Chapter 4 (b)employment income

ATXB 213 MALAYSIAN TAXATION I 1

CHAPTER 4 (b)

EMPLOYMENT INCOME- TYPES OF GROSS INCOME -


LEARNING OBJECTIVE

Introduction for types of gross employment income

Identify Section 13(1)(a),13(1)(b),13(1)(c),13(1)(d) and 13(1)(e)

To calculate the chargeable income


INTRODUCTION

TYPES OF GROSS EMPLOYMENT INCOME

MONETARY BENEFITS (S13(1)(a)

Wages, Salary, Bonus,

Allowances, Gratuity and

etc.

BENEFITS IN KIND (BIK)

S13(1)(b)

Company car, mobile phone,

furniture, interest subsidy

and etc.

VALUE OF UNFURNISHED ACCOMODATION S13(1)(c)

REFUND FROM UNAPPROVED

FUND S13(1)(d)COMPENSATION

FOR LOSS OF EMPLOYMENT

S13(1)(e)


SEC 13(1)(a)Any wages, salary, remuneration, leave pay,

fee, commission, bonus, gratuity, perquisite or allowance (whether in money or otherwise) in respect of having or exercising the employment. Payment need not be from the employer - Tips paid to waiter. Payments which are not in respect of taxpayers services to the

company are not taxable – e.g: Award given to a bank clerk for passing the Institute of Bankers Examination.

Payments to meet personal distress such as compensation for house damage is not taxable


Sec 13(1)(a) – Salary and Wages

Both items are taxed at gross.If EPF has been deducted, it should be added back

to bring back to gross amount.

Example:Mr. Sam received a net salary of RM6,800 per month after 11% EPF deduction.Gross salary: 6,800 x 100/89 = RM7,640/month


Sec 13(1)(a) - Bonus

Bonus is not defined in Act.Paid in addition to salary.May be contractual or non-contractual.Bonus is normally paid on recurring basis.


Sec 13(1)(a) - Allowances

Take the form of clothing, traveling and entertainment allowances.From YA 2009, a travel allowance of RM2,400 per

year would be exempted for travelling between home and work place.

These allowances are assessed in full amount.

In the case if the uniforms are provided to the employees, they are exempt from income tax.


Sec 13(1)(a) - Perquisite

Perquisites are benefits in cash or in kind which can be converted into money received by an employee from his employer or from third parties in respect of having or exercising an employment.

Perquisites are taxable under section 4(b) of the ITA as part of the gross income from employment under paragraph 13(1)(a) of the ITA.


Sec 13(1)(a) - Perquisite

Example:Settlement of employee’s pecuniary

obligations.Share option and share incentive

scheme Tips paid to the waiter (Example 12)


Sec 13(1)(a) - Share Option

This is a scheme that allows an employee an option to acquire shares in company (where the employee works) at a fixed price and with a right to exercise the option at some future dates.

If the employee was take up this option, he will be taxable on the income under section 13(1)(a).


Sec 13(1)(a) - Share Option

However it will backdated to the year that the option was granted.

The income is calculated by taking the excess of market price over the option price at the time the option was granted and not at the time the option was exercised.


Share Option - Example

On 1 February 2010, Mr. John received a ten-year non-transferable option to purchase 10,000 shares at RM6.00 each when the market value was RM8.00 per share. Mr. John exercised the option on 1 December 2012 when the share price rose to RM11.00 per share.


Share Option - Example

Discussion:

May refer to Example 15 & 16


Exempt Gratuity

Retirement due to ill health? (Para 25(1)(a)

Retirement on or after 55 or on reaching compulsory retirement age + 10 years with same employer? – Para

25(1)(b)

Retirement from government or public service? – Para

25A and 25B

Y

Y

Y

N

N

N

TAXABLEEXEMPT

Exempt Gratuity – Schedule 6


Sec 13(1)(a) - Gratuity

Lump sum payments. In respect of past services rendered by the

employee.Paid to employee upon resignation or

retirement from the employment after serving a long period of service as required by the employer.

Gratuity must be distinguished from gift.


Treatment of Gratuity

Total period of employment more than 5 yearThe gratuity is divided (spread back) equally

6 years when total period of employment commenced more than 5 years of last basis period.

Example: Mr. Sam received a gratuity amounting to RM150,000 on 31 Oct 2012. He had employed by Mesra Sdn. Bhd since 1 June 1999. Mr. Sam is 54 years of age on 31 Oct 2012.


Discussion

Answer:Total no. of years more than 5 years, thus gratuity spread over 6 years equally


Continue

Total period of employment is 5 years or lessGratuity is spread back over the actual no. of

years or months.

Example: By using the previous example, assuming Mr. Sam was employed by Intan Sdn. Bhd begin on 1 June 2009.

Therefore the gratuity will be divided with 3 years and 5 months.


Discussion

YA Amount of gratuity (RM)2012 150,000 x 10/41 (1/1 - 31/10/12)2011 150,000 x 12/41 (1/1 – 31/12/11)2010 150,000 x 12/41 (1/1 – 31/12/10)2009 150,000 x 7/41 (1/6 – 31/12/09)


Sec 13(1)(a) - Reimbursement

An expense burden that is of employer but it is initially borne by the employee and subsequent reimbursed by the employer is not taxable.

In other hand, where the employer reimburse the personal expenses of employee then these will be taxable benefit for the employee.


Sec 13(1)(a) - Reimbursement

For instances, if the employer settles the personal liabilities of the employee (i.e., reimburse him for the salary of a servant or gardener employed by the employee for his personal home) these would be assessable on the employees as gross income under sec 13(1)(a).


Reimbursement - Example

During year 2012, Ahmad was reimbursed the following expenses by his employer:

RM8,800 for salary of a servant employed by him for his personal home.

RM650 being cost of travel by taxi from place of work to client’s office.


Reimbursement - Example

Discussion:


Sec 13(1)(a) - Leave Pay

Leave pay is a cash item taxable under sec. 13(1)(a)

When a person receives leave pay, the amount will be assessable to tax either in year of departure or later depending on conditions provided under Sec. 25(6).


Sec 13(1)(b) Benefit in Kind

Gross income from an employment includes an amount equal to the value of the use or enjoyment by the employee of any benefit provided by the employer to employee.

BIK is a benefit not convertible into money even though it has monetary value.

Not convertible into money means that these benefits cannot be sold or exchange for cash.


Car and Petrol

Table shows the value of the private use of car and fuel provided.

Cost Of Car When New (RM)

Annual Value Of BIK (RM)

Fuel Per Annum

(RM)

Up to 50,000 1,200 600

50,001 - 75,000 2,400 900

75,001 - 100,000 3,600 1,200

100,001 - 150,000 5,000 1,500

150,001 - 200,000 7,000 1,800

200,001 - 250,000 9,000 2,100

250,001 - 350,000 15,000 2,400

350,001 - 500,000 21,250 2,700

500,001 and above 25,000 3,000


Example – Car with Fuel

Ahmad Fuad is a director of a company which provides him with a company car costing RM170,000. What is his gross income under section 13(1)(b)?

Discussion:As per the BIK Guidelines, his gross income under Section 13(1)(b) (using the prescribed value method) is as follows:(a) Car: RM7,000(b) Fuel: RM1,800


Example – Car provided more than 5 Years

Same as previous example but the car is 7 years old. What is his gross income under section 13(1)(b)?

As per the BIK Guidelines, his gross income under Section 13(1)(b) (using the prescribed value method) is as follows:(a) Car: RM3,500 (1/2 x RM7,000)(b) Fuel: RM1,800


Example – Car provided less than 12 Months

Same as previous example but the car is provided until September 2010. What is his gross income under section 13(1)(b)?

As per the BIK Guidelines (using the prescribed value method), his gross income under Section 13(1)(b) is as follows:(a) Car: RM2,625 (1/2 x RM7,000 x 9/12)(b) Fuel: RM1,350 (9/12 x RM1,800)


Example – No Private Use Attached to Car

Amir Rashid is a director of company SMD. He is allowed to make use of a company car (cost RM80,000) during office hours but is not allowed to drive it home. What is his gross income under section 13(1)(b)?

The benefit is exempted under the ITA 1967, as the benefit relates to the performance of his official duties.


Example – Car, Fuel and Driver

David is a director of company Car, fuel ABC. He is provided with a company car costing RM210,000 (cost when new) as well as a driver for his sole use. The driver is paid a salary of RM600 per month by the company. What is his gross income under section 13(1)(b)?

As per the BIK Guidelines, his gross income under Section 13(1)(b) is as follows:

(a) Car: RM9,000

(b) Fuel: RM2,100 (c) Driver: RM7,200


Example – Fuel without Car

David is a director of company ABC. He is not provided with a company car but the company provides fuel for both business and private use. The actual fuel expenses relating to the private usage is RM8,500 in year 2009. What is his gross income under section 13(1)(b)?


(a) Fuel: RM8,500


Furniture and Appliances

The value of household furnishings and appliances provided by an employer in connection with an accommodation also provided by him to employee is taxable as a benefit in kind.

The table below show the concessionary annual value of this BIK varies according the extent of furnishing provided.


Furniture and Appliances

Types Of BIKAnnual Value Of

BIK

(a)Semi-furnished with furniture in the lounge, dining room or bedrooms.

RM 840 (RM 70 per month)

(b)

Semi-furnished with furniture as above and one or more of the following:- air-conditioners, curtains and carpets.

RM 1,680 (RM 140 per month)

(c)

Fully-furnished with benefits as above plus one or more of the following:- kitchen equipment, crockery, utensils and appliances.

RM 3,360 (RM 280 per month)


Example – Fully Furnished

Farid is a director of company XYZ. He is provided with a fully furnished accommodation. The rental for the fully furnished accommodation is RM8,500 per month of which RM2,800 is for the furniture. What is his gross income under section 13(1)(b)?


(a) Furniture: 3,360


Example – Furniture Shared and used for Less Than 1 Year

As previous example but the house was provided from 1/4/12. Begin from 1/7/12, the house was shared with other employee. Compute the value of household furnishing and appliances for income tax purpose, accruing to Adnan.

1/4/ to 30/6/12 RM280/ per month x 3RM8401/7 to 31/12/12 RM280 x 6 x ½RM840

RM1,680


Other Benefit-in-kind

- Types Of BIK Annual Value Of BIK

(a)Mobile telephone (rental & charges)

RM 600

(b) Gardeners RM 3,600 [RM300/month]

(c) Domestic servants RM 4,800 [RM400/month]

(d)Subsidized loan/interest below the market value rate Subsidized loan interest paid by employer.

(e) Insurance premiumAnnual insurance premium paid by

employer.

(f) School / Tuition feesActual school / tuition fees paid by

employer.

(g)Corporate membership in recreation clubs

Monthly/annual membership fees paid by employer.


Exempt Benefit-in-kind

Act Medical or dental treatment for employee and immediate family

Benefit for child care

Leave passage [3 local + 1 overseas – max RM3,000 per family] for travel of employee and immediate family.

Benefits relating to official duties

IT(Exemption)(No. 56) Order 2000 1 PC per Employee (YA 2001 to YA 2003)

Income Tax Ruling 1997/2 Discounted goods and services

[Exclude houses sold to employees at discount]

Free food & drinks or subsidized

Free transportation

[Refers to transportation of workers to factory]


Example – Exempt BIK

Mr. Sam is provided the following benefits:(a) Air passage for him and his family as follows: Labuan- RM22,000, Pulau Tioman-RM3,800 and Pulau Redang- RM2,800. (b) Dental expenses for him and his family-RM4,500.(c) During the year, the 2nd child was hospitalized in London and had to undergo surgery to remove her appendicitis. The surgery and hospitalization costs amounting to RM22,000 were paid by the company.(d) Leave passage of RM8,500 for himself and his family to New Zealand.

What is his gross income under section 13(1)(b)?


Discussion


(a)


Sec 13(1)(c) – Living Accommodation

The value of any unfurnished living accommodation in Malaysia (including accommodation in premises occupied by the employer) provided by an employer to his employees must be included in sec 13(1)(c).

In the case that the living accommodation is fully furnished, the value of unfurnished accommodation must be computed by deducting the value of the furniture, equipment and appliances from the total value of accommodation.

The mechanics of the computation of living accommodation value is contained in sec 32(2) ITA.


Method of Calculating Assessable Benefits

If accommodation is provided by a company to an employee /service director, the value of unfurnished accommodation:Defined value of living accommodation OR30% of the employee’s gross income under sec 13(1)(a)

whichever lower.

If accommodation is provided by a company to an non-service director, the value of unfurnished accommodation:The full amount of defined value of accommodation


ContinueIf accommodation is provided in a hotel,

hostel, quarters in plantation or forest by a company to an employee /service director, the value of unfurnished accommodation: 3% of the employee’s gross income under

sec 13(1)(a)

If accommodation is provided in a hotel, by a company to non-service director, the value of unfurnished accommodation: The actual hotel bill


Example

Farah’s terms of employment (employee) provide for the following remuneration for the year ended 31 December 2012.

Salary RM60,000Reimbursement RM6,500Furnished accommodation (rent paid by employer with RM3,500 being for rental

of furniture) RM41,600

Compute the value of the accommodation benefit:


Sec 13(1)(d) – Receipts from Unapproved Pension and

Provident Funds

This section assesses tax on withdrawn sum of an employee from an unapproved provident funds.

The sum normally withdrawn at the time of retirement or resignation of such employee.


Sec 13(1)(d) – Receipts from Unapproved Pension and

Provident Funds

The assessable amount is restricted to employer’s contribution and interest accrued from the total sum.

The employee’s contribution to the unapproved fund is a capital contribution and no income tax levied when it is withdrawn.

When a withdrawal is made from government retirement scheme (EPF), the total sum is a capital receipt, hence not subject to tax.


Example

Kavita made contributions to an unapproved pension fund from 1.1.2011 to 31.3.2012. Her employer also made contributions to the fund in respect of Kavita for the same period. On retirement, Kavita received RM3,100, which constituted:

Employer’s contribution: RM1,500Employee contribution: RM1,500Interest portion: RM100


Example: Discussion

The amount that will be considered as gross income from employment is RM1,600, being the contribution made by the employer and the interest received.

May refer to Example 19


Any amount received by the employee whether before or after his employment ceases, by the way of compensation for loss of employment including any amount in respect of:A covenant entered into by employee restricting his right

after leaving the employment to engage in employment of a similar kind;

Any agreement or arrangement having the like effect.

Refer Example 20

Sec 13(1)(e) – Compensation for Loss Employment


Non-Service Director of Controlled Company

Ill-Health Others

100% Exemptio

n

RM6,000 per year of

completed service

NIL Exemptio

n

Loss of Office Due To

Y

N

Exemption for Sec 13(1)(e)


Allowable Expenses Traveling expenses -- incurred on discharging the

employee’s duties. Entertainment expenses – entertainment of customers and

restricted to entertainment allowance. Professional subscriptions -- required in the profession. Clubs subscription that is required in the performance of

duties. Technical journals and magazines – required to discharge

duties.


Disallowable Expenses

Cost of traveling from home to place of work since it is to put in a position to produce income and not incurred in the production of income.

A payment to employment agencies because it is to obtain an employment without which you cannot be producing employment income.

The cost of acquiring qualifications such as MIT, ACCA, MBA and etc is not allowable because it is an initial cost without which the employment cannot be obtained.


Disallowable Expenses

The cost of training courses for maintaining technical efficiency may be allowable if the employment duties cannot be performed without incurring the particular expense.

Private expenditure is not an admissible deduction. Thus costs which would be incurred anyway irrespective of whether there is an employment or not would not rank for a deduction.

ATXB213 MALAYSIAN TAXATION I 54

THANK YOU

Q & A

Business

Chapter 4 (b)employment income