Tax season is coming to an end and for those who have filed their taxes, they can expect their deductions and returns to be sorted out in due time. But there are those who have yet to file their taxes and as the deadline closes, panic is setting in. Fret not as Sim Wie Boon speaks to Thanneermalai Somasundaram, Managing Director, Thannees Tax Consulting Services for some last-minute tax filing tips as well as what are the consequences for missing the deadline.

Image credit: Shutterstock.com

Presenter: Sim Wie Boon
Producer: Sim Wie Boon

Podcast Transcription

Sim Wee Boon: Good morning, you're tuned in to Ringgit and Cents, the show all about personal finance, and I'm Sim Wee Boon.

Today, we're going to be talking about taxes and, more specifically, filing your taxes because the deadline to submit the tax return form for the year of assessment for 2021 via e-filing is this Sunday on May 15th. So, that just means that you have a few more days to submit your taxes or face the consequences. So, what are some of the tips and things to take note of if you're a last-minute tax filer and what is the consequence if you miss the deadline?

Joining me to discuss this is Thanneermalai Somasundaram, the Managing Director of Thannees Tax Consulting Services.

Good morning and welcome to the show, Thannee. So, let's start off with the most important question. I've got a few more days to file my taxes. I'm opening up the form now. I'm looking up for receipts.

What are some of the important tax reliefs to claim, important things to take note of that people commonly forget?

Thanneermalai: I think the first thing is, remember, it's 15th of May. That is your deadline. Midnight, 15th of May, you should have filed a return. And if you do not file a return, then penalties will kick in.

So, if you submit it within 12 months of the due date, then there'll be a 15% penalty. And if you submit it within 12 and 24 months, 30%. And thereafter, it will be 45% additional penalty on the tax that you have to pay. That's number one, 15th of May. And if you don't submit it on time, you have these penalties.

Now, there are lots of reliefs you can actually claim. The reliefs are plentiful. But let me talk about what is new compared to, say, last year. Now, you can claim an additional RM500. Remember, you have the lifestyle relief of RM2,500 for your sports equipment, for buying your books, and for buying your computer and laptops. Okay, RM2,500 was basic.

Then, for 2021 and 2020, they gave you RM2,500 additionally. So, you can buy. This is only for computers, laptops, and notebooks. So, if you want to buy a mobile phone, yes, that additional RM2,000. So, you can claim RM5,000 on that.

On top of that, what they've given you in 2021 is for sports equipment and for rental and entry fees to the sports facilities. Like, if you're a futsal player and you want to rent the facility, then you have an additional RM500. And registration fees for sports competitions. So, if you want to go on marathons, etc. So, they give you an additional amount. If you think about it in terms of lifestyle, you've got the original RM2,500, plus an additional RM2,500 for the laptops, computers, and phones. Then, you get another RM500 for being a sports person.

Now, the next one that was new is actually upskilling. It was already available for those who want to do master's degrees up to RM7,000, and studying up to tertiary level in accounting, law, Islamic finance, and a whole bunch of things—technical, vocational, industrial, as well as scientific skills; you can get RM7,000.

But within the RM7,000, now they've expanded it in 2021; you can claim RM1,000 for upskilling yourself. And that has to be approved by the Director General of Skills Development under the National Skills Development Act 2006. So, the RM1,000 is inside the RM7,000, but you can now claim that, which was not available in 2020. So, it is now available in 2021.

Then, another one is tourism. Remember, they wanted to promote tourism during this sad period of COVID. So, previously, yes, you could have RM1,000 for domestic tourism. You can go to hotels and spend the money. Previously, if you bought tourism packages through local travel agencies, you didn't get it. Now, the RM1,000 is available if you purchase a package tour or a package from a local tour agency.

Then, medical expenses also. They've increased it from RM6,000 for medical expenses. For example, originally, last year, you could get RM6,000 for medical expenses for fertility treatment for yourself and your spouse. For medical expenses for serious diseases, I said serious diseases for yourself, your spouse, and your child: RM6,000. They've increased that to RM8,000. In addition, within the RM8,000, you can now claim up to RM1,000 for yourself, your child, and your spouse for vaccination expenses, especially for this COVID vaccination. Also, the RM500 was previously available for medical checkups. Now, they've increased it to RM1,000. You can go and do a medical examination for yourself, your spouse, and your child. You can also do detection tests, PCR tests, etc.

Up to RM1,000 is now available. Previously, you could do only medical up to RM500. You can do your normal tests. You're tested once a year to check whether your heart is okay and everything else: RM500. Now, it's up to RM1,000, and it includes vaccination and also includes if you do any detection, like your PCR tests. The total is RM8,000.

Then the other one is if you have a disabled spouse; that had been increased in 2021 to RM5,000 from RM3,500, and the child relief, childcare. If you send your children to childcare, now the RM3,000 has been extended not only for 2021 but for 2022 and 2023. As far as we are concerned, the only thing I will say about the lifestyle relief that they've expanded is: remember the RM2,500. Previously, you could buy books, journals, newspapers, and all that hard copy and electronic copies—but now, in 2021, you can buy electronic newspapers within the RM2,500. If you're subscribing to electronic newspapers, it's fine, but inside the RM2,500 is sports equipment. You can buy personal computers, smartphones, and tablets for yourself, your child, or your spouse.

Lastly, I would say that for medical expenses, for medical treatment for your parents. Previously in 2020, you could only claim RM1,500 for your mother and RM1,500 for your father. Now, that father-mother business is taken away. As long as they are for parents, it can be one or two parents; your total is now increased to RM5,000. It's not RM3,000. It's RM5,000. It's not bad.

It's a pretty good set of reliefs that we have seen.

Sim Wee Boon: Okay, but I just want to follow up on some of the reliefs that you mentioned. Let me focus on lifestyle. You mentioned electronics. Does it matter if it's bought overseas, or must it be new? What if I bought it secondhand from Carousell, Facebook Marketplace, or something like that?

Thanneermalai: It doesn't matter where you buy it from, whether it's overseas or local. That's not the issue. If you bought it secondhand, yes, you can still claim it as long as you have a receipt because you could have bought it. There are people selling that, and as far as you're concerned, it only says you're purchasing this.

Sim Wee Boon: Does the bank statement count?

Thanneermalai: No, not the bank statement. I think what you do is, if you bought it on Carousell, then you need the receipt on Carousell that you bought it, and you better print it out and keep it or look for that print. The bank statement alone will not be sufficient because the bank statement doesn't give you enough details.

Sim Wee Boon: It needs to show proof that the transaction, or you have bought it, right?

Thanneermalai: Yes, exactly. If you've gone into a platform like Shopee or somewhere else, then if you had that printed out, and you have actually made the transaction, usually you have the merchant page. You go to the merchant page, and you actually download and print it out. Or save it. You can save it. Don't forget, you don't always have to print it because nowadays young people, they will actually save it into the system. And when you need it in your cloud, you can always pull it down from your cloud.

Sim Wee Boon: Thannee, I want to ask, what if you are employed by an overseas company? How does that work?

Thanneermalai: First of all, we are talking about May 15th for people who are in employment or do not have business income. If you happen to have any business income, and you have an employment income, then your date moves to 30th June. Then you don't file a Form BE. You're actually filing a Form B. It's a different thing, number one.

Number two, if you're employed by a foreign employer, let's assume you're employed by a UK company. You're working in Malaysia for the UK company. I'm afraid that you are taxable in Malaysia because the word is you're exercising employment in Malaysia.

However, if you are working for the UK company and you are actually working outside Malaysia, let's say you are working in Singapore for the UK company, then you're not exercising employment, and you will not be taxable in Malaysia on the income you receive. That will be regarded as foreign-source income. But if you exercise it in Malaysia, you are taxable here, and you will have to file taxes as a normal person.

Then you look at your resident status. In simple terms, whether you've been here more than 183 days, but there are many other rules. But generally, once you're a resident and you've been exercising your employment, even if you're a non-resident, if you're a foreigner who is actually a non-resident who is here for less than 183 days, you're still taxable because you're exercising your employment in Malaysia.

So it's in simple terms. You are exercising, so it doesn't matter whether the money is paid to you in the UK, Singapore, or Hong Kong. You still have to be taxed here despite the fact that the money may not have been remitted into Malaysia.

Sim Wee Boon: And all the claims that you make are similar to the ones that you outlined earlier, right? There's no exception for what you can or cannot claim, right?

Thanneermalai: Correct. You're entitled to all the reliefs. As long as you're a resident, you're entitled to the reliefs. If you're a non-resident, and let's say you're treated as a non-resident, then you don't get any of these reliefs. You're taxed at a flat 30% rate. That's it.

Sim Wee Boon: What if your income is inconsistent? Say that you're freelancing as the main source of income. How does that work?

Thanneermalai: If you're in the gig economy, I think then you would ask yourself, you're not employed anymore. You're self-employed. So you've got two sets of income. You may be working during the day, nine to five, as the employment income for which you get a Form EA from your employer. That comes in; you're treated as employment income. If you have small amounts of gig income, you don't go and say, "I'm running a major business." So you just bring it in by the 15th of May and declare that income.

And if you are in the gig economy, like, for example, you're a Grab driver, or if you're selling on any platforms that you do and you bring in income, you can offset the business expense. But technically speaking, once that business grows, then you shouldn't be filing a BE form by the 15th of May. You should be looking at actually filing a B form by the 30th of June because you will have a separate source, which is a business source, and you have employment income. So in that instance, the employment income together with this business income goes into the 30th of June filing.

You then file it because you have two sets of income. You don't file two returns; you just file one return. So you defer the return to the 30th of June. But generally, I would say most gig economy workers, because they're not really running a major business, it's just a side income. I would advise those who are doing that: if you're just a part-time Grab driver, etc., bring it into the 15th of May filing and declare that income less your expenses.

Before you prepare the tax return, if you're doing it yourself, it's not complicated, but don't jump in and go into the e-filing system. I think you put all this on paper; keep the employment income separate on one sheet of paper. On another sheet of paper, I would actually look at the gig economy that I'm doing, which I'm involved in, say, Grab.

So I've got my income, then I've got my petrol expenses and all this; put it down on paper as a deduction because these are wholly deductible expenses to earn this income. Then you have the net amount. Because when you start opening the e-filing, you can only put in the net amounts, and you can't actually file and say, "This is my income less expenses." There's no space in that return. So if you calculate it manually, keep it aside. When you then enter, you enter the net amounts into the amounts as other income, and you bring it to tax.

At the end of the day, you're paying tax; you're paying legitimately. Check your numbers, and please allocate maybe half a day. Don't be frightened about it, at least half a day, because you need to find the receipts for all these expenses and compile them so that tomorrow when there is an audit, you can very easily just take one bundle. You can keep one file for each year and just take that file and actually show it to the tax officials and, hunky-dory, you've done your job, you won't have any problem.

Sim Wee Boon: I'm curious to ask, what is the auditing process? Let's say that you file the taxes; let's say LHDN wants to audit you, how does that process work?

Thanneermalai: Generally, they don't come to most individuals for an audit because there are too many. They pick if you have a significant spike in your income in one year or if there's a significant drop in your income. Let's say you're declaring RM150,000 one year, and then another year you come and declare RM25,000. Of course, the system picks it up.

Automatically, the system at the Inland Revenue will pick up and say, "There's a massive drop; look into this individual." Or if there is a massive spike, they will also pick it up. And then they do random checking also. They do random checking because they just pick it up. It's all picked up in the system. They have artificial intelligence, and they have a fantastic system, and they pick it up, and they actually send the cases.

So when you are audited, they will ask you, "Okay, please justify your reliefs and your deductions." And so all you need is actually the copies, soft copies or hard copies, of your receipts for the payments you have made. Or if you have not got the receipts, actually, if you've gone into, as you say, Shopee and somewhere else, you have the documents that you have gone in and purchased the item. You've got evidence of that. Usually it's not a problem.

When it comes to insurance, they want you to show the insurance policy. When it comes to your child relief, for example, if your child is there, you've got to prove that your child is below the age of 18 so you can claim your RM2,000. If your child is studying in a local university, you can claim up to RM8,000. If he is above the age of 18, then you've got to prove that you've actually got receipts.

So at the end of the day, you've got to keep receipts. My advice is every year, keep one file for that particular year. And of course, you keep your bank statements. That's very important. I'd also keep the credit card statements because that's also additional proof. So in an audit, I think usually they will ask you in letter form. You can reply. But my advice, the Malaysian style, is if they call you for an audit, please go to the Inland Revenue. Make an appointment.

See them and sort the issue face-to-face. It's so much easier than trying to write. Because if you write and they don't understand your letter, you're going to have problems. So my advice, my old-fashioned way, is actually I'll just go there, deal with the officers, and explain to them, show them the records. And if they have an issue, go back and search more records and give it to them. Usually when you see them, they're extremely polite. I tell you, the IRB is very polite. So do not worry at all.

Sim Wee Boon: How forgiving is the IRB to mistakes? Say you missed or you made a mistake on your filing by a couple of hundred ringgit. You've made some honest mistakes in your filing. How forgiving is the IRB to it if you are being audited at that moment?

Thanneermalai: They're nice people, but unfortunately, under the law, they will make that adjustment, and there will be a penalty added on. You can appeal, but that's at their discretion. You can appeal it and tell them the reasons why. But if it's just that you have not done your job properly, you have not added the arithmetic together, or you have overclaimed, and it's only a few hundred ringgit, these penalties, I'm afraid, will still be applicable. I mean, they're nice people, but they don't have the power.

And the only person who has the power is the Director General of Income Tax. He has the power to remit. He has the power to remit the penalty, but he has no power to remit the tax. Only the Minister of Finance has the power to remit the tax. So the penalty, yes, he can bring it down to zero. You can write in, and they will usually reduce penalties, and they'll be lenient on that. They're not going to put you in jail or anything like that. I think most individuals don't, but there's a small group of people who think that they don't have to file any tax return, who couldn't care two hoots about any of these tax returns. And then they just say, "Let's wait." Now that's wrong.

Those are the kind of people where I think the Inland Revenue will go down hard on them, who have never filed their tax returns despite receiving a lot of income. And there are also fairly wealthy individuals, etc. Please, if you're listening in, generally, some people do not actually pay attention to the benefits in kind because usually you're working as a director of a company or an owner of a company and all that. And generally, you are receiving a lot of benefits. You may be getting a car, you may be getting a house, you may be getting a gardener, etc.

And there is a tendency, I can tell you, there are a lot of people who do not declare the benefits in kind and perquisites that they receive correctly in their returns. These are for the high-income individuals. I would say watch it. Now that is serious because you have consistently not been declaring your returns correctly, and the amounts are large. Usually these are large amounts. You may have five cars or six cars in the name of the company, and you are enjoying them, and you decide not to declare those as benefits in kind. You may be living in a company house, a company-owned house, and you don't declare that, or you declare it incorrectly.

So I would say to high-net-worth individuals, you have to be careful. Please don't think you can get away from the system. The system will catch up with you at some point in time.