Income Tax Relief Tips
Live the lifestyle you desire by managing
your income tax payments
Income tax time is coming soon. It is the season where employees and business owners try to maximise their income tax deductions. Here are a few simple income tax relief tips especially for resident individuals that you can leverage on for noteworthy income tax savings. Read on to ﬁnd out how you may reduce your income tax liability by saving for retirement, owning a home and funding your children’s education!
1. Negotiate for the ‘CEO’ package
If you are earning at least RM10,000 per month and are paying income taxes at the highest bracket (26%), the following methods may be helpful in reducing your income tax liability. You may start by exploring opportunities to discuss and customise your remuneration package with your employer.
Consider converting your gross income into Benefit-in-Kind (BIK)
The ‘CEO’ package is a tongue-in-cheek reference to the non-monetary perks that a CEO may typically receive. For example, negotiate your remuneration package to include BIKs such as a company car, reasonable amount of travel beneﬁts, telephone bill subsidy and so forth, which will result in reduced chargeable income. Although BIKs are still considered income and taxable, the taxable value of BIKs may be lower compared to receiving the amount in cash. For example a car valued between RM150,001 to RM200,000 may incur BIK taxes at RM8,800 per annum compared to the RM52,000 (RM200,000 x 26%) you may have to pay if you were to receive RM200,000 as an income1.
Consider negotiating for travel allowances
An employee is provided an income tax exemption of up to RM6,000 per annum for any travel allowance, petrol card, petrol allowance or toll payment or any of its combination for work related travel2.
2. Buy a home
If you purchased a residential property and signed a Sale and Purchase Agreement between 10th March 2009 and 31st December 2010, you will enjoy up to RM10,000 income tax relief on interest expended to ﬁnance the purchase, for three consecutive years from the ﬁrst year the interest is paid. That means, if you purchased a house in 2010, you will receive RM10,000 income tax relief yearly from 2010 to 2012. If the property was jointly purchased by more than one person, all of them are entitled for the relief up to a maximum of RM10,000 jointly. For instance, if David and his wife jointly purchased a property, they will both be entitled to a relief of RM5,000 each for 3 consecutive years3.
3. Send your child to college
Start saving for your child’s education and qualify for income tax relief on education savings and education fees at the same time.
RM3,000 income tax relief for child’s education savings (Skim Simpanan Pendidikan Nasional, SSPN)
Any amount that is deposited into a savings account for your child under SSPN allows you to claim for income tax deduction up to a maximum of RM3,000 per annum. If your spouse ﬁles a separate income tax return, he or she can also claim this amount. So jointly, if each spouse saves a net contribution of RM3,000 for their child per annum, the income tax relief chalks up to RM6,000. If you and your spouse are paying income taxes at the highest bracket, that would translate to a saving of RM1,560 (RM6,000 x 26%) per annum.
Enjoy child relief on education fees
RM1,000 for a child aged 18 years old and above, not married and receiving full-time tertiary education and RM4,000 for a child aged 18 years old and above, not married and pursuing diplomas or above qualification in Malaysia or Bachelor’s degree or above outside Malaysia in a Higher Education Institute accredited by related Government authorities.
4. Start a business
If you are an entrepreneur or have a side business, you can claim deductions for all expenses related to the business when calculating business income other than expenses disallowed under the Income Tax Act 1967. For example, if you provide IT consulting work on a part-time basis, you can claim an income tax deduction for ofﬁce rental, cost of stationery, printing material or training manuals. If your spouse or family members are employed to help you in the business, their salaries are also deductible5. They, however, will need to ﬁle personal income taxes for the income received from you.
5. Invest in yourself
Sharpening your skills is often the best investment you can make. Plus, you get income tax relief for your efforts too.
Read as much as you can
You will enjoy an income tax deduction of a maximum of RM1,000 on the purchase of books, journals, magazines and publications.
Further your learning
Enjoy a relief of RM5,000 per year for any course of study at the Master’s or PhD level. The course does not have to be full time, but must be in an institution or professional body in Malaysia recognised by the government or approved by the Ministry of Finance.
You may claim up to RM500 for a complete medical examination. To encourage a healthier lifestyle,the government also allows claims of up to RM300 each year for the purchase of any sports or exercise equipment for any sports activity (Sports equipment does not include attire and shoes). Now that’s an incentive to start exercising6.
6. Invest in income tax-efficient instruments
Look for investments that offer lower income tax rates to enjoy greater income tax savings.
Real Estate Investment Trusts (REIT)
Invest in REITs to enjoy concessionary income tax rate of 10% as opposed to dividends on normal shares that are taxed at 25%. Since the REIT distributions you receive are already subjected to the 10% tax, you are not required to declare the amount in your income tax return7.
Invest in overseas stocks with lower corporate income tax
Corporate income tax rate in some countries may be lower (eg. 17% in Singapore compared to Malaysia’s 25%), which may mean you save on income taxes. As the income is already taxed in the country of origin, it will be tax-free when repatriated back to Malaysia8.
7. Save for your retirement
Sign-up for a Deferred Annuity Retirement Scheme to enjoy an income tax relief of RM3,000 annually on premiums paid. For instance, if you sign up for a new annuity scheme (including Private Retirement Schemes approved by the Securities Commission) in 2012 and pay RM3,000 in premiums, you can claim RM3,000 for income tax deduction the next year9. Should you be at the 26% income tax bracket, you would have made a saving of RM780. Better yet, and you would have also invested in your future.
Meet up with an income tax professional for further advice on your taxation. An income tax adviser may be best equipped to help boost income tax efficiencies and explore different ways to maximise income tax savings on your remuneration package. With professional advise and some of these tips, income tax time may not be so taxing after all.
The Last Minute Income Tax Guide
File separate income tax returns.
With individual returns, you will enjoy personal income tax relief of RM9,000 each versus spouse relief of only RM3,000 in a joint return.10
Divide income tax relief with your spouse.
Work the numbers to decide whether to place all child relief under one person or divide them between the two of you.
Get ready and organise your supporting documents.
Collate your EA forms, receipts, pay slips, medical bills and all supporting documents before you start filing your return.
Register for e-filing if you have yet to.
Visit www.hasil.gov.my to register so that you can submit your return electronically.
Hire an income tax consultant.
An income tax consultant may be able to provide additional ways to save on income taxes. Furthermore, if you don’t want the burden of filing your own returns, an income tax consultant can file them for you for a fee.
File your return before the deadline.
There are no extensions to the deadline. The penalty for not filing or late filing can be hefty (up to 20% of income tax payable in practice for late submissions up to 12 months and the Inland Revenue Board (IRB) can impose penalty up to 3 times the income tax payable).11
Settle your outstanding income tax on time.
Even if your income taxes are paid under the Schedular Tax Deduction System, you may still incur outstanding income tax which is payable before the April 30 deadline (if you are filing the BE Form). Missing the deadline will cost a penalty of 10% of the taxable amount immediately and another 5% if you still do not clear your outstanding taxes after 60 days. If it is really impossible to pay up on time, the least you can do is to first submit your return.12 If you have registered for e-filing, you may also access the IRB’s e-lejar to check the income tax payments made to the IRB to assess whether there are any discrepancies.
Check and double check your form before submitting them.
Whether it is in the form of a hard copy or an electronic file, once you have submitted your income tax return, making any amendment is tough. You may file an amended income tax return for ‘increased assessment’ where you enter ‘under-declared income or overclaimed relief or expenses’. Amendments must be made by the sixth month after the filing. Thereafter, no amendments will be entertained.13
Clear any outstanding income tax from last year to minimise chances of incurring a penalty.
Make an annual visit to your nearest Inland Revenue Board (IRB) to review your income tax position. Get a Form PCB2 from your employer (which shows all your income tax deductions) and reconcile the figures with the IRB.
Decide to maintain your books starting right now for next year’s income tax filing
in order to maximise your income tax efficiencies and reduce the stress of managing your income tax.
1. Inland Revenue Board Malaysia, Public Ruling No. 2/2004.
2. www.hasil.gov.my Income Tax (Exemption) Order 2009
3. www.hasil.gov.my, “Tax Relief for Resident Individual 2010”, Section 46B, Income Tax Act.
4. www.hasil.gov.my, “Tax Relief for Resident Individual 2010”.
6. www.hasil.gov.my, “Tax Relief for Resident Individual 2010”.
7. www.nbc.com.my “Real Estate Investment Trust (REIT) in Malaysia – Taxation on REIT and Investors”.
8. Inland Revenue Authority of Singapore website, “Tax rates & tax exemption schemes”, 12 July 2011; Source: The Star, “US is top 2012 property investment pick”, 2 January 2012.
9. Budget 2012.
10. www.hasil.gov.my, Tax Relief for Resident Individual.
11. The Star, “Heavier penalty for late tax submission”, 1 October 2011.
12. The Star, “136,000 who filed returns in March get tax refunds”, 1 May 2010.
13. www.hasil.gov.my, “Procedure On Submission Of Amended Return Form ”, 5 January 2011.
This article is for information purposes only and HSBC Bank Malaysia Berhad is not providing any income tax advice. Please consult your income tax adviser for professional income tax advice in the first instance.