Taxable income for individuals, businesses

By LEE VOON SIONG

This is the second article in a series of four weekly articles to assist taxpayers in complying with their tax obligations.

ALL revenue income derived from a source within Malaysia are subject to tax unless specifically exempted. Foreign source income remitted into Malaysia are exempted from tax.

Employment income which must be reported in the employee's tax return include salary, wages, commission, bonus, gratuity, perquisite or allowances.
The classes of income that are subject to tax for an individual include the following:

Employment income

Employment income which must be reported in the employee's tax return includes the following:

# Salary, wages, commission, bonus, gratuity, perquisite or allowances (perquisite would include the following payments made by the employer on behalf of the employee: utility bills, income tax, children's education expenses, individual club membership, employee share option scheme and loan interest);

# Benefits-in-kind such as car, driver, corporate club membership, mobile phone, household furniture and appliances; and

# Value of living accommodation, servant and gardener.

Certain expenses are allowable against the employment income such as professional membership fees, and travelling and entertainment expenses. The onus is on the employee to prove to the Internal Revenue Board that the expenses were incurred for business purposes.

Employment income which is exempted from tax and need not be reported includes:

# Leave passages provided to the employee, his spouse and children up to a maximum of RM3,000 for one overseas trip and up to a maximum of three local trips per year;

# Retirement gratuities (on meeting certain conditions);

# Employees Provident Fund withdrawals; and

# Dental or medical treatment or child care benefit.

Dividend income

The tax treatment will be as follows:

Normal dividends: Dividends are received net of tax by individual shareholders. The gross amount of the dividend is declared in the tax return.

A Section 110 tax credit (27%) can be claimed against the income tax suffered on the dividend income. If a resident individual's marginal tax rate is lower than 27%, the excess tax credit can either be refunded or used to set off against the tax payable on other sources of income.

Tax exempt and foreign dividends: These dividends are exempted from income tax and need not be declared in the tax return.

Expenses which are deductible against the dividend income are:

# Commission or brokerage fee;

# Stamp duty on transfer of shares; and

# Interest on loan obtained to purchase the shares.

Interest income

Interest income received is subject to income tax and is required to be reported in the tax return. However, interest paid by a financial institution in Malaysia to a resident individual is not required to be reported in the individual's tax return as the withholding tax of 5% is treated as a final tax.

Rental income

Rental income is required to be reported in the tax return and is normally treated as an investment income.

Expenses which are allowable against the rental income are:

# Quit rent and assessment;

# Insurance premium on the property;

# Replacement costs on assets used in the property;

# Repairs and maintenance;

# Interest on loan obtained to purchase the property;

# Commission and agency fee;

# Advertisement for letting out of property.

Expenses incurred on advertisement, commission and legal fees for the first tenancy agreement are not allowed as these expenses are capital in nature.

Rental losses are not allowed to be utilised to set-off against other sources of income.

Business income

The taxable income of a business is determined after deduction of the following:

# All expenses and outgoings incurred wholly and exclusively in the production of the business income;

# Capital allowances; and

# Any unabsorbed business losses brought forward.

Expenses which are wholly and exclusively incurred in the production of the business income would include:

# Interest on loan used in the business;

# Rental in respect of any land or building occupied;

# Employee costs;

# Specific provision for doubtful debts/bad debts; and

# Repairs and maintenance.

Depreciation on fixed assets is not deductible.

However, capital allowances can be claimed provided the fixed assets are owned by the taxpayer and are in use for the business at the end of the basis period.

http://biz.thestar.com.my/news/story.asp?f...88&sec=business


Preparing personal income tax returns

Preparing personal income tax returns

By LEE VOON SIONG

WHO is required to submit a tax return? A person who is chargeable to tax is required to submit an income tax return to the Inland Revenue Board (IRB).

Chargeability to tax would depend on the amount of income reported and the reliefs and deductions claimed. For example, an employee who is single and earning RM27,000 annually would be chargeable to tax if his claim for relief is limited to self relief and Employees Provident Fund.

An individual who is filing his tax return for the first time will have to register a tax file with the IRB. He can do this by going to the nearest IRB office and bringing along his identity card/passport, Form EA and marriage certificate, if married.

How will you be taxed?

An individual is taxed on his chargeable income after deduction of personal reliefs. He will be taxed at scale rates starting from 0% (on the first RM2,500) to a maximum of 28% (on chargeable income exceeding RM250,000).

A non-resident individual will be taxed at a flat rate of 28% on his gross income without any relief.

Types of tax returns

Any taxpayer who has not been issued a tax return by March 31 must request for one from the IRB by April 14.

The income tax form must be completed and submitted to the IRB's Processing Unit in Pandan Indah, Kuala Lumpur. The types of income tax forms issued by the IRB are shown in the table.

Taxpayers who have previously submitted their tax returns via e-filing will no longer be issued tax returns.

Taxpayers who have received their tax returns but wish to submit their tax returns via e-filing can do so by logging in to the IRB's website (https://e.hasil.org.my) using the pin number printed on their income tax returns. An acknowledgment will be issued online automatically upon submission of the return.

For taxpayers who are filing their tax returns for the first time and wish to use the e-filing system, they can obtain their pin number as follows:

# Visit the nearest IRB office, or

# Call the IRB office and fax over a copy of their IC with their handphone number. The pin number will be sent via SMS.

Any person who fails to submit a return or notify the director general of his chargeability to tax will, on conviction, be liable to a fine of between RM200 and RM2,000 or imprisonment of up to six months or both.

How to settle tax liability?

Employees are subject to schedular tax deduction (STD) on their monthly remuneration based on an STD table. The STD will have to be remitted by the employer to the IRB by the 10th of the following month.

For taxpayers who received income other than employment income, the tax liability on that income will have to be settled by six bimonthly instalment payments starting from March the following year.

The IRB will issue a Notice of Instalment Payment (CP 500) stating the amount, due date and number of instalments.

Each instalment must be remitted to the IRB within 30 days from the due date. If the taxpayer is not agreeable to the instalment scheme, he can request for a variation by June 30.

Any balance of tax payable (i.e, total tax payable less STD and instalment payments) must be remitted to the IRB by April 30 (non-business cases) or June 30 (business cases).

Tax payments can be made:

# At the IRB payment counter in Jalan Duta, KL;

# By attaching the cheque to the tax return submitted; or

# Via selected commercial banks appointed by the IRB (the bank in slip must be retained as evidence of payment).

Penalties of up to 15% will be imposed for late payment.

http://biz.thestar.com.my/news/story.asp?f...26&sec=business



This post has been edited by jack2008: Mar 17 2008, 01:12 PM

How to compute your income tax

FOR illustration purpose, appended below are the computations showing the tax position of a taxpayer under two scenarios, i.e, under separate and joint assessment:

1. For business and rental income, these income should be reported net of expenses wholly and exclusively incurred in the production of the said income.
Lee Voon Siong

2. If entertainment expenses are incurred with the company's business, a claim for deduction can be made.

However, details such as persons entertained, purpose, matters discussed and the receipts must be available to support the claim when requested.

The amount deductible is restricted to the amount of entertainment allowance received.

3. Taxable dividend is normally received by taxpayer net of tax but for tax reporting, gross dividend must be declared.

The original dividend voucher must be retained to support the tax credit claim. If a loan is used to purchase the shares, the loan interest can be deducted against the gross dividend income.

4. Only donations to approved institutions are allowable. The approval is normally indicated on the donation receipts, which must be kept for verification.

5. For EPF and life insurance claim, a husband and wife can claim up to a maximum of RM6,000 each if they are separately assessed.

Under a joint assessment, the maximum allowed is RM6,000.

6. If a husband and wife are separately assessed, they are allowed to claim up to a maximum of RM5,000 each on medical expenses incurred on their parents.

The maximum amount claimable is restricted to RM5,000 under a joint assessment.

7. A tax rebate is given if the taxpayer's chargeable income does not exceed RM35,000.

If the tax rebate exceeds the actual tax payable, the amount of tax rebate deductible is restricted to the actual tax charged.

8. From the above tax computations, it can be noted that the total tax payable is substantially lower under a separate assessment.

However, depending on their circumstances, married couples are advised to do their computations before deciding whether it is more beneficial to be separately or jointly assessed.

In view of the deadline April 30 for non-business cases and June 30 for business cases, taxpayers are advised to submit their tax returns early to avoid the last minute rush.

Penalties will be imposed for late submission of tax returns.

http://biz.thestar.com.my/news/story.asp?f...76&sec=business