26 Tax-Saving MovesThey are legal and permitted byInland Revenue Board ( IRB )
1) Save for your Child’s EducationSince 2007 , any amount that is deposited into a savingsaccount for your child under national Education SavindsScheme ( Skim Simpanan Pendidikan Nasional ) allows you toclaim tax deductions.Thers is a limit of RM 3000 for this deduction but spouse whofile separate tax returns can each claim this amount .Tax Deduction : RM 3000 per individualFor Mr A : As he falls in the 24% tax bracket , this deductiontranslates to a tax saving of RM 720 ( RM 3000@24%)
2 ) File Separate tax returnsA separate assessment allow each spouse to claim personal tax reliefof RM 8000 while a joint tax return allows one spouse to claim a wifeor husband relief of RM 3000Tax Deduction :Each spouse earning Taxable income can claim personal tax relief of RM8000 by filling separate tax returns.
3) Ask your employer to increaseyour EPF contributionsContributions to the employees Provident Fund (EPF) by employers are tax-exempt for the employees.To reduce your taxable income , ask your employer to reduce your EPFmonthly salary but increase your EPF contributions by the same amount.Tax Deduction :The deductible amount from your taxable income is dependent on the arrangementbetween you and your employer.For Mr A : Mr A agrees to takle monthly pay cut of RM 1000 for an equivalentincrease in his EPF contributions by his employer.At the end of the year , hereceives an additional RM 12000 in his pension fund but his taxable income isreduced by the same amount.The tax saving that he makes is RM 2880 ( RM12000@24%)
4) Change your cash remuneration tocash reimbursementFixed allowances given by your employer each month forentertainment and housing or parking fees are taxable at yourtax bracket.Change this to a “ reimbursement “ based on receipt and youare not taxed on the amount received.Tax Deduction :The deductible amount from your taxable income is dependent onthe arrangement between you and your employerFor Mr A : By Changing a yearly fixed allowance of RM 6000 toa reimbursement of the same amount and supported byreceipts , Mr A makes a tax saving of RM1440 ( RM6000@24%)
5) Ask for a company carA car given by your employer is regarded as a benefit-in kind ( BIK ) andtaxable.However , a company car is advantageous for taxpayers because the presettax scale for cars is much lower than the actual cost of buying and maintaininga car.According to the Public ruling for BIKs , the tax payer must pay RM 3600 intaxes every year, for a car worth RM 75000If the employer pays for fuel , the tax payer is taxed an additional RM 1200 forthis BIKTax deduction :Whether you benefit from a company car depends on the value of the car and yourcurrent tax bracket. Do the calculations to ascertain your tax deduction.
6) Make charitable contributionsA gift of money to an approved charitable organisation entitles you to a taxdeduction for the amount given.From 2008 onward , this amount cannot exceed 7% of your aggregate income.However Charitable donations that were made in 2007 are not subject to thislimit.Tax deduction :Up to 7% of your aggregate taxable income can be reduced with this deduction.For Mr A : With his taxable income of RM 90000 , Mr A can make a donation ofRM 6300 .This deduction results in a saving of RM 1512 ( RM 6300@24%)
7) Take Up postgraduate studiesA relief of RM 5000 per year for any course of study at theMaster’s or doctorate level , the government announced in2007 Budget the widening of the scope to all postgraduatestudies.The course does not have to be done full time , but “ must bein an institution or professional body in Malaysia recognised bythe government or approved by Minister of FinanceTax Deduction :RM 5000 per individualFor Mr A : As he completes his master’s degree . Mr A canenjoy tax saving RM 1200 from his taxable income ( RM5000@24%)
8) Read , Read , ReadStarting from YA 2007 , taxpayers can claim apersonal tax deduction to RM 1000 for purchase ofbooks, journals , magazines and other publications.To maximise this generous deduction , considergiving books as gifts.Tax Deduction : RM 1000 per individualFor Mr A : With book purchases of RM 1000 Mr Asaves RM 240 ( RM 1000@24%)
9) Get SportyYou will get a deduction of RM 300 for each year ofassessment for the purchase of sports and exercise equipmentfor any sports activities defined under the Sport DevelopmentAct 1997 “Tax Deduction : RM 300 per individualFor Mr A : By buying RM 300 worth of sports equipment , Mr Amakes a saving of RM 71 ( RM 300@24%)
10) Buy Life InsuranceThe maximum tax relief is RM 6000 a year forpremiums paid to an insurance company for lifeInsurance or deferred annuity plans.This Limit is shared with your contributions to theEPF, other employer schemes and contributionsunder any written law relating to widows or orphanpensionsTax deduction : RM 6000 per individual ( sharedwith your EPF contributions )
11) Take out a Medical or Education policyYou can claim deductions of up to RM 3000 a year foreducation and medical insurance ( combined limit for both )This includes medical coverage that is part of life insurancepolicy( the limit for life insurance is in move 10 )A policy of this kind can be written for you , your spouse oryour child.Tax deduction :RM 3000 per individualFor Mr A :After acquiring an education policy for his children ,Mr A makes a saving of RM 720 ( RM 3000@ 24%)
12) Pay your parents’ medical billsYou are able to claim up to RM 5000 for paymentstowards your parents’ medical bills.Tax deduction :RM 5000 per individualFor Mr A : By paying his parents’ medical bills , Mr Amakes a saving of RM 1200 ( RM5000@ 24%)
13) MedicalClaim a deduction of up to RM 500 per tax year for a full medical examinationand RM 5000 for medical expenses for yourself, spouse or child for seriousdisease.If you have also spent money on full medical in the same year, your claim willbe reduce the RM5000 available for serious disease.A separate tax reduction of up to RM5000 a year is given for necessary basicsupporting equipment for disabilities suffered by yourself ,spouse, children orparentTax Deduction :RM 500 per individual for full medical check-up.RM5000 for serious diseases or basic supporting equipmentFor Mr A : He claimed for a full medical check-up .The deduction give him ofRM 120 ( RM 500@24%)
14) Pay ZakatIf you are a muslim ,paying any amount in zakat ,fitrah or other obligation Islamic dues will entitle youto a tax rebate.Tax deduction :The Amount of zakat that you pay
15) Buy a ComputerA deduction of up to RM 3000 can be claimed onceevery three years for the purchase of computers ,printers and bundled software .The similar i9ncentive given previously in the formof a tax rebate was withdrawn with effect from 2007Tax deduction : RM 3000 once every three years.For Mr A : Getting a computer for RM3000 gives hima saving of RM 720 ( RM 3000@24%)
16) Hire a Tax ConsultantConsider hiring a tax consultant to explore waysyour remuneration package can be structured tomaximise your tax savings.Those who are earning at least RM5000 everymonth should be able to justify the cost of hiring atax adviser with their tax savingsTax saving : this is dependent on your personalcircumstances and the deal that you negotiate withyour employer.
Tax – Savvy InvestmentsYou may be looking at some investment this year.There are savings to be made from certaininvestments , from a tax point of view.However , some moves may be advantageous if youfall into a higher tax bracket .Besides looking for tax-exempt investment , here arefour investment moves to explore
17) Buy property valued below or at RM250000Stamp duty must be paid on all property transactions thatinvolve a change of legal ownership.Last year’s budget ( 2008 ) announced a 50% stamp dutyexemption for the purchase of houses that do not exceedRM250000The maximum tax savings that can be found here is RM2000 (for a house worth RM250000 )This exemption is only given for one house per individual andapplies to sale and purchase agreement signed betweenSeptember 2007 and December 2010
18) Buy Similar propertySimilar property can be grouped together for income tax purposes.The IRB has indentified categories such as residential , commercial and vacantland.If you own two property in the same category , you can reduce the taxableprofit made from one property with the loss, if any incurred from the other.Property investors are also exempt from real property gains tax for all disposalson on or after 1st April 2007.However , taxpayers who are trading property – buying and selling in order togenerate income – are liable to income tax.“ This exemption is meant for taxpayers who invest in property for a passiveincome”Tax deduction :Taxable income received from renting out a property in a particular grouping suchas residential can be reduced if a loss was incurred by another property in the samegroup.
19) Buy shares ( page1 )Invest in dividend-yielding shares if your tax bracket is above26%.A new single-tier system was established under the nationalBudget for dividends received by shareholders.Companies pay tax of 26% (YA2008) and shareholders receivea net dividend that is exempt from tax and does not need tobe filed with the IRB “Shareholders who fall into higher taxbrackets [higher than 26%] are essentially [getting a] savingon the difference.“The single-tier dividends is intended to simplify the tax filingprocess for individuals,” says Chua Tia Guan, executive directorand head of tax and financial planning at Great Vision WealthManagement Sdn Bhd.“In the past, refunds had been slow. From now on, there is noneed to declare or apply for a refund. And as corporate taxesare falling, companies will be able to pass on more profits totheir shareholders [in the form of dividends],” he says
However, not all companies will go under the single-tier systemimmediately as some of them might have imputation tax credits left,which they can use till 2013.Shareholders who receive dividends from companies using theimputation system will have to report the amount received and claima tax refund if his personal tax rate is lower than the company’s taxrate (27% in YA2007, 26% in YA2006).Shareholders can identify the system used by the company as it isstated in the dividend vouchers.Tax DeductionYour tax saving is the difference between your tax bracket and 26% (thecorporate tax rate). This is only applicable to dividends given out bycompanies using the single-tier system.19) Buy shares ( page2)
20) Invest in REITsYou can go into real estate investment trusts ( REITS )if your tax bracketabove 15%.There are 11 REITs listed on the Main Board.The tax on dividends given out by these property-related investments aretaxed at 15% as compared to tax on dividend at 26% ( under the new single –tier dividend system )Only tax brackets exceeding 15% would enjoy some tax savings by investing inREITsSince the distributions received by individual taxpayers have been subject tothat 15% , the taxpayers are not required to declare the amount in their taxreturn.Tax deduction:Your tax saving is the difference between your personal tax bracket and 15%
Moves for Business OwnersThe first rule that small-businessowners should implement with regardsto their taxes is to take it seriously.Spend some time strategising for yourbusiness activities to save hundreds orthousands ringgit.Here are six
21) Maintain books and records from Day 1Keep separate bank accounts for personal and business transactions andestablish a basic accounting system.The inland Revenue Board recognises business income on an accrual basis .This means that as long as a transaction is completed, either a sale of goods ora provision of service , its value is immediately treated as business income andis taxable.However , unpaid transaction can be reduced your taxable income.Any expenses made fro the business can be deducted from the businessincome.The General rule is that expenses can be deducted if it is wholly andexclusively incurred in earning your business income.So Keep the receipts for all supplies that you buy for your businessHowever there is no deduction for capital expenditure although some assetswill qualify for tax relief by way of capital allowances
22) Time the purchase and use of yourfixed assetsCapital allowances are permitted for certain business assets such asequipment , machinery , vehicles computers and software.The amount of allowances permitted each year depends on thecategory that asset falls into .( refer to Public Ruling No 2/2001 forthe deductible rate of your assets.The first capital allowance is given for the accounting year in whichthe asset was purchased and used by the business.If you are contemplating a purchase , try to do it before the end ofthe accounting year, instead of just after , to claim the capitalallowance against your business income.If you are buying the asset with a hire-purchase loan, allowance canonly be claimed as and when repayments are made to the lender.
23. Buys a company carIf you are a sole trader or a partner in a business, any car or vehicle that isused for business purposes can bring about tax deductions.“The business income is reduced by the car’s financing cost if you buy the caron hire-purchase.You are also deduct a certain amount for capital allowances every year,Before implementing this tax-saving technique, business owners must identifya percentage of the car’s use that is for private activities.As there is no definite ruling on how to determine this proportion for privateuse, business owners must apply a fair and reasonable figure that canwithstand scrutiny.“Estimating private mileage is an exercise that must be undertaken inaccordance to the facts on your actual usage.And remember to record all running expenses to make these deductions,” saysThornton.
24. Hire your spouse or family memberAn effective tax-saving strategy is to hire a spouse or family member.“For example, a husband who is a business owner can hire his wife. The wife’ssalary is tax deductible but you must be able to show that she is doingsomething to earn it,In this situation, you would have to contribute to your wife’s EmployeesProvident Fund (EPF) savings and that amount entitles her to tax relief.Another option is to make your spouse or family member a partner in yourbusiness.This allows you to divide the income made by the business between the bothof you.As a partnership has no tax liability, both partners are liable for tax for therespective portion of business income that each earns.“By opting for separate tax assessments, a husband and wife who are partnersin a business can each claim individual tax relief.
25. Implement a process to ‘chase after’ unpaid debtsUnfortunately, small business owners can complete a sale or service but might notreceive payment, in full or in part.At the end of an accounting year, a debt, which is estimated to be wholly or partlyirrecoverable, can be deducted from your business income and this lowers your taxbill.“Tax authorities tend to look closely at bad-debt write-offs and provisions (for debtsthat are expected to be partly recoverable).So put in some effort to recover the debt before deeming it irrecoverable and youmust evaluate each debt separately.The process that you put in place to recover your unpaid debts should bedocumented and any conclusion that you make should be supported withdocumentation as well.For example, you must show why it it not cost effective to take legal action againsta customer.However, if you eventually recover bad debts that have been written off or partiallywritten off, you must include this amount in your taxable income for the year thatyou received payment.
26. Dedicate a space in your home officeWorking in your own house can result in tax deductions for the costs related to your “homeoffice”.This includes electricity, telephone bills, quit rent and service charges of apartments.The best way to claim for these deductions is to dedicate a room or place as the workingenvironment.“A dedicated area helps to identify expenses that are specifically for business purposes and canbe claimed in full.Items that are used by the business as well as personal use, such as electricity, must beapportioned.One way to do so is on the basis of floor area.If the business owner pays rent for the working area, this expense can be deducted from thebusiness income.This applies to rent that is paid to a spouse who owns the home but is not involved in thebusiness.However, this is strategy is only effective if the spouse who is not involved in the business istaxed at a low tax rate as rental received must be declared as taxable income.If this is an appropriate strategy for the business owner, A tenancy agreement that specifiesrental for a specific part of the house at the prevailing market rate.