CHAPTER 4 (b)EMPLOYMENT INCOME- TYPES OF GROSS INCOME -1ATXB 213 MALAYSIAN TAXATION I
LEARNING OBJECTIVE2ATXB 213 MALAYSIAN TAXATION I
ATXB 213 MALAYSIAN TAXATION I 3INTRODUCTIONTYPES OF GROSS EMPLOYMENT INCOMEMONETARYBENEFITS (S13(1)(a)Wages, Salary,Bonus,Allowances,Gratuity andetc.BENEFITS INKIND (BIK)S13(1)(b)Company car,mobile phone,furniture,interest subsidyand etc.VALUE OFUNFURNISHEDACCOMODATION S13(1)(c)REFUND FROMUNAPPROVEDFUND S13(1)(d)COMPENSATIONFOR LOSS OFEMPLOYMENTS13(1)(e)
SEC 13(1)(a)Any wages, salary, remuneration, leave pay, fee,commission, bonus, gratuity, perquisite or allowance(whether in money or otherwise) in respect ofhaving or exercising the employment. Payment need not be from the employer - Tips paid to waiter. Payments which are not in respect of taxpayers services to thecompany are not taxable – e.g: Award given to a bank clerk for passingthe Institute of Bankers Examination. Payments to meet personal distress such as compensation for housedamage is not taxable4ATXB 213 MALAYSIAN TAXATION I
ATXB 213 MALAYSIAN TAXATION I 5Sec 13(1)(a) – Salaryand WagesBoth items are taxed at gross.If EPF has been deducted, it should be added backto bring back to gross amount.Example:Mr. Sam received a net salary of RM6,800 permonth after 11% EPF deduction.Gross salary: 6,800 x 100/89 = RM7,640/month
ATXB 213 MALAYSIAN TAXATION I 6Sec 13(1)(a) - BonusBonus is not defined in Act.Paid in addition to salary.May be contractual or non-contractual.Bonus is normally paid on recurring basis.
ATXB 213 MALAYSIAN TAXATION I 7Sec 13(1)(a) - AllowancesTake the form of clothing, traveling andentertainment allowances.From YA 2009, a travel allowance of RM2,400 per yearwould be exempted for travelling between home andwork place.These allowances are assessed in full amount.In the case if the uniforms are provided to theemployees, they are exempt from income tax.
ATXB 213 MALAYSIAN TAXATION I 8Sec 13(1)(a) - PerquisitePerquisites are benefits in cash or in kind whichcan be converted into money received by anemployee from his employer or from third partiesin respect of having or exercising an employment.Perquisites are taxable under section 4(b) of theITA as part of the gross income from employmentunder paragraph 13(1)(a) of the ITA.
ATXB 213 MALAYSIAN TAXATION I 9Sec 13(1)(a) - PerquisiteExample:Settlement of employee’s pecuniaryobligations.Share option and share incentive schemeTips paid to the waiter (Example 12)
ATXB 213 MALAYSIAN TAXATION I 10Sec 13(1)(a) - Share OptionThis is a scheme that allows an employee anoption to acquire shares in company (where theemployee works) at a fixed price and with a rightto exercise the option at some future dates.If the employee was take up this option, he will betaxable on the income under section 13(1)(a).
ATXB 213 MALAYSIAN TAXATION I 11Sec 13(1)(a) - Share OptionHowever it will backdated to the year that theoption was granted.The income is calculated by taking the excess ofmarket price over the option price at the time theoption was granted and not at the time theoption was exercised.
ATXB 213 MALAYSIAN TAXATION I 12Share Option - ExampleOn 1 February 2010, Mr. John received a ten-yearnon-transferable option to purchase 10,000 sharesat RM6.00 each when the market value wasRM8.00 per share. Mr. John exercised the optionon 1 December 2012 when the share price rose toRM11.00 per share.
ATXB 213 MALAYSIAN TAXATION I 13Share Option - ExampleDiscussion:May refer to Example 15 & 16
ATXB 213 MALAYSIAN TAXATION I 14Exempt GratuityRetirement due to ill health? (Para 25(1)(a)Retirement on or after 55 or on reachingcompulsory retirement age + 10 years withsame employer? – Para 25(1)(b)Retirement from governmentor public service? – Para 25A and 25BYYYNNNTAXABLEEXEMPTExempt Gratuity – Schedule 6
ATXB 213 MALAYSIAN TAXATION I 15Sec 13(1)(a) - GratuityLump sum payments.In respect of past services rendered by theemployee.Paid to employee upon resignation or retirementfrom the employment after serving a long periodof service as required by the employer.Gratuity must be distinguished from gift.
ATXB 213 MALAYSIAN TAXATION I 16Treatment of GratuityTotal period of employment more than 5yearThe gratuity is divided (spread back) equally 6 yearswhen total period of employment commenced morethan 5 years of last basis period.Example: Mr. Sam received a gratuity amountingto RM150,000 on 31 Oct 2012. He had employed byMesra Sdn. Bhd since 1 June 1999. Mr. Sam is 54years of age on 31 Oct 2012.
ATXB 213 MALAYSIAN TAXATION I 17DiscussionAnswer:Total no. of years more than 5 years, thus gratuityspread over 6 years equally
ATXB 213 MALAYSIAN TAXATION I 18ContinueTotal period of employment is 5 years or lessGratuity is spread back over the actual no. of yearsor months.Example: By using the previous example,assuming Mr. Sam was employed by Intan Sdn. Bhdbegin on 1 June 2009.Therefore the gratuity will be divided with 3 yearsand 5 months.
ATXB 213 MALAYSIAN TAXATION I 19DiscussionYA Amount of gratuity (RM)2012 150,000 x 10/41 (1/1 - 31/10/12)2011 150,000 x 12/41 (1/1 – 31/12/11)2010 150,000 x 12/41 (1/1 – 31/12/10)2009 150,000 x 7/41 (1/6 – 31/12/09)
ATXB 213 MALAYSIAN TAXATION I 20Sec 13(1)(a) - ReimbursementAn expense burden that is of employer but it isinitially borne by the employee and subsequentreimbursed by the employer is not taxable.In other hand, where the employer reimburse thepersonal expenses of employee then these will betaxable benefit for the employee.
ATXB 213 MALAYSIAN TAXATION I 21Sec 13(1)(a) - ReimbursementFor instances, if the employer settles the personalliabilities of the employee (i.e., reimburse him forthe salary of a servant or gardener employed bythe employee for his personal home) these wouldbe assessable on the employees as gross incomeunder sec 13(1)(a).
ATXB 213 MALAYSIAN TAXATION I 22Reimbursement - ExampleDuring year 2012, Ahmad was reimbursed thefollowing expenses by his employer:RM8,800 for salary of a servant employed by himfor his personal home.RM650 being cost of travel by taxi from place ofwork to client’s office.
ATXB 213 MALAYSIAN TAXATION I 23Reimbursement - ExampleDiscussion:
ATXB 213 MALAYSIAN TAXATION I 24Sec 13(1)(a) - Leave PayLeave pay is a cash item taxable under sec.13(1)(a)When a person receives leave pay, the amount willbe assessable to tax either in year of departure orlater depending on conditions provided under Sec.25(6).
ATXB 213 MALAYSIAN TAXATION I 25Sec 13(1)(b) Benefit in KindGross income from an employment includes anamount equal to the value of the use or enjoymentby the employee of any benefit provided by theemployer to employee.BIK is a benefit not convertible into money eventhough it has monetary value.Not convertible into money means that thesebenefits cannot be sold or exchange for cash.
ATXB 213 MALAYSIAN TAXATION I 26Car and PetrolTable shows the value of the private use of car and fuel provided.Cost Of Car When New(RM)Annual Value Of BIK(RM)Fuel Per Annum(RM)Up to 50,000 1,200 60050,001 - 75,000 2,400 90075,001 - 100,000 3,600 1,200100,001 - 150,000 5,000 1,500150,001 - 200,000 7,000 1,800200,001 - 250,000 9,000 2,100250,001 - 350,000 15,000 2,400350,001 - 500,000 21,250 2,700500,001 and above 25,000 3,000
ATXB 213 MALAYSIAN TAXATION I 27Example – Car with FuelAhmad Fuad is a director of a company which provides himwith a company car costing RM170,000. What is his grossincome under section 13(1)(b)? Discussion:As per the BIK Guidelines, his gross income under Section13(1)(b) (using the prescribed value method) is as follows:(a) Car: RM7,000(b) Fuel: RM1,800
ATXB 213 MALAYSIAN TAXATION I 28Example – Car provided morethan 5 YearsSame as previous example but the car is 7 yearsold. What is his gross income under section13(1)(b)?As per the BIK Guidelines, his gross income underSection 13(1)(b) (using the prescribed valuemethod) is as follows:(a) Car: RM3,500 (1/2 x RM7,000)(b) Fuel: RM1,800
ATXB 213 MALAYSIAN TAXATION I 29Example – Car provided lessthan 12 MonthsSame as previous example but the car is provided untilSeptember 2010. What is his gross income undersection 13(1)(b)?As per the BIK Guidelines (using the prescribed valuemethod), his gross income under Section 13(1)(b) is asfollows:(a) Car: RM2,625 (1/2 x RM7,000 x 9/12)(b) Fuel: RM1,350 (9/12 x RM1,800)
ATXB 213 MALAYSIAN TAXATION I 30Example – No Private UseAttached to CarAmir Rashid is a director of company SMD. He is allowed tomake use of a company car (cost RM80,000) during officehours but is not allowed to drive it home. What is his grossincome under section 13(1)(b)?The benefit is exempted under the ITA 1967, as the benefitrelates to the performance of his official duties.
ATXB 213 MALAYSIAN TAXATION I 31Example – Car, Fueland DriverDavid is a director of company Car, fuel ABC. He isprovided with a company car costing RM210,000(cost when new) as well as a driver for his soleuse. The driver is paid a salary of RM600 permonth by the company. What is his gross incomeunder section 13(1)(b)?As per the BIK Guidelines, his gross income underSection 13(1)(b) is as follows:(a) Car: RM9,000(b) Fuel: RM2,100(c) Driver: RM7,200
ATXB 213 MALAYSIAN TAXATION I 32Example – Fuel without CarDavid is a director of company ABC. He is notprovided with a company car but the companyprovides fuel for both business and private use.The actual fuel expenses relating to the privateusage is RM8,500 in year 2009. What is hisgross income under section 13(1)(b)?As per the BIK Guidelines, his gross incomeunder Section 13(1)(b) is as follows:(a) Fuel: RM8,500
ATXB 213 MALAYSIAN TAXATION I 33Furniture and AppliancesThe value of household furnishings and appliancesprovided by an employer in connection with anaccommodation also provided by him to employeeis taxable as a benefit in kind.The table below show the concessionary annualvalue of this BIK varies according the extent offurnishing provided.
ATXB 213 MALAYSIAN TAXATION I 34Furniture and AppliancesTypes Of BIK Annual Value Of BIK(a)Semi-furnished with furniture inthe lounge, dining room orbedrooms.RM 840(RM 70 per month)(b)Semi-furnished with furniture asabove and one or more of thefollowing:- air-conditioners,curtains and carpets.RM 1,680(RM 140 per month)(c)Fully-furnished with benefits asabove plus one or more of thefollowing:- kitchen equipment,crockery, utensils andappliances.RM 3,360(RM 280 per month)
ATXB 213 MALAYSIAN TAXATION I 35Example – Fully FurnishedFarid is a director of company XYZ. He is providedwith a fully furnished accommodation. Therental for the fully furnished accommodation isRM8,500 per month of which RM2,800 is for thefurniture. What is his gross income under section13(1)(b)?As per the BIK Guidelines, his gross income underSection 13(1)(b) is as follows:(a) Furniture: 3,360
ATXB 213 MALAYSIAN TAXATION I 36Example – Furniture Shared and usedfor Less Than 1 YearAs previous example but the house was providedfrom 1/4/12. Begin from 1/7/12, the house wasshared with other employee. Compute the valueof household furnishing and appliances for incometax purpose, accruing to Adnan.1/4/ to 30/6/12 RM280/ per month x 3 RM8401/7 to 31/12/12 RM280 x 6 x ½ RM840RM1,680
ATXB 213 MALAYSIAN TAXATION I 37Other Benefit-in-kind- Types Of BIK Annual Value Of BIK(a)Mobile telephone (rental &charges)RM 600(b) Gardeners RM 3,600 [RM300/month](c) Domestic servants RM 4,800 [RM400/month](d)Subsidized loan/interest below themarket value rate Subsidized loan interest paid by employer.(e) Insurance premium Annual insurance premium paid by employer.(f) School / Tuition fees Actual school / tuition fees paid by employer.(g)Corporate membership inrecreation clubsMonthly/annual membership fees paid byemployer.
ATXB 213 MALAYSIAN TAXATION I 38Exempt Benefit-in-kindAct Medical or dental treatment for employee andimmediate familyBenefit for child careLeave passage [3 local + 1 overseas – maxRM3,000 per family] for travel of employee andimmediate family.Benefits relating to official dutiesIT(Exemption)(No. 56) Order 2000 1 PC per Employee (YA 2001 to YA 2003)Income Tax Ruling 1997/2 Discounted goods and services[Exclude houses sold to employees at discount]Free food & drinks or subsidizedFree transportation[Refers to transportation of workers to factory]
ATXB 213 MALAYSIAN TAXATION I 39Example – Exempt BIKMr. Sam is provided the following benefits:(a) Air passage for him and his family as follows: Labuan-RM22,000, Pulau Tioman-RM3,800 and Pulau Redang-RM2,800.(b) Dental expenses for him and his family-RM4,500.(c) During the year, the 2nd child was hospitalized in Londonand had to undergo surgery to remove her appendicitis.The surgery and hospitalization costs amounting toRM22,000 were paid by the company.(d) Leave passage of RM8,500 for himself and his family toNew Zealand.What is his gross income under section 13(1)(b)?
ATXB 213 MALAYSIAN TAXATION I 40DiscussionAs per the BIK Guidelines, his gross income underSection 13(1)(b) is as follows:(a)
ATXB 213 MALAYSIAN TAXATION I 41Sec 13(1)(c) – LivingAccommodation The value of any unfurnished living accommodation inMalaysia (including accommodation in premises occupied by theemployer) provided by an employer to his employees must beincluded in sec 13(1)(c). In the case that the living accommodation is fully furnished,the value of unfurnished accommodation must be computed bydeducting the value of the furniture, equipment andappliances from the total value of accommodation. The mechanics of the computation of living accommodation valueis contained in sec 32(2) ITA.
ATXB 213 MALAYSIAN TAXATION I 42Method of CalculatingAssessable Benefits If accommodation is provided by a company to anemployee /service director, the value of unfurnishedaccommodation:Defined value of living accommodation OR30% of the employee’s gross income under sec 13(1)(a)whichever lower. If accommodation is provided by a company to an non-service director, the value of unfurnished accommodation:The full amount of defined value of accommodation
ATXB 213 MALAYSIAN TAXATION I 43ContinueIf accommodation is provided in a hotel,hostel, quarters in plantation or forest by acompany to an employee /service director, thevalue of unfurnished accommodation: 3% of the employee’s gross income under sec13(1)(a)If accommodation is provided in a hotel, by acompany to non-service director, the value ofunfurnished accommodation: The actual hotel bill
ATXB 213 MALAYSIAN TAXATION I 44ExampleFarah’s terms of employment (employee) provide for thefollowing remuneration for the year ended 31 December2012.Salary RM60,000Reimbursement RM6,500Furnished accommodation(rent paid by employer withRM3,500 being for rentalof furniture) RM41,600Compute the value of the accommodation benefit:
ATXB 213 MALAYSIAN TAXATION I 45Sec 13(1)(d) – Receipts from UnapprovedPension andProvident FundsThis section assesses tax on withdrawn sum of anemployee from an unapproved provident funds.The sum normally withdrawn at the time ofretirement or resignation of such employee.
ATXB 213 MALAYSIAN TAXATION I 46Sec 13(1)(d) – Receipts fromUnapproved Pension andProvident FundsThe assessable amount is restricted to employer’scontribution and interest accrued from the totalsum.The employee’s contribution to the unapprovedfund is a capital contribution and no income taxlevied when it is withdrawn.When a withdrawal is made from governmentretirement scheme (EPF), the total sum is a capitalreceipt, hence not subject to tax.
ATXB 213 MALAYSIAN TAXATION I 47ExampleKavita made contributions to an unapprovedpension fund from 1.1.2011 to 31.3.2012. Heremployer also made contributions to the fund inrespect of Kavita for the same period. Onretirement, Kavita received RM3,100, whichconstituted:Employer’s contribution: RM1,500Employee contribution: RM1,500Interest portion: RM100
ATXB 213 MALAYSIAN TAXATION I 48Example: DiscussionThe amount that will be considered as grossincome from employment is RM1,600, being thecontribution made by the employer and theinterest received.May refer to Example 19
ATXB 213 MALAYSIAN TAXATION I 49Any amount received by the employee whether beforeor after his employment ceases, by the way ofcompensation for loss of employment including anyamount in respect of:A covenant entered into by employee restricting his rightafter leaving the employment to engage in employmentof a similar kind;Any agreement or arrangement having the like effect.Refer Example 20Sec 13(1)(e) – Compensation forLoss Employment
ATXB 213 MALAYSIAN TAXATION I 50Non-ServiceDirector ofControlledCompanyIll-Health Others100%ExemptionRM6,000 per year ofcompleted serviceNILExemptionLoss of Office Due ToYNExemption for Sec 13(1)(e)
ATXB 213 MALAYSIAN TAXATION I 51Allowable Expenses Traveling expenses -- incurred on discharging theemployee’s duties. Entertainment expenses – entertainment of customers andrestricted to entertainment allowance. Professional subscriptions -- required in the profession. Clubs subscription that is required in the performance ofduties. Technical journals and magazines – required to dischargeduties.
ATXB 213 MALAYSIAN TAXATION I 52Disallowable Expenses Cost of traveling from home to place of work since it is toput in a position to produce income and not incurred in theproduction of income. A payment to employment agencies because it is to obtainan employment without which you cannot be producingemployment income. The cost of acquiring qualifications such as MIT, ACCA, MBAand etc is not allowable because it is an initial cost withoutwhich the employment cannot be obtained.
ATXB 213 MALAYSIAN TAXATION I 53Disallowable Expenses The cost of training courses for maintaining technicalefficiency may be allowable if the employment dutiescannot be performed without incurring the particularexpense. Private expenditure is not an admissible deduction. Thuscosts which would be incurred anyway irrespective ofwhether there is an employment or not would not rank fora deduction.