Understanding Leave Passage Tax Rules in Malaysia
- GSK & Associates
- Apr 3
- 3 min read
Leave passage benefits provided by employers in Malaysia have specific tax treatments outlined in Public Ruling No. 1/2003 by the Inland Revenue Board (LHDN). This ruling clarifies when these benefits are tax-exempt for employees and non-deductible for employers.
Tax-Exempt Leave Passages for Employees
Employees enjoy tax exemptions on leave passages under strict limits. Local trips within Malaysia are exempt up to three times per calendar year, while overseas passages qualify for one exemption annually, capped at RM3,000 in fare costs. (Paragraph 8(i) and 8(ii) of the same Public Ruling)
These leave passage benefit apply only to the employee and immediate family members, such as spouses and children. For multiple trips, the most expensive ones qualify—e.g., three highest-cost local trips or the highest overseas one up to the limit. (Paragraph 9, example 4 and 6)
Taxable Leave Passage Benefits
Benefits exceeding the exemptions become assessable income under Paragraph 13(1)(b) of the Income Tax Act 1967. Examples include a second overseas trip or passages for non-immediate family like parents. (Paragraph 9, example 5)
Local passages beyond three per year, or any amount over RM3,000 for overseas, trigger taxation on the excess. Passages for partners or sole proprietors do not qualify for exemptions due to lacking an employer-employee relationship. (Paragraph 11)
Scenario | Exempt Amount | Taxable Amount | Example Reference |
3 local trips (RM5,500 total) | Full RM5,500 | None | Example 3 |
1 overseas (RM2,500) + 1 more (RM1,500) | RM2,500 | RM1,500 | Example 4 |
Overseas for employee + father (RM4,000 total) | RM2,000 | RM2,000 | Example 5 |
1 overseas (RM7,500) + 4 local (RM2,000) | RM3,000 overseas + RM1,500 local | RM4,500 overseas + RM500 local | Example 6 |
Employer Deduction Rules
Employers cannot deduct (non-deductible) leave passage fare costs, local or overseas, when computing adjusted income under paragraph 39 (1) (m) of the Act.
Where leave passage cost given by the employer to the employee includes cost of food, accommodation or other incidental expenses, the cost of food and accommodation is deductible as entertainment expenses in arriving at the adjusted income of the employer's business. The amount deductible is restricted to the amount spent on his employees only.
For sole proprietors or partners, all such costs are private and fully non-deductible.
Practical Tips for Employees and Employers
Review employment contracts to confirm entitled benefits and track trips annually to stay within exemptions. Employees should retain fare receipts, limiting claims to eligible family.
Employers must separate fare costs in records for accurate tax filings. Consult LHDN for case-specific advice, as public rulings can be updated.
All information contained herein is summarised based on the Public Rulings 1/2003. The above information are intended to provide a general overview of the tax matters and should not be regarded as a basis for ascertaining the tax liability in specific circumstances or as a a basis for formulating business decisions. No responsibility for loss to any person acting or refraining from acting as a result of any material in this publication can be accepted by GSK & Associates. Readers should not act on the basis of this publication without seeking professional advice.
Should you require further clarification, please do not hesitate to contact us at gunalan@gskassociates.net or Manager whom you are accustomed to dealing with or who are responsible for the tax affairs of your organisation.
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