[UPCOMING] TTCS 2021 Tax ConferenceJanuary 4, 2021
TTCS: Know Where You Stand With Your Transfer Pricing DocumentationJanuary 6, 2021
The Sun Daily: 2021 is here - start planning your taxes
Repost of publication on The Sun Daily on 4 January 2021.
WE should all pay the right amount of taxes - not more, not less. Wherever the law permits us to legally reduce our taxes, we should do so. Anything we pay above is our choice.
As taxation rules are complicated, the layman is likely to miss out on the tax benefits available to him.
There are opportunities for salaried individuals to reduce their tax bill. The easiest approach is to discuss with your employers on repackaging your salaries increasing your burden to the employer. If you repackage your salaries to include benefits-in-kind, perquisites and receiving monies that are exempt from taxes, you can reduce your taxes.
Taxpayers have the choice to repackage their salaries and repackaging will not tantamount to avoiding taxes. Repackaging your salaries could mean that you receive less in the form of salary but it made up of the above three items.
Benefits-in-kind provided by the employer are not convertible to money and this includes motorcar (including petrol), driver, gardener, household servants, household furniture and appliances, club memberships, mobile phones, discounts on goods and services of the employer (up to RM1,000). The value of the benefit-in-kind for tax purposes is usually based on prescribed rates or over the life of the asset provided which is usually less than the amount paid by the employer. For more details, refer to the Public Ruling No. 11/2019 (IRB website).
In case you are renting your accommodation, you can consider asking your employer to take over the rental and providing you with living accommodation. This will be more beneficial than receiving your salary and paying rental. This benefit will be calculated at the lower of the rental paid by the employer or 30% of your gross employment income.
Perquisites are benefits in cash or in kind which are convertible into money. Examples of perquisites are credit card facilities, loan interest borne by employers, tuition or school fees of child, life insurance, waiver of loans or advances, personal computers, share option schemes, share purchase schemes, etc. The valuation of the perquisites will be based on the market value or amounts paid by the employer. For more details, refer to the Public Ruling No. 5/2019 (IRB website).
There are other payments that you can obtain from the employer which will be tax exempt are medical, dental and childcare benefits, leave passage limited to three passages in Malaysia and one for overseas travel limited to RM3,000, professional subscriptions, gift vouchers, scholarships etc.
If your employer provides interest-free loans from excess internal funds, you will not be taxed on the subsidy. If your employer borrows money and provides you with a loan at a reduced interest rate, or subsidises your interest, you will be subject to tax as a perquisite on the subsidised portion.
Please note that many of these benefits and perquisites will not be eligible to directors in family-owned companies where they are employed as managers and own more than 20% of the ordinary share capital.
Another idea would be to receive lesser salary and request your employer to increase the employer portion of the EPF contribution to the maximum of 19% whereby the employer gets a tax deduction, and that portion will remain in the EPF until retirement whereupon the money can be withdrawn tax free. This is only beneficial for employees who are close to retirement.
The above provides you a bird's eye view of the possibilities available to salaried individuals to reduce your taxes. Please start planning your taxes early and it is an opportune time to have an open discussion with your employers.