single or married and his/her spouse is working, then he/she falls under Category 1. If he/she is married and his/her spouse is not working, then Category 2.If he/she is married and his/her spouse is working, then Category 3.

Under categories 2 and 3, there is K, K1, K2, K3, etc. This refers to number of children the employee has. K means no children, K1 – 1 child, K2 – 2 children, etc.

After determining which column he/she falls under, next is a take his/her monthly gross salary less employee’s portion of EPF (limited to RM500). Use the net amount to find the band of salaries in the first column. Then, follow the row to the correct category to get the amount of PCB/STD applicable.

A detailed example (though rather complicated) is given in the IRB's website here.

So you missed the Income Tax Form BE submission deadline, what now ?

2009-05-01T01:04:00.000-07:00

The deadline for submission of Income Tax Form BE for 2008 was 30 April 2009. There may be many who missed the deadline for various reasons.

What happens next ? What are the penalties ?

Let us examine the Income Tax Act (ITA) to see what penalties are there and what the IRB’s practice is.

Section 112(1) of the ITA states that if you default in submitting the Form B or BE before the deadline ‘without reasonable excuse’, you are liable to a fine not exceeding RM1,000 or 6 months jail or both ‘on conviction’.

In practice, the IRB seldom use this Section to charge you (unless you are a big fish). This is because in order for them to apply this Section, they have to charge you in court and get a conviction. Note that there is still an escape clause “without reasonable excuse”. You may have a reasonable excuse and in order to get a conviction from the court, it may take years.

Section 112(3) says that if no prosecution in instituted, then the IRB may require you to pay a penalty equal to ‘three times the amount of tax payable’ (before any set-off, repayment or relief). If you have paid the penalty under Section 112(3), then you shall not be charged under Section 112(1) again.

So in practice, the IRB will usually fine you under Section 112(3). For normal salaried workers who file in Form BE, they usually impose a fine of RM50 for the first offence. If you are still late next year, they may impose a fine of RM100. The next year, RM150 etc.

It is interesting to note that Section 112(3) allows the IRB to impose a fine only if you are taxable. Note the wordings ‘three times the amount of tax payable’. If your tax payable is ‘0’, three times ‘0’ is still ‘0’.

So if your ‘Tax payable’ under item E9 of the Form BE is ‘0’, then you need not worry this year as the IRB will not be able to impose a fine on you. However, the IRB will take note that this is your first offence. If you are late again next year, they may fine you RM100 right away if you have tax payable.

The Star - 17/04/09

2009-04-22T06:17:00.000-07:00

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)

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

2009-04-22T06:08:00.000-07:00

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

2009-04-22T06:05:00.000-07:00

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.

(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.

Q&A on some Income Tax Issues - The Star 29/03/09

2009-03-30T07:17:00.000-07:00

Q. IF I am paid a fixed monthly travel allowance (with EPF contribution) which covers fuel for travel within Peninsular Malaysia, parking and toll, am I allowed to take advantage of tax exempt benefits? – GOH C.H.

A. YES, with effect from year of assessment 2008, tax exemption is given on petrol card, petrol allowance or travel allowance and toll card for official duties provided by the employer. The tax exemption is up to RM6,000 per annum.

Q. ARE dentures for parents eligible for tax rebate? – Lii

A. THE tax deduction for medical expenses for parents is up to a maximum of RM5,000.
Medical expenses that qualify would cover medical treatment for the parent evidenced by a receipt issued by a medical practitioner. It also includes dental treatment but this is limited to tooth extraction, filling, scaling and cleaning and does not include cosmetic dental treatment expenses such as teeth restoration and replacement involving crowning, root canal and dentures.
Therefore, the expense for your parent’s dentures would not qualify for the tax deduction.

On a separate note, it is important to differentiate that the RM5,000 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).

Q. I HAVE two questions:

1) The RM3,000 rebate for purchase of computers every three years. I last purchased a computer in August 2006. Can I purchase a new computer now (March 2009) to enjoy the rebate again or do I have to wait after August 2009 or some other date?

2) My wife and I jointly own two commercial properties which are rented out. My wife is a full-time housewife and has no income. I am at the maximum tax rate currently and on combined assessment filing. Can my wife take up the full rental income or at least 50% of the income and file for separate assessment?

If only 50% of rental income is allowed, do we need to split the property expenses like quit rent, insurance and assessment 50/50 also? – William Tan

A. FIRSTLY, it is important to differentiate a tax deduction from a tax rebate. The RM3,000 maximum claim for the purchase of a personal computer for non-business use is for a tax deduction (i.e. to be deducted against your total income to arrive at your chargeable income) and not a tax rebate (i.e. a rebate is deducted from your income tax charge to arrive at your tax payable).

Prior to year of assessment 2007, a RM500 rebate was given for the purchase of a personal computer used for non-business purposes on a household basis once in every five years of assessment.

Currently, the relief given is a tax deduction for the purchase of a personal computer for non-business use up to a maximum of RM3,000 given on an individual basis once in every three years of assessment.

Since your claim for the RM500 tax rebate was in year of assessment 2006 under the old tax provisions, you will be entitled to claim the RM3,000 tax deduction for another computer purchase anytime after the new tax provision took effect from year of assessment 2007. Therefore, you may purchase a new computer now (March 2009) and claim the RM3,000 tax deduction. Provided the existing law on the tax deduction does not change, your next qualifying purchase would be in year of assessment 2012.

2) Since your two properties are jointly owned, each of you would declare half the rental income equally in your respective tax return. Any expenses expended to generate the rental income from the jointly-owned properties (for example, property quit rent and assessment, insurance and repair and maintenance) must also be split equally to be deducted against the rental income.
Your wife may elect for a separate assessment to report her half share of the net rental against her personal tax relief.

Q. UNTIL last year, taxpayers could claim back excess tax paid on dividends received in 2007. Is this still possible in 2009? – Taxpayer

A. WHETHER you are still able to claim back the excess tax paid on dividends in year of assessment 2008 and 2009 would depend on the type of dividend that you receive from the company i.e. whether it is a franked (or tax deducted) dividend or exempt dividend.
With effect from year of assessment 2008 under the single-tier system, there is no further 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 of Dec 31 2007 when they want to pay dividends to the 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.

>Alternatively, the company may at any time make an irrevocable election to forgo the right to distribute franked dividends and pay dividend under the single-tier system.

The company, upon paying the dividend, is required to furnish the shareholders with a certificate warrant which will state whether tax has been deducted from the dividend or whether it is tax exempt pursuant to the single-tier system. If it is franked dividends, you can continue to claim back the excess tax paid, if any.

Q. I AM a sole proprietor. I draw a monthly salary from my business net EPF deduction of 11%. My business pays the employer’s portion of EPF contribution (12%). I understand the 12% EPF contribution for its proprietor is not a tax-deductible expense for the business. For my personal computation of tax payable, can I utilise the 11% deduction as a tax relief lumped together with my insurance premium giving a maximum relief of RM6,000? – Lim Jun Kean

A. THE 11% employee portion of EPF contribution is considered as part of your gross salary and subject to income tax (in addition to the sole proprietor business profit) on you. You are however entitled to claim the 11% EPF deduction as part of the maximum RM6,000 together with the life insurance premium tax relief in your personal tax return.

Q. I GET newspapers delivered to my home for which I get a monthly bill. Can I claim this as a deduction under reading materials?

Also, my mother has undergone ayurvedic treatment. Can I claim deduction under parents’ medical expenses? The expense is supported by official bills and receipts – S.Thiruchelvam

A. AN amount of up to a maximum of RM1,000 is deductible in respect of the purchase of books, magazines, journals or other similar publications (in hard copy or electronic form) for the purposes of enhancing knowledge of the individual, spouse or child. However, newspapers and banned reading materials are specifically excluded. Therefore, you cannot make a claim on your newspaper bills.

Medical expenses that qualify for the tax deduction for medical expenses for parents of up to a maximum of RM5,000 would include medical treatment evidenced by a receipt issued by a medical practitioner registered with the Malaysian Medical Council.

Unless the ayurvedic practioner is registered with the Malaysian Medical Council, the medical expenses will not qualify.

Q. I AM a retiree with no regular source of income except for dividends on investment in shares. Since the amount of yearly dividends I receive is less than RM30,000, I regularly claim RM4,000 to RM5,000 tax rebate under section 110 (dividends). Lately, I have received many Tier 1 dividends which do not indicate the amount of tax paid on behalf of the shareholders. Being a retiree, can I claim the tax rebate? If not, then all shareholders including retirees are paying the corporate tax of 25% on their dividends received. With the banks’ savings and FD interest rate of 2% to 3% per annum, how are the retirees going to survive? I hope you can assist by bringing up the plight of the retirees during the next budget dialogue. – Lim

A. WITH effect from year of assessment 2008, the single-tier system took effect. 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 the 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.

>Alternatively, the company may at any time make an irrevocable election to forgo the right to distribute franked dividends and pay dividend under the single-tier system.

If the dividends you receive indicate that no tax has been deducted, these dividends would be either exempt dividends or dividends paid under the single-tier system. In both cases, the dividends are exempt from tax in your hands and you are not entitled to claim the section 110 tax credits on such dividends.

You are correct in saying that retirees are one of the most-impacted group as a result of the single-tier system since under the previous full imputation system, you are able to get tax refund from claiming the section 110 tax credit due to your lower personal tax rate compared to the company tax rate. This has been brought to the attention of the relevant authorities in the dialogues and discussions by the professional bodies.

Q. I READ in the papers that the recent mini budget has increased the current RM6,000 tax relief per year of service to RM10,000 for retrenched workers. Is there a limit on the number of years and does it apply for voluntary separation and early retirement? – Worried Worker

A. THE tax exemption on compensation for loss of employment received by employees (including payment pursuant to a separation scheme where employees are given an option for an early termination of an employment contract) is increased from the current RM6,000 to RM10,000 per completed year of service with the same employer or with companies in the same group. It covers the voluntary separation scheme but does not cover early retirement.

There is no limit on the number of years of service. However, please note that the RM10,000 exemption is applicable on the number of completed years of service.

In addition, the increased tax exemption is only applicable on payments made in respect of individuals who have ceased employment on or after July 1, 2008. If the individual has ceased employment on or after July 1 2008, and tax clearance has been issued by the IRB with the RM6,000 tax exemption (prior to the mini budget announcement on March 10 2009), the individuals can make an appeal to the IRB for a reduced assessment.

Q. MY wife and I have a combined assessment. However, my wife was retrenched from her company on Dec 7. She has not found a new job and has had no income since then. Do I still continue to submit the combined tax assessment for 2008 and subsequent years despite her not earning any income? – Ismail

A. YOU should fill code 4 – “Diri sendiri, isteri tiada punca pendapatan” under Part A5 – “Jenis Taksiran” in your tax return. If your wife has received the year of assessment 2008 tax return, she should complete and file a “Nil” return to the IRB, together with a cover letter stating that she has no income in 2008.

Q. I OWN five units of properties with three units in joint names with my spouse and the others solely owned by me. My question is, every month my spouse will collect the rental on my behalf, and she also troubleshoots if there are problems with the houses. Since she uses her own transport, makes telephone calls, pays parking and toll fees, goes to the bank etc. can I pay her a salary for her help? My spouse is a housewife – Sam

A. THE tax law allows you to claim a deduction for expenses that you have expended to generate the rental income from your properties. These may include quit rent, assessment, insurance, repairs and maintenance, housing loan interest taken on the properties and rent collection fee paid to an estate agent.

As your wife is a “related party” and not a registered real estate agent, there could be more scrutiny by the IRB on the claim for the fee paid to her. For example, whether the fee payment is at market rate, whether the fee is commensurate with the services provided or is it excessive, etc. If a fee is paid to your wife, she will have to report the income in her tax return.

Q. I WRITE academic books and earn a few thousand from the payment of royalty. Actually, I am not selling the books or doing any business from the sale of the books. The publisher does all the marketing and selling. I just do the writing. Every year I report the income from the royalty together with my salary from the Government minus some of the expenses. My questions are:

(a) Presently I am given the OG or the B form. Should I be using the SG form instead because I am not doing any business?

(b) How is the RM20,000 exemption considered in a case like mine? – Anonymous

A. THE IRB have treated your royalty income as a business source and issued you a Form B (under an OG tax reference number). On the basis that you receive the royalty income and presumably claim some direct expenses against it, the tax treatment of your royalty income would essentially be the same whether it is reported under a Form B or Form BE. The tax filing deadline if the royalty is treated as a business source under Form B is June 30 whereas if it is a non-business source, the deadline is April 30.

There is a specific provision in the tax legislation to exempt RM20,000 royalty income or payment in respect of the publication of, or the use of or the right to use any literary work. You should exclude the RM20,000 exempt royalty income and declare the net (after deducting related expenses) balance of royalty income in your tax return.

Q. I WAS told by the officers at IRB that filling the HK-3 forms this year will be simple. I only have to fill in according to what is required by that form. Firstly, I don’t have to submit the dividend vouchers to the Income Tax office, together with the Borang BE.

Secondly, according to the instructions accompanying the borang BE, I have to correct/adjust for the Z, X and Y column. Is this correct? – K T KHOO

A. YES, you need to only submit worksheet HK-3 and are not required to submit the dividend vouchers in order to claim a tax refund on your dividend income.

If you are submitting your tax return via e-Filing, the computer system will calculate the re-grossing of the net dividends automatically. However, if you are submitting the hard copy of your return, you will need to compute the re-grossing yourself and complete the worksheet accordingly.

Q. YOU mentioned about investing in the National Education Savings Scheme (SSPN). What is this, and how does one apply for it? I’m a single father with two school-going boys. What can I do to reduce my tax deduction? – Andrew

A. FULL details regarding the National Education Savings Scheme (SSPN) can be found at http://www.ptptn.gov.my/ website for National Higher Education Fund Corporation.

Q&A with the Income Tax Department

2009-03-26T23:00:00.000-07:00

TECHNICAL ISSUES

The following are some of the questions raised and answers given by the Lembaga Hasil Dalam Negeri (LHDN / IRB) during one of its Tax Seminars on the additional tax exemptions given to individuals. The original answer is in Bahasa Malaysia while the English translation is provided by me.

1. Does this exemption apply to petrol claim (reimbursement basis) ?

Jawapan
Penerimaan tuntutan bayaran balik bagi tugas rasmi yang dijalankan oleh pekerja bagi pihak majikannya tidak tertakluk kepada cukai pendapatan.

Answer
Reimbursements received for official purposes by an employee is not subject to tax.

2. Extend to fixed transport allowance?

Jawapan
Pengecualian diberi kepada elaun perjalanan, kad petrol atau elaun petrol

Answer
Exemption is given for travelling allowances, petrol cards or petrol allowances.

3. Extend to the BIK on petrol provided by the employer together with car?

Jawapan
Manfaat petrol dikecualikan jika majikan boleh menentukan tujuan dan amaun petrol diberi sama ada bagi tujuan perjalanan antara rumah ke pejabat (pengecualian sehingga RM2,400) atau bagi melaksanakan suatu pekerjaan (pengecualian sehingga RM6,000).
Jika majikan tidak dapat menentukan amaun bagi kedua-dua tujuan tersebut, maka pengecualian diberi sehingga RM6,000 setahun.

Answer
BIK on petrol is exempted if the employer can determine the purpose and amount of petrol given whether for travelling between home and work (exemption up to RM2,400) or for official duties (exemption up to RM6,000). If the employer is not able to determine the amount for the two purposes separately, then the exemption is given up to RM6,000 a year.

4. Travelling allowance RM8400, can it be automatically assumed RM2400 is for home to work place & RM6000 is for official duties?

Jawapan
Tidak boleh. Majikan perlu menentukan amaun dan jenis peruntukan yang diberi (sama seperti di atas).
Catatan: bagi persoalan 3 dan 4, jawapan yang diberi adalah tertakluk kepada keputusan selanjutnya (jika ada) dan akan dimasukkan dalam pindaan kepada Ketetapan Umum Manfaat Berupa Barangan dan Ketetapan Umum Perkuisit.

Answer
No. The employer has to determine the amount and type of allowance given (as explained above).
Note : for questions 3 & 4, answers given are subject to further decisions (if any) and will be included in amendments to the Public Ruling on Benefits-in-kind and Public Ruling on Perquisites.

5. Can the employee claim an abatement on the amount in excess of RM6,000 p.a? Does he need to maintain a travel log for the excess amount only or for the entire amount?

Jawapan
Bagi tuntutan elaun perjalanan yang melebihi RM6,000.00 pekerja perlu menyimpan kesemua rekod (bukan setakat lebihan sahaja) bagi tujuan audit.

Answer
For travelling allowances amounting to more than RM6,000, the employees have to keep all records (not only the excess amount only) for the purpose of auditing.

6. If the employee is given a car allowance of RM500 per month to cover petrol, road tax, insurance & maintenance costs, can the whole amount be exempted from tax?

Jawapan
Elaun kereta tidak dikecualikan

Answer
Car allowances are not exempted (i.e. they are taxable).

7. Employee received car allowance but actually he is not expected to travel for official duties qualify for exemption RM6,000?

Jawapan
Elaun kereta tidak dikecualikan

Answer
Car allowances are not exempted (i.e. they are taxable).

8. Employee change employment during the year & received RM2,400 from each employer for travel between home & office, what amount to be exempted?

Jawapan
Pengecualian diberi terhad kepada RM2,400 setahun kepada seorang pekerja tanpa melihat kepada bilangan majikan.

Answer
Tax exemption is given subject to RM2,400 a year for each individual without taking into account the number of employers .

9. Employees are given toll card (e.g. Touch n’ Go), not only for toll charged but also for other type of payment, what is the amount to be exempted?

Jawapan
Hanya kadar tol sahaja dikecualikan.
Tiada pengecualian bagi Touch n’ Go yang juga digunakan untuk lain-lain
bayaran.

Answer
Only the tolls incurred is exempted.
No exemption is given for Touch n’ Go that is used for other payments.

10. Allowance or fees for parking-exempted?

Jawapan
Elaun letak kereta atau kadar letak kereta dikecualikan bagi pekerja yang menerima peruntukan elaun tersebut sebagai sebahagian daripada penggajiannya.

Answer
Parking allowances or parking fees are exempted for employees who received these allowances as part of their remuneration from employment.

11. If exempted, does it extend to parking fee at LRT stations or limit at the office only?

Jawapan
Pengecualian diberi kepada pekerja yang diperuntukkan elaun meletak kereta dengan suatu amaun tetap oleh majikannya. Tanpa pengecualian, elaun tersebut merupakan sebahagian daripada pendapatan penggajian bagi pekerja tersebut. Pengecualian bukan merupakan satu potongan dalam menentukan pendapatan larasan/berkanun penggajian. Oleh itu, bayaran meletak kereta di kawasan pejabat atau di stesen LRT tidak menjadi isu.

Answer
Tax exemptions are given to employees who are paid a fixed amount of parking allowances by his/her employer. Without this exemption, this allowance would have been part of his/her remuneration. Exemption is not given as a deduction to arrive at the adjusted/statutory income. Therefore, payments made for parking whether at the office or at the LRT stations are not an issue.

12. What would be a reasonable amount to be paid to employee?

Jawapan
Majikan perlu menentukan suatu amaun yang munasabah.

Answer
The employers have to determine an amount which is suitable.

13. Can the employer pay the employee a daily allowance to subsidize their food costs?

Jawapan
Pengecualian hanya diberi kepada pekerja yang diperuntukkan elaun makan oleh majikan secara tetap, tanpa mengambilkira elaun tersebut diberi secara bulanan atau harian.

Answer
Tax exemption is only given to the employees who are given a fixed food allowances by their employers, without taking into account whether they are paid monthly or daily.

14. Does this exemption extended to ‘per diem’ which is paid to the employee to cover this meals while working outstation/overseas?

Jawapan
Tidak.

Answer
No.

(The IRB came out with a new Public Ruling later to exempt 'per diem'. See here.)

15. What if the per diem amount also covers laundry & phone calls?

Jawapan
Tidak berkenaan

Answer
Not applicable

16. Is there any limitation to the amount which can be paid as meal allowance?

Jawapan
Majikan perlu menentukan suatu amaun yang munasabah.

Answer
The employers have to determine an amount which is suitable.

17. What is the definition of childcare? Babysitter, kindergarten, maid etc

Jawapan
Pengecualian diberi kepada pekerja yang diperuntukkan elaun penjagaan anak oleh majikannya. Kepada siapa bayaran tersebut dibuat oleh pekerja tidak menjadi isu.

Answer
Tax exemption is given to employees who are given child care allowances by their employers. To whom these payments are eventually paid by the employees is not an issue.

18. Any age limit on the child to qualify for childcare?

Jawapan
12 tahun ke bawah

Answer
12 years and below

19. Any limitation on entitlement to exemption of childcare allowance? i.e if the husband gets an exemption on the childcare allowance received, can his wife also qualify for an exemption on the childcare allowance for the same child?

Jawapan
Pengecualian diberi secara individu terhad kepada RM2,400 setahun.

Answer
Tax exemption is given to each individual subject to RM2,400 a year.

20. Would this exemption apply to maid allowance provided by the employer?

Jawapan
Elaun Pembantu Rumah tidak dikecualikan

Answer
Maid allowance is not exempted.

21. Can a single employee with an adopted child quality for the exemption?

Jawapan
Pengecualian diberi kepada pekerja yang diperuntukkan elaun penjagaan anak oleh majikannya. Anak adalah sebagaimana ditakrifkan di bawah Seksyen 48, ACP 1967.

Answer
Tax exemption is given to an employee who is given child care allowances by his/her employer. ‘Child’ is as defined under Section 48, Income Tax Act, 1967.

22. Does this exemption extend to telephone allowance or limited to actual
bills only?

Jawapan
Pengecualian tidak terpakai kepada pekerja yang diperuntukkan elaun tetap telefon.

Answer
Tax exemption is not applicable to employees who are given fixed telephone allowance.

23. How about other related charges i.e registration, access fee, etc? Does this exemption extend to these items?

Jawapan
Ya.

Answer
Yes.

24. Does this exemption extend to goods & services of companies within a group or limited to the goods & services provided by the direct employer only?

Jawapan
Majikan tidak dipanjangkan kepada kumpulan syarikat

Answer
Employer is not extended to Group companies.

25. How to determine the loan amount? Is it based on outstanding loan balance or the original loan amount?

Jawapan
Pengecualian ke atas subsidi faedah bagi pinjaman perumahan, kenderaan bermotor dan pendidikan dikira menggunakan formula berikut:

A X B / C

Dimana;
A = perbezaan antara amaun faedah yang perlu ditanggung oleh
pekerja dengan amaun faedah yang kena bayar oleh
Pekerja dalam tempoh asas bagi suatu tahun taksiran.
B = jumlah agregat baki amaun principal pinjaman perumahan,
kenderaan bermotor dan pendidikan yang diambil oleh
pekerja atau RM300,000 dalam tempoh asas bagi suatu
tahun taksiran yang mana lebih rendah.
C = jumlah agregat amaun principal pinjaman perumahan,
kenderaan bermotor dan pendidikan yang diambil oleh
pekerja.

Answer
Tax exemption on subsidies for interest on housing loan, motor vehicles and education is calculated using the following formula :-

A X B / C

Where
A = difference between the amount of interest to be borne by the employee and the amount of interest to be payable by the employee
B = aggregate balance of loan or RM300,000, whichever is lower
C = total aggregate amount of principal loan

Note : For example,
Total loan taken = RM400,000 (Principal amount)
Balance loan = RM250,000 (Outstanding amount)
Total interest charged by bank = RM5,000
Total interest paid by employee = RM3,000
Total interest subsidised by employer = RM2,000

Tax exempt amount = (RM5,000 – RM2,000) X RM250,000 = RM1.667
RM450,000

Amount taxable = RM333 (RM2,000 – RM1,667)

26. Loan for education - for employee only or can extend for their children?

Jawapan
Untuk pekerja sahaja.

Answer
For employees only.

27. Would pickup trucks (e.g Toyota Hilux, Suzuki Equator, etc) qualify as passenger motor vehicles?

Jawapan
Pengecualian diberi kepada subsidi bagi pinjaman kenderaan selain daripada kenderaan yang dilesenkan oleh pihak berkuasa, yang berkaitan dengan pengangkutan perdagangan barangan atau penumpang bagi tujuan komersial.

Answer
Tax exemptions are given for subsidies on loans for motor vehicles other than those licensed by the relevant authorities which are related to transportation of commercial goods or passengers for commercial purposes.

28. Does traditional medicine extend to treatments by bomoh & sinseh?

Jawapan
Perubatan tradisional berhubung dengan pengecualian yang diberikan, bermaksud perubatan yang diberi oleh pengamal perubatan yang berdaftar dengan badan berikut:
a. Rawatan Tradisional Melayu
Persatuan Perubatan Tradisional Melayu Malaysia (PUTRAMAS)
b. Rawatan Tradisional India
Pertubuhan Perubatan Tradisional India Malaysia (PEPTIM)
c. Rawatan Tradisional Cina
- Federation of Chinese Physicians and Chinese-Dealers Associations of Malaysia (FCPMDM)
- Federation of Chinese Physicians & Acupuncturist Associations of Malaysia (FCPAAM)
- Chinese Physician’s Associations of Malaysia (MCPA)

Answer
Traditional medication in respect of exemptions given means medications provided by practitioners registered with the following bodies :-
a. Malay Traditional Medications
Persatuan Perubatan Tradisional Melayu Malaysia (PUTRAMAS)
b. Indian Traditional Medications
Pertubuhan Perubatan Tradisional India Malaysia (PEPTIM)
c. Chinese Traditional Medications
- Federation of Chinese Physicians and Chinese-Dealers Associations of Malaysia (FCPMDM)
- Federation of Chinese Physicians & Acupuncturist Associations of Malaysia (FCPAAM)
- Chinese Physician’s Associations of Malaysia (MCPA)

29. Pekerja menerima anugerah Pekerja Contoh bagi bulan Oktober dan juga menerima anugerah bagi Kehadiran Penuh bulan November. Adakah penerimaan anugerah secara bulanan ini boleh dikecualinan cukai sehingga RM2,000 mulai tahun 2008?

An employee receives award for “Employee of the Month” in October and also receives award for “Full Attendance” in November. Are such monthly receipts exempted from tax up to RM2,000 from 2008 ?

Jawapan
- Anugerah Pekerja Contoh, Anugerah Kehadiran Penuh (tiada cuti sakit) boleh dikategorikan sebagai Anugerah Khidmat Cemerlang bagi tujuan pengecualian di bawah perenggan 25C, Jadual 6 ACP 1967
- Pekerja layak dikecualinan cukai sehingga RM2,000 mulai tahun 2008 atas jumlah (RM) anugerah-anugerah yang diterimanya.

Answer
- Awards for “Employee of the Month” and awards for “Full Attendance” can be categorised as Service Excellence Awards for the purpose of exemption under para 25C, Schedule 6, ITA 1967
- The employee is entitled to tax exemption of up to RM2,000 with effect from 2008 on total (RM) awards received by him/her.

The Star - Steps to Lessen the Pain

2009-03-22T07:48:00.000-07:00

The following article was published in The Star newspaper on 15 Mar 2009. It is reproduced here for your reference.

"CAN Malaysians actually pay less tax without breaking the law?
According to the experts, an individual taxpayer can consider the following measures to reduce the tax impact:

Maximise claims of personal reliefs, allowable deductions and rebates
This is by far the easiest way for Malaysians to minimise their tax liabilities under the current economic climate. It is wise for all taxpayers to familiarise themselves with the key reliefs/deductions that would help to minimise their tax liabilities for the year ahead.
This includes keeping a checklist on the various reliefs, deductions and rebates available to all individual taxpayers and practising the shoe-box mentality religiously, that is, by keeping a record of all receipts and documentary evidence to support the reliefs/deductions or rebates claimed during the year.
Some common reliefs that are often missed out are insurance premiums for education or medical benefits (RM3,000), purchase of sports equipment (RM300), and the relief on purchase of computers every three years (RM3,000).

Separate assessment over combined assessment
It is necessary for spouses to decide whether to be assessed separately or elect for a combined assessment.
Where a joint assessment is elected, the total income of the wife is aggregated with the total income of the husband and the wife shall be treated as having no chargeable income for the particular year of assessment.
The combined total income will be assessed on the husband and the tax liability would be determined based on the applicable graduated tax rates and personal reliefs claimed by the husband.
Under a separate assessment, husband and wife will be treated as separate taxpayers who are then able to utilise the graduated tax rates individually and maximise their claims for personal reliefs and allowable deductions on an individual basis.
The rule of thumb is: If the spouse’s income is less than RM3,000 for the tax year, then it is worth considering a combined assessment.

Make charitable donations to approved institutions
Making charitable donations is not only good for the community but also good for one’s tax return as taxpayers can claim a deduction for donations made to approved institutions for up to 7% of their aggregate income in the relevant year.
Meanwhile, Muslim taxpayers would be able to reduce their tax liability by contributing to zakat which is rebated against the tax payable.

Maximise allowable deductible expenses on rented properties
Taxpayers can also maximise their tax savings on rented properties by claiming allowable deductible expenses against income received from these rented properties.
These allowable deductible expenses include, among others, repairs and maintenance costs incurred on the property, quit rent and assessment paid and loan interest paid (corresponding to the rental period) on the mortgage taken out on the property.

Invest in government saving bonds or securities
Investments in government saving bonds or government-backed securities typically yield a higher annual return rate compared with interest income derived from savings or fixed deposits. Additionally, income received by the taxpayers from such investments is generally tax exempt.

Consider splitting your passive income to your loved ones
If you are deriving rental income and you are at a higher marginal tax rate than your spouse, you may wish to consider transferring the property as a gift to your spouse or your child above the age of 21 to achieve a lower tax on the rental income (see boxed example).

Investing in the EPF Annuities Scheme
The EPF Annuities scheme will give an additional RM1,000 tax relief to taxpayers in addition to the maximum RM5,000 relief for EPF deductions. The scheme allows contributors to put part of their EPF deductions in it. This will be returned as a form of pension and cannot be withdrawn upon retirement.

Investing in the National Education Savings Scheme (SSPN)
Investing in SSPN also allows further relief of up to RM3,000. So if a parent were to invest in education insurance and the fund, that would mean total tax relief of RM6,000.
The SSPN account provides a number of benefits to depositors, including eligibility to apply for National Higher Education Corporation (PTPTN) loans with minimum savings of RM20 in their SSPN accounts, free insurance coverage of up to RM50,000 for depositors who have a minimum deposit of RM1,000, dividends and tax exemption on dividends."

The Star Q&As - 22/03/09

2009-03-22T07:46:00.000-07:00

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.

Checklist to Ensure You Make Maximum Claims Allowed

2009-03-18T07:00:00.000-07:00

To make sure that you have not missed out any claims which you are entitled to, please go through the following check list before submitting your Borang BE 2008.

1. Choose Separate Assessment if your spouse has income of RM3,000 or more in a year (as a general rule of thumb)

2. Profession subscriptions
Ensure subscriptions paid to professional bodies related to your job are deducted from Employment Income before filling up item C1. (Eg. Accountants, Engineers, Lawyers, Architects, Doctors)

3. Dividends
Ensure that all dividends received are included. As dividends are taxed at source at 26%, make sure that you declare them in item C2 and claim Section 110 Set off in item E10.
Two exceptions here :-
i) If the dividend received are ‘single tier dividends’, then there’s no need to declare.
ii) If your final tax rate is 27%, then you may have lost your dividend vouchers and forgot all about them. You save the difference of 1%.

4. Interests from bank accounts (Savings, fixed deposits, etc)
These would have been either taxed at source or tax- exempt. No need to declare.

5. Donations or Gifts to the government
As these are not common, I will not discuss them here. Go through the items from C8 – C15.

6. Parent’s Medical Expenses Paid
Keep receipts – Maximum RM5,000

7. Purchase of Equipment for Disabled parents, spouse, children or self
Maximum – RM5,000

8. Disabled persons – Self
Additional RM6,000 relief

9. Own Educational Course Fees Paid
Maximum – RM5,000

10. Medical Expenses for Serious Deceases – Self, spouse or children
Maximum RM5,000

11. Fees paid for Full Medical Examination
Maximum RM500

12. Purchase of books, magazines & journals
Maximum RM1,000 (School books, cookery books, etc. It does not matter who they are for)

13. Purchase of personal computer
Maximum RM3,000 if you have not made a claim in 2007 & 2006

14. Net contribution to SSPN
Maximum RM3,000

15. Purchase of sports equipment
Maximum RM300

16. Husband/Wife Relief
If not assessed separately, RM3,000

17. Disabled Husband/Wife
Additional RM3,500

18. Children Relief
Below 18 years old – RM1,000 each
Above 18 years old and studying in tertiary level – RM4,000 each
Disabled children – Additional RM4,000 on top of the above

19. Life Insurance premium and EPF paid (Self and spouse)
Total maximum RM6,000. If separate assessment, husband and wife claim in own form.

20. Medical and Education Insurance (Self, spouse or children)
Maximum RM3,000

All the claims which are not specific to any person, eg. sports equipment, books, SSPN, children, etc. can be claimed by either husband or wife. Therefore, put those claims on the person who is in a higher tax bracket.

21. Tax Rebate
If your Chargeable Income in Item E3 is RM35,000 or less, you are entitled to RM350 tax rebate (Item E4)

The Star - Steps to lessen the pain

2009-03-16T05:56:00.000-07:00

The Star newspaper published an article on 15 March 2009 on steps which a taxpayer should take into consideration when filing their tax returns.

However, this is only for general reading. As each individual's case is different, care must be taken to ensure that the steps taken suits one's tax situation.

The full article can be accessed here.

Mini Budget - How does it affect your tax ?

2009-03-11T03:00:00.000-07:00

How does the mini budget announced by the DPM on 10 Mar 2009 affect us as salaried employees ? Basically, not much.

There are only 2 relevant issues as far as personal tax is concerned.

Tax exemptions for retrenchment benefits
Under the present law, if you are retrenched and receives retrenchment benefits, you are allowed exemption of RM6,000 on your retrenchment benefits for each completed year of service. This amount has been increased to RM10,000 if you were retrenched on or after 1 July 2008.
Relief for interest on residential housing loans to set off against personal income. If you are buying a residential property and the Sales & Purchase Agreement is dated from 10 March 2009 to 31 Dec 2010, the housing loan interests that you pay can be set off against your personal income, up to a maximum of RM10,000 each year over 3 years from the first year housing loan is paid. The property must also not be rented out.

If you are not retrenched and not going to buy a residential property or a car, then there is absolutely NOTHING for you.

The other issues which might be of interest, but not tax related are :-

If you wish to pursue your studies at Master or Ph. D level, the government will subsidise the fees of up to RM10,000 and RM20,000 respectively. These courses must be enrolled in local universities. Full details can be obtained from the Ministry of Higher Education by clicking here.
If you are retrenched, you can apply to your bank to withhold your housing loan payment to the banks for 1 year.
This is just s delay of payment. The longer you delay the payment, the more interest you will have to pay at the end, although it does provide a breather space for those who cannot fork out the instalment payments now.
If you have extra money, you can buy government bonds for 3 years which give 5% interest per year. The details of this are not yet finalised. Considering housing loans are relatively cheap now (some are offering BLR-2.2%) At the BLR rate at 5.95 now, it may be more beneficial to invest in this bond than to repay the housing loan.
If you want to change cars, buy a Proton or a Perodua and trade in you old cars (must be more than 10 years old) and get a rebate of RM5,000.

Borang BE 2008 - Personal Information

2009-03-11T02:45:00.000-07:00

Nama – Write your full name as per I/C

No. Rujukan Cukai – Write down your Income Tax File Number. This usually starts with either SG or OG. “SG” refers to “Salaries Group” meaning your income is mainly from salaried. “OG” refers to “Others Group”

No. K/P Baru – Write down your New I/C number

No K/P Lama – Write down your old I/C number

No. Polis – If you are a police officer, you will have a special ‘Police Identification No.’

No. Tentera – If you are in the Armed Forces, you will have a special ‘Armed Forces Identification number’

No. Passport Semasa – The passport number that you are having now. Your passport number will be given to the Immigration Department to stop you from leaving the country if you have defaulted on Income Tax

No. Pasport Terakhir Didaftar Dengan LHDNM – Your old passport number registered with the IRB

Borang BE 2008 - Section A (Personal details)

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A1. Warganegara / Citizenship
Write down your citizenship (‘MY’ for Malaysia). For other countries, please refer to pages 131 – 135 in http://www.hasil.gov.my/cP/upload/Form/Nyata/Buku%20Panduan%20B%202008.pdf

A2. Jantina / Gender
1 - for male
2 - for female

A3. Status pada 31-12/2008 / Status as at 31-12-2008
1 - for Single
2 - for Married
3 - for Widowed
4 - for Dead

A4. Tarikh Kahwin/Cerai/Mati / Date of marriage/divorce/death
Write down the date of marriage/divorce/death

A5. Jenis Taksiran / Type of Assessment
1 for Joint assessment under the husband’s name
2 for Joint Assessment under the wife’s name
3 for Separate Assessment
4 for Individual Assessment where the husband/wife has no taxable income

A6. Ketetapan Umum Dipatuhi / Public Ruling Observed
1 for Yes
2 for No.

What are Public Rulings ? They are rulings issued by the IRB to explain how certain incomes are taxed by the IRB. They are very technical and very detailed and can be confusing. They can be viewed at http://www.hasil.gov.my/english/eng_NO4_5_2.asp

There is only “Yes” and “No” to choose from. You cannot choose “No” because that would be telling the IRB that you have not complied to their rulings. If you put “Yes”, that would imply that you have read and understood all the rulings, which is something not quite possible for non-technical people. There are some experts who advise that we leave this item “Blank” without filling up just to ensure that we are not caught unaware of things we do not know. There is no right or wrong to this practice.

A7. Alamat Surat-menyurat / Correspondance Address

A8. No. Telefon / Telephone Number

A9. No. Majikan / Employers Number
This can be found at the top left hand corner of your Form EA or EC. The number starts with an “E”.

A10. E-mel / E-mail address (if any)

A11. Nama bank / Name of Bank

A12. No. Akaun bank / Bank account number
Information on A11 & A12 is mainly for the IRB to make payment to your bank account directly if there is any overpayment of tax and for repayment cases.

Borang BE 2008 - Section B (Details of husband/wife)

2009-03-11T02:43:00.000-07:00

B1. Nama Suami/Isteri / Name of Husband/Wife

B2. No. Rujukan Cukai / Income Tax File number
For explanation on “SG” or “OG”, please refer to item 2 on Personal Information.
Under "Separate Assessment", the wife will have a different Income Tax File number from her husband.
Under "Combined Assessment", the wife’s Income Tax file number is the same as the husband’s except the last digit is 1 instead of 0. (for 1st wife)
For eg. Husband’s file No. SG12345678-90(0)
1st. wife’s file No. SG12345678-90(1)
2nd. wife’s file No. SG12345678-90(2)

B3. No. K/P Baru / New I/C No.

B4. No. K/P Lama / Old I/C No.

B5. No. Polis / Police Identification No. (if applicable)

B6. No. Tentera / Armed Forces Identification No. (if applicable)

B7. No. Pasport / Passport No.

Borang BE 2008 - Section C (Statutory & Total Income)

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C1. Employment Fill up your total employment income shown in the ‘Total’ row just before item ‘D’ in your Form EA. If you have any claimable expenses which has not been taken into account by your employer, you may deduct them from this total figure and put the net amount. The claimable deductions include :- i) Any subscriptions paid to professional bodies related to your job or profession, eg. Malaysian Institute of Accountants, Architects Board, Engineers Board, etc. ii) Additional travelling expenses on top of the exemptions of RM6,000 for official purposes, supported by receipts and evidence of travel C2. Dividends List your dividends received in 2008 in the Work Sheet enclosed with the Form BE (HK-3). Put the total Gross Dividend marked “X” in here. For tax-exempt dividends, they are not required to be listed. Note that only Dividends received from companies only be listed. Dividends received from Unit Trust companies are to be declared in C6 (Other income) C3. Interests or Discounts This does NOT included the interests from banks’ savings or fixed deposit accounts. They are already taxed at source or exempted. C4. Rent, royalty and premium i) Rent - Net rental only needs to be reported. Keep a record of gross rent received less allowed expenses. If rental loss, put ‘0’. What expenses can be claimed from rental income ? ii) Royalty – Please note that some royalties are tax-exempt. iii) Premium – Not common C5. Pension, annuity and other scheduled payment i) Pension - derived from Malaysia due to ill health or retirement upon reaching the age of 55 years is exempted ii) Annuity – Annuity income from estates of deceased persons or trust funds iii) Other scheduled payments – Others not mentioned above C6. Other income or profits Other income which is taxable only. This include Dividends received from Unit Trust companies. Method of calculation is the same as dividends received from companies. C7. Aggregate income Total of C1 to C6 C8. Donations to government or local government C8A. Donations to approved institution or organisations. In order to know if your donation is to an approved institution or organisation, please check the official receipts if it is stated that it is exempted from tax under Sec.44(6) of the Income Tax Act, 1967. Alternatively, the IRB's website has a list of all approved donations. C9. Donations or contributions to approved sports organisations. C10. Donations to approved projects Total amount can be claimed from C8A to C10 is subject to a maximum of 7% of Aggregate Income (C7). (Increased to 10% from 2009.) C11. Gift of artefacts, manuscripts or paintings C12. Donations to libraries (maximum RM20,000) C13. Donations or gifts for public amenities for the disabled C14. Donations or gifts to any medical bodies approved by the Ministry of Health (maximum RM20,000) C15. Gift or paintings to the Balai Seni Lukis Negara/National Art Gallery C16. Total Income (self) C7 less C8 to C15 C17. Income aggregated from husband or wife for combined assessment Only if you have opted for combined assessment. C18. Total combined income C16 + C17

Borang BE 2008 - Section D (Personal Reliefs)

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D1. Personal Relief – RM8,000 fixed.

D2. Parents’ medical expenses – Maximum RM5,000
Payments made for the medical treatment of parents must be supported by invoices and receipts. This can either be outpatient treatments or hospitalisation.
If payment is shared by a number of children, then each children can claim his/her share provided he/she can show proof that he/she has incurred such payment. To be on the safe side, get the hospital to “Certify True Copy” on photocopies of invoices and receipts.

D3. Basic supporting equipment for own usage, wife/husband, children or parents who are disabled. – RM5,000
To be eligible to claim, the claim must be supported by invoices and receipts. There must be a confirmation from the relevant authorities (eg. The Social Welfare Dept) to certify the disability of the person affected.

D4. Disabled individuals – RM6,000
This is in addition to the Personal Relief in D1. Again, certification by the relevant authority is required.

D5. Own study fees – Maximum RM5,000
Fees expended for courses at institute of higher learning in Malaysia or any institution or professional body in Malaysiar ecognised by the government or approved by the Ministry of Finance
i) For studies up to tertiary level in the field of law, accounting, technical, vocational, industrial, scientific, information and technology and Islamic financing
ii) For Masters level and above, any subject
Note for tax planning : If you need to pay RM10,000 for a course, try to spread out so that you pay RM5,000 in Dec and RM5,000 in Jan the following year, in that case, you will be able to claim the full RM10,000 in 2 years.

D6. Medical expenses incurred for chronic or serious diseases for self, husband/wife or children (Note that parents are not included) – Maximum RM5,000
Chronic or serious diseases include AIDS, Parkinson’s syndrome, cancer, renal failure, leukaemia, heart attacks, pulmonary hypertension, chronic heart diseases, fulminant viral hepatitis, neurological deficit head trauma, brain tumour, etc.
Note : Get the medical doctor to certify that it is a serious disease. Receipts must be kept to justify claim.

D7. Full medical examination for self, husband/wife or children (Note that parents are not included) – Maximum RM500
Only FULL medical examinations can be claimed. If you just do a blood test, this is not included.
The total claim for D6 and D7 must not exceed RM5,000.

D8. Purchase of books/magazines/journals (Note that newspaper is not included) – Maximum RM1,000
All original book receipts are acceptable. The IRB had stated that even receipts issued by road-side book sellers are valid.

D8A. Purchase of personal computer – Maximum RM3,000
You can only claim this relief once every 3 years.

D8B. Net savings in the National Education Savings Scheme (SSPN) – Maximum RM3,000
Net savings refers to the amount deposited minus amount withdrew during the year.

D8C. Purchase of sports equipments for sports activities under the Sports Development Act – Maximum RM300.
Note not all sports are eligible. Refer to "Purchase of Sports Equipment for Tax Deductions"

D9. Husband/wife relief – Maximum RM3,000
For ex-husband or ex-wife, if the actual alimony paid is less than RM3,000 a year, then the amount claim is restricted to the actual amount paid.

D10. Disabled husband/wife – RM3,500

D11. Child relief

D11a – Children below 18 years of age – RM1,000 per child
D11b – Children above 18 years of age
- RM1,000 if the child is studying full time
- RM4,000 if the child is studying full time at diploma level and above in Malaysia
- RM4,000 if the child is studying full time at degree level and above overseas.
D11c – Disabled child – RM5,000
- RM9,000 if the child is 18 years of age and above and studying as D11b above

Why is there a 50% column ? This is only for cases where husband and wife wishes to claim half the child relief, for example for divorced parents where each bears half of the children’s expenses.

D12. Life Insurance & EPF – Maximum RM6,000
Only life insurance and EPF is included in this category. For medical insurance, you can claim under D13.

D13. Education and Medical Insurance – maximum RM3,000
This include medical and educational insurance for self, husband/wife and children.

Borang BE 2008 - Section E (Tax Payable)

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E1. Total Chargeable Income
C18 – D14. If the amount is negative, write ‘0’

E2. Calculation of Income Tax Payable

(Refer to the Income Tax Rates Table on Page 10)
For example, if you the amount in E1 is RM45,678, then you fall under Category FG.

E2a. First RM35,000, tax is RM1,525
E2b. Tax on balance of RM10,678 – Rate 13% = RM1,388.14
Note that Income Tax is calculated to 2 decimal points.

E3. Total Income Tax Payable
E2a + E2b

LESS : Tax Rebates

E4. Individual Tax Rebates
This is applicable if your chargeable income in E1 is not more than RM35,000

E5. Husband/Wife’s Tax Rebate
This is applicable if your chargeable income in E1 is not more than RM35,000 AND you have claimed Husband/Wife Relief in D9.
Not applicable if you chose separate assessment in A5.

E6. Zakat or Fitrah
Only Zakat or Fitrah paid in Malaysia is approved.

E7. Fee or Levy paid for Employment Pass
If you are a foreigner and is a tax resident under Section 7 of the Income Tax Act, then you are eligible to claim the fees or levy paid to the Immigration Department.

E8. Total Rebates
Total of E4 to E8

E9. Total Income Tax Chargeable
E3 – E8

LESS :

E10. Section 110 Set-off (Dividends)
When calculating Dividend Income in C2, you would have used the Work Sheet HK-3 to obtain the Total Gross Dividend marked ‘X’ in the HK-3, The figure in the column marked ‘Y’ is to be put in this column.

E11. Section 110 Set-off (Others)
If you received dividends from Unit Trust companies and declared them in C6, then the Section 110 set off from these dividends is included here.

E12. Section 132 Relief
This refers to foreign income received which are already taxed in the foreign country, where Malaysia has a Double Taxation Agreement with that country. Eg. dividend income from Singapore Public Listed companies.

E13. Section 133 Relief
This is similar to E12 except that the foreign country does NOT have a Double Taxation Agreement with that country.

E14. TAX PAYABLE
E9 - (E10 + E11 + E12 + E13). If negative, write ‘0’ and write the amount (without the negative sign) in E15.

E15. OR : TAX REPAYABLE
If E14 is negative, the figure, without the negative sign, should be written here.

Borang BE 2008 - Section F - H

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Section F : Tax Status for the Year of Assessment 2008

F1. Tax Payable
From E14.

LESS :

F2. Scheduler Tax Deductions (STD) paid in 2008 (Item D[1]) in your Form EA.
Include those of your husband/wife if you had chosen ‘Combined Assessment’ in A5 and has declared his/her income in C17.

F3. Balance of Tax Payable
F1 – F2
The balance of tax payable must be settled before 30 April 2009. You can make payment at any payment counter at Public Bank or CIMB Bank. Fill up the details using the payment slip CP501 attached in the Form BE.

F4. OR : Tax Overpaid
F2 – F1.

Section G : Prior Years Income Not Reported Previously

G1. – G5

If you are a salaried employee, this will be shown in Item F in your Form EA. Just copy exactly the same thing to here.

Section H : Estate Administrator’s Information

If the person named in the Form BE is deceased, you have to fill up the details of the authorised administrator of the estate.

Borang BE 2008 - Declaration

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Declaration

If you are filling the Form for yourself, then write down your details and put ‘1’ in the box just above the ‘Date’.

If you are filling up the form on behalf of another person, the you should write down your details but put ‘2’ in the column just above the “Date’.

Remember that the deadline for filing Form BE is 30 April 2009. So do not date the declaration later than this date.

Tax Agent’s Details and Signature of Person Preparing This Form

If you are using an approved tax agent to help you to fill up this form, then your tax agent will complete this section and sign.

What expenses can be claimed from rental income ?

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Rental income is taxed based on the net amount derived at by deducting from the gross rental income from the year ‘allowable expenses’

Allowable expenses include :-

Brokerage fees paid to brokers to secure the tenant
Monthly maintenance fees paid to property management bodies
Quit rent and assessment
Insurance paid for that property
Repais and maintenance on the property
Interest paid to bank for loan taken to finance the property for rent
Legal fees and stamp duties paid for RENEWAL of tenancy agreement. Note that the first fees paid for the first time is not allowed.
Furniture or fittings REPLACED during the year. Please note that the initial purchase of furniture or fittings are not allowed.

Tax planning for rental income :-

lf you have more than 1 properties, pay off your loan for the property that you are not renting first, then only pay off the property that you are staying in.
If you rent out fully furnished properties, you can furnish it with cheap furniture first. Replace them with new or more expensive furniture during the tenancy and claim the replacement cost.

IS INCOME FROM GOOGLE ADSENSE TAXABLE ?

2009-02-24T06:11:00.000-08:00

I have come across many forums discussing this issue. Obviously many bloggers and website owners want to know this and turn to the internet (where else) to find the answer.

There are many opinions given in the forums and discussions. However, many opinions given are based on different individuals’ understanding (or misunderstanding) of the Income Tax Act (ITA).

Simply answering 'YES' or 'NO' is not enough, we have to understand why and justifications for our answer. However, if you are not bothered about the details, then I can tell you that in my opinion, it is 'NO'.

Why? Let's look at the ITA.

Section 3 of the ITA reads:-
“........ a tax to be known as income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.”

This implies that income from Google AdSense falls squarely under taxable income as it is clearly "income received in Malaysia from outside Malaysia".

HOWEVER, Para 28(1) of Schedule 6 of the ITA (tax exempt income) defines non-taxable income as:-
“..... income of any person other than ...company...derived from sources outside Malaysia and received in Malaysia."

Therefore, income from Google AdSense would have been taxable (as specified in Section 3), had it not been for Para 28(1) of Schedule 6 which clearly exempts it.

2009 Schedular Tax Deductions / Potongan Cukai Berjadual

2009-02-23T21:31:00.000-08:00

There are some amendments to the Malaysian Schedular Tax Deduction (STD) or Potongan Cukai Berjadual (PCB) rules in 2009.

New schedule of montly tax deductions Employees are now allowed to claim rebates for personal relief every month
Changes to the STD calculation formula
Reduced minimum monthly deductios
Inclusion of Benefit-in-kind (BIK) and Value of Living Accommodation (NTK) as part of remuneration
Changes in additional renumeration formula

What does this all mean to employees and employers in Malaysia?

For Employees

Higher amount of PCB deduction compared to 2008. Reasons :-
a) In 2008, a 20% discount was given for monthly PCB. This resulted in many employees having to pay the balance when they submit their tax forms.
b) In 2008, the PCB was calculated at the lower end of the range of salary, in 2009, it is calculated at the mid-range. For example, if your salary is between RM2,700 – RM2,750, in 2008, PCB was calculated as if your salary was RM2,700. In 2009, PCB is calculated as if your salary is RM2,725.
Employees can ask employers to deduct less PCB or more PCB by submitting Borang TP1 (less deduction) or TP2 (more deduction). Employees who has additional tax deductions and rebates allowed by the Income Tax Act can submit Borang TP1 to their employers. These dedcutions and rebates are listed in Additional Tax Deductions Available for Individuals.
Employers has final say whether to approve or reject the requests of Borang TP1 or TP2.

For Employers

New PCB tables to follow.
Old PCB tables can still be used up to Match 2009.
Can accept or reject Borang TP1 or TP2 requested by employees. Borang TP1 need not be accompanied by any official receipts but employers who accept to reduce the PCB deductions based on TP1 must keep the Borang TP1 for 7 years for audit purposes. The employees have to justify the reduction request themselves during an audit.
In the month of bonus or any additional salary payment, employers have to recalculate every employee’s PCB using the PCB calculator available in the IRB’s website to determine the amount of PCB to deduct. This is a very time consuming process and even the IRB officers have admitted that this is not practical. The only way out is to buy a software that already has this feature incorporated in (eg. UBS Payroll software). Alternatively, employers have to wait for IRB’s own in-house developed software called e-PCB to be releassed. No date has been fixed for the release as it is being tested by 30 ‘chosen’ employers to get feedback.

The reason for this change is mainly to try to have the PCB deductions as close to the final tax as possible so that it can reduce the IRB's work in refunding over-payments.

This will not work because it is nearly impossible for the PCB deductions to add up to the exact final tax of anyone. If there is over-payment, the IRB will still have to refund taxpayers. If there is under-payment, taxpayers will still have to pay uo when filing their tax returns. The amount may be smaller but the work is still the same.

Additional Tax Deductions Available for Individuals

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The following is a list of tax deductions available for individuals to make a claim when filing his/her Income Tax Borang BE or B for 2008 onwards.

For employees, if you have any of these expenses, you can request your employers to reduce your PCB deductions by filing up the Borang TP1.

Medical expenses for own parents certified by medical practitioner (limited to RM5,000 a year);
Basic supporting equipment for disabled self, spouse, child or parents (limited to RM5,000 a year);
Disabled person (self) (RM6,000 a year);
Education fee (self) up to tertiary level for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications or for a Masters or Doctorate level, undertaken the purpose of acquiring any skill or qualification (limited to RM5,000 a year);
Medical expenses on serious diseases for self, spouse or child (limited to RM5,000 a year);
Complete medical examination for self, spouse or child Limited to RM500 a year (total deduction for para 4.5 and 4.6 is limited to RM5,000 a year);
Purchase of books / journals / magazines / similar publications for self, spouse or child (limited to RM1,000 a year);
Purchase of personal computer for individual. Deduction allowed once in every 3 years. (Limited to RM3,000);
Net deposit in Skim Simpanan Pendidikan Nasional (limited to RM3,000 a year);
Purchase of sports equipment for any sports activity as defined under the Sports Development Act 1997 (limited to RM300 a year). This is explained here;
Payment of alimony to former wife (Total deduction for wife and alimony payments shall not exceed RM3,000 a year);
Disabled husband / wife (RM3,500 a year);
Life insurance (and EPF limited to RM6,000 a year);
Education and medical insurance (limited to RM3,000 a year);
Zakat other than monthly zakat deduction from salary;
Fees / Levy paid by a holder of an employment pass, visit pass (temporary employment) or work pass.

Further, the IRB has released a list of tax-free income and perquisites available to individual taxpayers. This list is listed here.

Income which are Tax-free

2009-02-23T03:36:00.000-08:00

The following are the list of income which are tax-free and their limits :-

Petrol card, petrol allowance or travel allowance between the home and work place (until Year Assessment 2010 only) (Limit RM2,400 a year)
Petrol card, petrol allowance or travel allowance and toll card for official duties (Limit RM6,000 a year)
Allowance or fees for parking (No limit)
Meal allowance (No limit)
Allowance or subsidies for childcare (Limit RM2,400 a year)
Medical benefits (including maternity expenses and traditional medicines such as ayurvedic and acupuncture) or dental.(No Limit). What traditional medicines are accepted by the IRD ?
Employers’ own goods provided free or at a discounted value (Limit RM1,000 a year)
Employers’ own services provided free or at a discount provided such benefits are not transferable (No Limit)
Telephone, mobile phone, pager and Personal Data Assistant (PDA) (No Limit)
Bills for telephone, mobile phone, pager and PDA registered in the name of the employee or the employer (No limit)
Gift of new personal computer (until Year Assessment 2010 only) (No Limit)
Monthly broadband subscription fee (registered in the name of the employer) from the employer (until Year Assessment 2010 only) (No Limit)
Perquisites (whether in money or otherwise) provided to the employee pursuant to his employment in respect of:
(a) past achievement award;
(b) service excellence award, innovation award or productivity award; and
(c) long service award (provided that the employee has exercised an employment for more than 10 years with the same employer); (Limit RM2,000 a year)
Leave passages (only applicable to employee and immediate family)
(i) Within Malaysia (including food and accommodation) not exceeding 3 times in a year;
(ii) Outside Malaysia (once a year – limited to RM3,000) (Limit RM3,000 a year)
Compulsory insurance premium paid for foreign employees in lieu of SOCSO payment (No Limit)
Group insurance premium to protect the employees in the event of accident (No limit)
Interest subsidies for loans of up to RM300,000 in respect of housing, motor vehicle and education loans. Exemption is given on existing loans and new loans. (No limit)

Please note that those items with no limits does not mean that employers can give any amount it wishes, it must be 'reasonable'. What amount is reasonable depends on the nature of the employee's work.

For example, a reporter's travelling allowance is expected to be higher than that paid to a accounts clerk.

THE ABOVE EXEMPTIONS ARE NOT APPLICABLE TO EMPLOYEES HAVING CONTROL OVER THE COMPANY, SOLE PROPRIETORS OR PARTNERS OF PARTNERSHIP BUSINESSES.

Purchase of Sports Equipment for Tax Deductions

2009-02-23T03:16:00.000-08:00

From the year 2008, individual taxpayers are allowed to claim tax deduction of up to RM300 a year on purchase of 'equipments for sports as defined by the Sports Development Act 1997.

The term 'equipment' is not defined and is thus open to discussion. As a general guideline, the IRB has taken the stand that 'consumables' such as shuttlecorks, golf balls, etc. are claimable whereas those long lasting items such as sports shoes, badminton rackets, tennis rackets, etc. are not.

It is doubtful if the IRB's stand is valid as the word 'equipment' tends to suggest items which are lasting in nature. In the game of tennis for example, the racket would be closer to 'equipment' rather than tennis balls.

The list of sports activities are as follows :-

Sports Development Act 1997
FlRST SCHEDULE
(section 2)
The following activities are regarded as sports for the purposes of this Act:
1. Archery
2. Athletics
3. Aquatics
4. Automobile Sports
5. Badminton
6. Basketball
7. Billiards and Snooker
8. Body Building
9. Bowling
10. Boxing
11. Cricket
12. Cycling
13. Equestrian Sports
14. Fencing
15. Foolball
16. Golf
17. Gymnastics
18. Handball
19. Hockey
20. Judo
21. Karate Do
22. Lawn Bowls
23. Netball
24. Rugby
25. Sepak Takraw
26. Shooting
27. Silat Olahraga
28.Soft Tennis
29.Softball
30.Squash
31.Table Tennis
32.Tae kwan do
33.Tennis
34.Volleyball
35.Waterski
36.Weightlifting
37.Wrestling
38.Wushu
39.Yachting

Traditional Medical Expenses For Tax Deduction

2009-02-23T02:56:00.000-08:00

Not all Traditional medical expenses are recognised by the IRB.

The IRB only recognises medical receipts issued by traditional medical practitioners who are registered with :-

Persatuan Perubatan Tradisional Melayu Malaysia (PUTRAMAS)
Pertubuhan Perubatan Tradisional India Malaysia (PEPTIM)
Federation of Chinese Physicians and Chinese-Dealers Association of Malaysia (FCPMDM)
Federation of Chinese Physicians & Acupuncturist Association of Malaysia (FCPAAM)
Chinese Physicians’ Association of Malaysia (MCPA).