ARE YOU FEELING TAXED?

Wednesday, 1 April 2009

ARE YOU FEELING TAXED?

TTCHOONG C.A.(M),F.C.C.A.(UK),A.T.T.I.
a Tax Director for BIZ POINT TAX SERVICES SDN BHD
Email: taxation@bizpointgroup.com

http://www.bizpointgroup.com

We have come to the season of tax reasons. So what is new? In these times, rapid changes have been taking place and this article tries to assist in a summary version, to the common folks on how to manage your taxes. Your rights to deductions and the latest updates.

1) Income

Generally Under the Income Tax Act 1967(The Act), you are required to pay tax on all kinds of earnings including:

(a) Income from business, trade or profession.

(b) Employment income: salary, wages, remuneration, fees, leave pay, commission, allowances, bonus, gratuities and benefits (whether in money or otherwise).

(d) Income from letting of property/rental income.

(e) Rateable value of living accommodation provided by the employer.

(f) Payment from an unapproved pension fund with respect to employers contributions.

(g) Compensation.

It is an offence not to submit your returns. The myth to this is when we hear our family and friends telling us that if our income is below the tax bracket, there isn’t a need to file your returns. Part of it might be true as when you make a submission, you will not be liable to tax, however a simple submission even though it is below the taxable income will go a long way to when you eventually go above the bracket and assist also in the requirements of the financial institution; acting as a proof of your income for that year or for cumulative years when you eventually decide to purchase a house or car.

A resident individual will be tax on income earned in Malaysia and income received

in Malaysia from outside Malaysia. However, a non-resident individual will be tax on

income earned in Malaysia only. The issue of tax residence does not rely on your citizenship and is based the different scenarios governed by Section 7(1) of the Act.

What is deductible?

The general governing law on deductiblitity against an income is based on the maxim that “all expenses incurred WHOLLY & EXCLUSIVELY” in the production of income is deductible” . To prove the part “ Wholly and exclusively” lies with the taxpayer and as such extra care has to be taken when making any deduction.

PERSONAL RELIEFS:

A lot of articles and even the “Buku Panduan’ would be able to assist the taxpayer in ascertaining his/her chargeability and as such we will not dwell in depth into these aspects A summary of deduction/personal reliefs is as follows:

With effect from YA2008:

These reliefs are granted in computing your Chargeable Income (CI) and the effective tax rates will then apply.

After computing your taxable Income a further rebate for the following is given:

Individual having CI not exceeding RM35,000 - RM400.00

Additional rebate for spouse ( joint assessment) - RM400.00

Zakat & Fitrah - Amount Paid

Fee/Levies paid by foreign workers - Amount Paid

The above is just a general guideline for taxpayers who are submitting their taxes yearly and these reliefs and rebates will usually only differ in amounts yearly.

Points to take note for YA2008 onwards:

1) Employment Income:

An employee has to take note of his EA form when filling out his returns. Take careful note especially on the Benefits in Kind portion and any Share Option Schemes that you have enjoyed. Further to that the Inland Revenue Board (IRB) has issue an addendum to their public rulings. Excerpts of that ruling are as follows:

a) From year of assessment 2008, tax exemption on perquisites in the form of awards received by an employee is extended to include innovation award or productivity award received by an employee from his employer, whether in cash or in kind, pursuant to his employment. The amount of perquisites exempted from tax is increased from RM1, 000 to RM2, 000. If the total amount or value of awards exceeds RM2, 000, the balance will be subject to tax.

b) From year of assessment 2008, certain allowances, subsidised interest or gifts are exempted from tax. The types of perquisites exempted are explained in the relevant Income Tax exemption order which is yet to be gazetted.

- Travelling allowance, petrol allowance or toll rate

i. Travelling allowance or petrol allowance received by an employee for travelling from home to place of work and from place of work to home is exempted up to an amount of RM2, 400 per year. The exemption is effective from year of assessment 2008 to year of assessment 2010. (Note: The employer has to be able to identify and justify the above amount to enable this exemption)

ii. Travelling allowance, petrol allowance or toll rate received by an employee for travelling in exercising an employment is exempted up to an amount of RM6, 000 per year.

Note: Any further exemption will be on a claim basis and the employer will have to maintain the taxpayers claim records for 7 years.

- Parking rate or parking allowance

i. Parking rate or parking allowance received by an employee is exempted from tax. This exemption includes parking rate paid by the employer directly to the parking operator.

ii. The amount of parking rate or parking allowance provided by the employer to his employee has to be reasonable and not excessive.

- Meal allowance

i. Meal allowance received by an employee on a regular basis, for example on a daily or monthly basis, given at the same rate to all employees is exempted from tax.

ii. The amount of meal allowance provided by the employer to his employee has to be reasonable and not excessive.

- Child care allowance

i. Child care allowance received by an employee is exempted from tax up to an amount of RM2, 400 a year.

ii. For the purposes of this exemption, child means a child of the age of 12 years and below and who is a legitimate child or stepchild of an individual or his wife/husband or a child proved to the satisfaction of the Director General to have been adopted by the individual or his wife/husband in accordance with any law.

- Subsidy on interest for housing, education or car loan

i. Subsidised interest for housing, education or car loan received by an employee is fully exempted from tax if the total amount of loan taken does not exceed RM300, 000.

ii. If the total amount of loan taken by an employee exceeds RM300, 000, the amount of subsidised interest to be exempted from tax is limited in accordance with the following formula:

A x B

where

A - Is the difference between the amount of interest to be borne by the employee and the amount of interest payable by the employee in a basis period for a year of assessment;

B - Is the aggregate of balance of principal amount of housing, education or car loan taken by the employee in a basis period for a year of assessment or RM300,000 whichever is lower;

C - Is the total aggregate of principal amount of housing, education or car loan taken by the employee?

- Gifts

A gift of a fixed line telephone, mobile phone, pager or PDA which is registered under the name of the employee is fully exempted from tax. Cost of registration and installation are included in the amount to be exempted. The exemption given is limited to one unit for each asset.

- Monthly bills for fixed line telephone, mobile phone, pager or PDA

Monthly bills paid by the employer for the fixed line telephone, mobile phone, pager or PDA registered under the name of the employee is fully exempted from tax. Cost of registration and installation are included in the amount to be exempted.

- Monthly bills for subscription of broadband

Monthly broadband subscription bills paid by the employer for broadband registered under the name of the employee are fully exempted from tax. Cost of registration and installation are included in the amount to be exempted.

- Gift of a new personal computer

An amount equal to the value of the benefit of one new personal computer received as a gift by an employee from his employer is exempted from tax. Personal computer means a desk top computer, laptop computer or handheld computer but does not include computer accessories. The tax exemption is effective from the year of assessment 2008 until the year of assessment 2010

Where an employer provides allowances, subsidised interest or gifts of the type which qualify for exemption to his employee and that employee has control over his employer, the exemption is not applicable. Thus, allowances, subsidised interest or gifts received by that employee is taken to be part of his gross income from employment and taxable under paragraph 13(1)(a) of the ITA.

*Excerpts from IRB SECOND ADDENDUM TO PUBLIC RULING NO. 1/2006 ( DATE OF ISSUE: 25 FEBRUARY 2009)

The employee can request, should his employment income consist of the above items, from his employers a detailed list of the breakdown and this should be included in his salary statement.

2)Dividend Income – Taxpayers are advised to be careful about the dividend income that they have received for this year as there are basically 2 types of dividend income being paid out. Companies are currently paying out dividends under the transitional period from 2 separate accounts.

a) Payment made from Sec 108 account ( in which case the taxpayer has to declare the gross amount and claim the relief back under Sec 110 set off part)

b)Payment from an exempt account ( in which case the dividend income is exempted from tax)

To identify the type of dividend income that you have received, just refer to your dividend voucher, which should stipulate clearly if it is an exempt income or not.

3) Compensation for loss of employment (refer Stimulus package summary)

Salient points effecting individuals under the Stimulus Package:

1) Tax deduction up to RM10, 000 per year be given on housing loan interest for a house purchased subject to the following conditions:

i. the taxpayer is a Malaysian citizen and a resident;

ii. Limited to one residential property including a house, flat, apartment or condominium;

iii. The sale and purchase agreement is executed between 10 March 2009 and 31 December

2010; and

iv. The individual has not derived any income in respect of that residential property.

The tax deduction is given for 3 consecutive years from the first year the housing loan interest is paid.

2) The amount of compensation received from loss of employment exempted from tax be increased from RM6, 000 to RM10, 000 for each completed year of service with the same employer or with companies in the same group. This proposal is applicable to those individuals who have ceased employment on or after 1 July 2008.

Workers eligible for the exemption include those retrenched under a Voluntary Separation Scheme or a Mutual Separation Scheme.

3) Purchase of Proton / Perodua motor vehicles

A discount of RM5, 000 will be given to car owners, who trade in their cars, which are at least 10 years old, for the purchase of new Proton or Perodua cars.

(Subjected to the confirmation the conditions for the above are that the car must be owned for more than 6 months and the RM5, 000 rebate is for those cars that does not carry a resale value of more than the discounted amount).