TAX PLANNING for INDIVIDUALS

Ways to reduce Income Tax for Employees and Service Directors and at the same time Employers gets full deductions of expenses.

Tax Planning for Individuals in Malaysia. Photo courtesy by Alex Hawthorne

Out of many ways of tax planning, in this article we going to discuss on the use of available tax benefits to do Tax Planning. One of the tax benefits available is "benefit-in-kind" (BIK). We illustrate here on how the proper planning on BIK can create a tax-saving option for employees and at the same time there will be no loss to employer.

Service Director? - is a director who holds 5% and less of the ordinary share capital of a Company.

1. Housing Allowance

There is tax-saving option for employees if the benefit is received "in kind" rather than in cash, or through salary. If the allowance is paid direct to employee, the amount paid, 100% is added into gross income of the employee.

If it is a rent, and the Employer paid the rent to the landlord, the following tax savings is available for the employee, the same tax deduction of the rent paid is available for employer. No loss to employer.

Example: 1

Allowance paid directly to employee:

RM

Gross salary p.a. 96,000

Housing Allowance p.a. 36,000

Total Income 132,000

Allowance paid by employer to landlord:

RM

Gross salary p.a. 96,000

BIK, accommodation 28,800 30% @ RM96,000

Total Income 124,800

Note: Total income chargeable to tax is reduced by RM7,200, no loss for employer and the same house for the employee.

2. Other Benefits - From Employer to Employee

A. Telephone

- If the phone is bought by employer and given to employee, employer can claim the Capital Allowance and Employees BIK is NIL.

- If the phone bill is paid by employer, the employer can claim the tax deductions and Employee BIK is NIL.

Note: Rather than giving Telephone Allowance to employee, employer should pay the telephone bills, to reduce tax for employee, employer get the same deduction. Fixed telephone allowance is taxable.

B. EPF Contributions

- Maximum EPF allowable to Employer as tax deduction is 19% of the employees remuneration.

- Rather than giving salary increment, if employer pay additional EPF, the tax effect is;

- No additional tax for employee

- Full tax deduction for employer

C. Motor Vehicles + Petrol provided by Employer to Employee

- BIK is based on prescribed motor car value and petrol as per the Public Rulings (PR) 3/2013, the link is provided in this article.

D. Maid Allowance + Gardener's Allowance

- BIK on the above allowance can provide tax savings for employees, compared to fixed allowance received through salary. Employer can claim full expenses as tax deductions.

The above are some common BIK provided by SME employers to employees. For further details please go through the PR 3/2013, from the LHDN link below:

http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=5&bt_posi=3&bt_unit=1&bt_sequ=1&bt_lgv=2

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