Chapter 4 (b)employment income

CHAPTER 4 (b)
EMPLOYMENT INCOME
- TYPES OF GROSS INCOME -
1ATXB 213 MALAYSIAN TAXATION I

LEARNING OBJECTIVE

ATXB 213 MALAYSIAN TAXATION I 3
INTRODUCTION
TYPES OF GROSS EMPLOYMENT INCOME
MONETARY
BENEFITS (S13(1)(a)
Wages, Salary,
Bonus,
Allowances,
Gratuity and
etc.
BENEFITS IN
KIND (BIK)
S13(1)(b)
Company car,
mobile phone,
furniture,
interest subsidy
and etc.
VALUE OF
UNFURNISHED
ACCOMODATI
ON S13(1)(c)
REFUND FROM
UNAPPROVED
FUND S13(1)(d)
COMPENSATION
FOR LOSS OF
EMPLOYMENT
S13(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 of
having 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 the
company are not taxable – e.g: Award given to a bank clerk for passing
the Institute of Bankers Examination.
 Payments to meet personal distress such as compensation for house
damage is not taxable

Sec 13(1)(a) – Salary
and Wages
Both items are taxed at gross.
If EPF has been deducted, it should be added back
to bring back to gross amount.
Example:
Mr. Sam received a net salary of RM6,800 per
month after 11% EPF deduction.
Gross salary: 6,800 x 100/89 = RM7,640/month

Sec 13(1)(a) - Bonus
Bonus is not defined in Act.
Paid in addition to salary.
May be contractual or non-contractual.
Bonus is normally paid on recurring basis.

Sec 13(1)(a) - Allowances
Take the form of clothing, traveling and
entertainment allowances.
From YA 2009, a travel allowance of RM2,400 per year
would be exempted for travelling between home and
work place.
These allowances are assessed in full amount.
In the case if the uniforms are provided to the
employees, they are exempt from income tax.

Sec 13(1)(a) - Perquisite
Perquisites are benefits in cash or in kind which
can be converted into money received by an
employee from his employer or from third parties
in respect of having or exercising an employment.
Perquisites are taxable under section 4(b) of the
ITA as part of the gross income from employment
under paragraph 13(1)(a) of the ITA.

Sec 13(1)(a) - Perquisite
Example:
Settlement of employee’s pecuniary
obligations.
Share option and share incentive scheme
Tips paid to the waiter (Example 12)

Sec 13(1)(a) - Share Option
This is a scheme that allows an employee an
option to acquire shares in company (where the
employee works) at a fixed price and with a right
to exercise the option at some future dates.
If the employee was take up this option, he will be
taxable on the income under section 13(1)(a).

Sec 13(1)(a) - Share Option
However it will backdated to the year that the
option was granted.
The income is calculated by taking the excess of
market price over the option price at the time the
option was granted and not at the time the
option was exercised.

Share Option - Example
On 1 February 2010, Mr. John received a ten-year
non-transferable option to purchase 10,000 shares
at RM6.00 each when the market value was
RM8.00 per share. Mr. John exercised the option
on 1 December 2012 when the share price rose to
RM11.00 per share.

Share Option - Example
Discussion:
May refer to Example 15 & 16

Exempt Gratuity
Retirement due to ill health? (Para 25(1)(a)
Retirement on or after 55 or on reaching
compulsory retirement age + 10 years with
same employer? – Para 25(1)(b)
Retirement from government
or public service? – Para 25A and 25B
Y
Y
Y
N
N
N
TAXABLE
EXEMPT
Exempt Gratuity – Schedule 6

Sec 13(1)(a) - Gratuity
Lump sum payments.
In respect of past services rendered by the
employee.
Paid to employee upon resignation or retirement
from the employment after serving a long period
of service as required by the employer.
Gratuity must be distinguished from gift.

Treatment of Gratuity
Total period of employment more than 5
year
The gratuity is divided (spread back) equally 6 years
when total period of employment commenced more
than 5 years of last basis period.
Example: Mr. Sam received a gratuity amounting
to RM150,000 on 31 Oct 2012. He had employed by
Mesra Sdn. Bhd since 1 June 1999. Mr. Sam is 54
years of age on 31 Oct 2012.

Discussion
Answer:
Total no. of years more than 5 years, thus gratuity
spread over 6 years equally

Continue
Total period of employment is 5 years or less
Gratuity is spread back over the actual no. of years
or months.
Example: By using the previous example,
assuming Mr. Sam was employed by Intan Sdn. Bhd
begin on 1 June 2009.
Therefore the gratuity will be divided with 3 years
and 5 months.

Discussion
YA 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)

Sec 13(1)(a) - Reimbursement
An expense burden that is of employer but it is
initially borne by the employee and subsequent
reimbursed by the employer is not taxable.
In other hand, where the employer reimburse the
personal expenses of employee then these will be
taxable benefit for the employee.

Sec 13(1)(a) - Reimbursement
For instances, if the employer settles the personal
liabilities of the employee (i.e., reimburse him for
the salary of a servant or gardener employed by
the employee for his personal home) these would
be assessable on the employees as gross income
under sec 13(1)(a).

Reimbursement - Example
During year 2012, Ahmad was reimbursed the
following expenses by his employer:
RM8,800 for salary of a servant employed by him
for his personal home.
RM650 being cost of travel by taxi from place of
work to client’s office.

Reimbursement - Example
Discussion:

Sec 13(1)(a) - Leave Pay
Leave pay is a cash item taxable under sec.
13(1)(a)
When a person receives leave pay, the amount will
be assessable to tax either in year of departure or
later depending on conditions provided under Sec.
25(6).

Sec 13(1)(b) Benefit in Kind
Gross income from an employment includes an
amount equal to the value of the use or enjoyment
by the employee of any benefit provided by the
employer to employee.
BIK is a benefit not convertible into money even
though it has monetary value.
Not convertible into money means that these
benefits cannot be sold or exchange for cash.

Car and Petrol
Table 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 1,200 600
50,001 - 75,000 2,400 900
75,001 - 100,000 3,600 1,200
100,001 - 150,000 5,000 1,500
150,001 - 200,000 7,000 1,800
200,001 - 250,000 9,000 2,100
250,001 - 350,000 15,000 2,400
350,001 - 500,000 21,250 2,700
500,001 and above 25,000 3,000

Example – Car with Fuel
Ahmad Fuad is a director of a company which provides him
with a company car costing RM170,000. What is his gross
income under section 13(1)(b)?
 Discussion:
As per the BIK Guidelines, his gross income under Section
13(1)(b) (using the prescribed value method) is as follows:
(a) Car: RM7,000
(b) Fuel: RM1,800

Example – Car provided more
than 5 Years
Same as previous example but the car is 7 years
old. What is his gross income under section
13(1)(b)?
As per the BIK Guidelines, his gross income under
Section 13(1)(b) (using the prescribed value
method) is as follows:
(a) Car: RM3,500 (1/2 x RM7,000)
(b) Fuel: RM1,800

Example – Car provided less
than 12 Months
Same as previous example but the car is provided until
September 2010. What is his gross income under
section 13(1)(b)?
As per the BIK Guidelines (using the prescribed value
method), his gross income under Section 13(1)(b) is as
follows:
(a) Car: RM2,625 (1/2 x RM7,000 x 9/12)
(b) Fuel: RM1,350 (9/12 x RM1,800)

Example – No Private Use
Attached to Car
Amir Rashid is a director of company SMD. He is allowed to
make use of a company car (cost RM80,000) during office
hours but is not allowed to drive it home. What is his gross
income under section 13(1)(b)?
The benefit is exempted under the ITA 1967, as the benefit
relates to the performance of his official duties.

Example – Car, Fuel
and Driver
David is a director of company Car, fuel ABC. He is
provided with a company car costing RM210,000
(cost when new) as well as a driver for his sole
use. The driver is paid a salary of RM600 per
month by the company. What is his gross income
under section 13(1)(b)?
Section 13(1)(b) is as follows:
(a) Car: RM9,000
(b) Fuel: RM2,100
(c) Driver: RM7,200

Example – Fuel without Car
David is a director of company ABC. He is not
provided with a company car but the company
provides fuel for both business and private use.
The actual fuel expenses relating to the private
usage is RM8,500 in year 2009. What is his
gross income under section 13(1)(b)?
As per the BIK Guidelines, his gross income
under Section 13(1)(b) is as follows:
(a) Fuel: RM8,500

Furniture and Appliances
The value of household furnishings and appliances
provided by an employer in connection with an
accommodation also provided by him to employee
is taxable as a benefit in kind.
The table below show the concessionary annual
value of this BIK varies according the extent of
furnishing provided.

Furniture and Appliances
Types Of BIK Annual Value Of BIK
(a)
Semi-furnished with furniture in
the lounge, dining room or
bedrooms.
RM 840
(RM 70 per month)
(b)
Semi-furnished with furniture as
above and one or more of the
following:- air-conditioners,
curtains and carpets.
RM 1,680
(RM 140 per month)
(c)
Fully-furnished with benefits as
above plus one or more of the
following:- kitchen equipment,
crockery, utensils and
appliances.
RM 3,360
(RM 280 per month)

Example – Fully Furnished
Farid is a director of company XYZ. He is provided
with a fully furnished accommodation. The
rental for the fully furnished accommodation is
RM8,500 per month of which RM2,800 is for the
furniture. What is his gross income under section
13(1)(b)?
(a) Furniture: 3,360

Example – Furniture Shared and used
for Less Than 1 Year
As previous example but the house was provided
from 1/4/12. Begin from 1/7/12, the house was
shared with other employee. Compute the value
of household furnishing and appliances for income
tax purpose, accruing to Adnan.
1/4/ to 30/6/12 RM280/ per month x 3 RM840
1/7 to 31/12/12 RM280 x 6 x ½ RM840
RM1,680

Other 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 the
market 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 in
recreation clubs
Monthly/annual membership fees paid by
employer.

Exempt Benefit-in-kind
Act Medical or dental treatment for employee and
immediate family
Benefit for child care
Leave passage [3 local + 1 overseas – max
RM3,000 per family] for travel of employee and
immediate family.
Benefits relating to official duties
IT(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 subsidized
Free transportation
[Refers to transportation of workers to factory]

Example – Exempt BIK
Mr. 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 London
and had to undergo surgery to remove her appendicitis.
The surgery and hospitalization costs amounting to
RM22,000 were paid by the company.
(d) Leave passage of RM8,500 for himself and his family to
New Zealand.
What is his gross income under section 13(1)(b)?

Discussion
(a)

Sec 13(1)(c) – Living
Accommodation
 The value of any unfurnished living accommodation in
Malaysia (including accommodation in premises occupied by the
employer) provided by an employer to his employees must be
included in sec 13(1)(c).
 In the case that the living accommodation is fully furnished,
the value of unfurnished accommodation must be computed by
deducting the value of the furniture, equipment and
appliances from the total value of accommodation.
 The mechanics of the computation of living accommodation value
is contained in sec 32(2) ITA.

Method of Calculating
Assessable Benefits
 If accommodation is provided by a company to an
employee /service director, the value of unfurnished
accommodation:
Defined value of living accommodation OR
30% 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

Continue
If accommodation is provided in a hotel,
hostel, quarters in plantation or forest by a
company to an employee /service director, the
value of unfurnished accommodation:
 3% of the employee’s gross income under sec
13(1)(a)
If accommodation is provided in a hotel, by a
company to non-service director, the value of
unfurnished accommodation:
 The actual hotel bill

Example
Farah’s terms of employment (employee) provide for the
following remuneration for the year ended 31 December
2012.
Salary RM60,000
Reimbursement RM6,500
Furnished accommodation
(rent paid by employer with
RM3,500 being for rental
of furniture) RM41,600
Compute the value of the accommodation benefit:

Sec 13(1)(d) – Receipts from Unapproved
Pension and
Provident Funds
This section assesses tax on withdrawn sum of an
employee from an unapproved provident funds.
The sum normally withdrawn at the time of
retirement or resignation of such employee.

Sec 13(1)(d) – Receipts from
Unapproved Pension and
Provident Funds
The assessable amount is restricted to employer’s
contribution and interest accrued from the total
sum.
The employee’s contribution to the unapproved
fund is a capital contribution and no income tax
levied when it is withdrawn.
When a withdrawal is made from government
retirement scheme (EPF), the total sum is a capital
receipt, hence not subject to tax.

Example
Kavita made contributions to an unapproved
pension fund from 1.1.2011 to 31.3.2012. Her
employer also made contributions to the fund in
respect of Kavita for the same period. On
retirement, Kavita received RM3,100, which
constituted:
Employer’s contribution: RM1,500
Employee contribution: RM1,500
Interest portion: RM100

Example: Discussion
The amount that will be considered as gross
income from employment is RM1,600, being the
contribution made by the employer and the
interest received.
May refer to Example 19

Any amount received by the employee whether before
or after his employment ceases, by the way of
compensation for loss of employment including any
amount in respect of:
A covenant entered into by employee restricting his right
after leaving the employment to engage in employment
of a similar kind;
Any agreement or arrangement having the like effect.
Refer Example 20
Sec 13(1)(e) – Compensation for
Loss Employment

Non-Service
Director of
Controlled
Company
Ill-Health Others
100%
Exemption
RM6,000 per year of
completed service
NIL
Exemption
Loss of Office Due To
Y
N
Exemption for Sec 13(1)(e)

Allowable Expenses
 Traveling expenses -- incurred on discharging the
employee’s duties.
 Entertainment expenses – entertainment of customers and
restricted to entertainment allowance.
 Professional subscriptions -- required in the profession.
 Clubs subscription that is required in the performance of
duties.
 Technical journals and magazines – required to discharge
duties.

Disallowable Expenses
 Cost of traveling from home to place of work since it is to
put in a position to produce income and not incurred in the
production of income.
 A payment to employment agencies because it is to obtain
an employment without which you cannot be producing
employment income.
 The cost of acquiring qualifications such as MIT, ACCA, MBA
and etc is not allowable because it is an initial cost without
which the employment cannot be obtained.

Disallowable Expenses
 The cost of training courses for maintaining technical
efficiency may be allowable if the employment duties
cannot be performed without incurring the particular
expense.
 Private expenditure is not an admissible deduction. Thus
costs which would be incurred anyway irrespective of
whether there is an employment or not would not rank for
a deduction.

THANK YOU
Q & A
54ATXB213 MALAYSIAN TAXATION I

Chapter 4 (b)employment income

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