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Masters of Financial PlanningTaxation Planning
EMPLOYMENT INCOME
By: Associate Professor Dr. GholamReza Zandi
Employment
Gains or profits from employment are taxable under
sec 4(b) ITA.
“Employment” means :
a) employment in which the relationship of master and
servant subsists; or
b) any appointment/office, whether public or not and
whether or not that relationship subsists, for which
remuneration is payable.
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Employment (cont’d)
“Employee” means:
a) where the relationship of master and servant subsists,
the servant; or
b) where that relationship does not subsist, the holder of
the appointment or office which constitutes employment.
Case: Trustee of Estate of Y v CIT .
3
Sec 13(1)(a)
Sec. 13 (1) – Gross income of an employee in respect of gains or profits
from an employment includes
(a) Any wages, salary, remuneration, leave pay, commission,
bonus, gratuity, perquisite or allowance (whether in money or
otherwise) in respect of having or exercising the employment.
A perquisite is a benefit in cash or in kind that is convertible
into money received by an employee from the employer or
third parties in respect of having or exercising the employment
Para 15(1)(a) Sch 6: Compensation for loss of employment are
completely tax exempt if employment ceased due to ill health.
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Sec 13(1)(a) (cont’d)
Para 15(1)(b) Sch 6: If payment is for loss of employment or for
entering into a restrictive covenant, then a sum of RM10,000
multiplied by the employee’s number of years of service with that
employer is tax exempt.
Gratuity is a gift of money in addition to salary to a retiring/ resigning
employee for services rendered. Taxable.
The manner in which it is paid does not alter the nature of the
gratuity
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Sec 13(1)(a) (cont’d)
Case law: DGIR v Leong Ngoh Sang
A ‘ retirement gratuity ’ is exempt from tax under Sch 6 provided it is
due to ill health [Para 25(1)(a)] or he is 50 years and above and has
been employed by the same employer for at least 10 years [Para 25(1)
(b)].
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Sec 13(1)(b)
a. Sec 13(1)(b) – Employment income includes the value of the
use or enjoyment by the employee of any benefit or amenity
provided for the employee by or on behalf of the employer.
b. Note: Income taxed under Sec. 13(1)(b) include:
Car benefit (private use)
Fuel
Furnishing
Driver/ Gardener/Maid
Utilities/Bills
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Benefit in Kind
• A benefit in kind is a benefit provided for the employee by or on
behalf of the employer which is not convertible into money.
• Benefit in kind (BIK) is valued in one of the 3 following ways:
Where scale rates are provided by the IRB in the IRB Guidelines for
valuation of benefits in kind provided to employees.
Where special valuation rules are provided by the ITA’67
such as Sec. 32: Value is the cost to employer on just and
reasonable basis.
Where not covered by (i) or (ii), value on money’s worth basis if
convertible to money (i.e. its market value) or otherwise,
what it costs the employer to provide it to the employee. 8
Exempt Benefits
Exempt BIKs : Sec. 13(1)(b)
Medical, dental treatment and childcare benefits provided by
employer.
Medical benefits extended to include maternity and traditional
medicine.
Leave passage within Malaysia not exceeding 3 times per
annum or one overseas leave passage p.a. up to a maximum of
RM3,000 for employee and immediate family members.
Petrol/travel allowance for official duties up to RM6,000.
Allowance/subsidy for childcare up to RM2,400 p.a.
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Sec 13(1)(c)
Accommodation [sec 13(1)(c)]
Sec. 13(1)(c ) – Employment income includes an amount in respect
of the use / enjoyment by the employee of living accommodation in
Malaysia provided for the employee by or on behalf of the employer
rent free or otherwise subsidized.
2 Categories
Sec. 32(3): Non Service Directors of a Controlled company.
Sec. 32(2): Other Employees.
Public Ruling No. 3/2005 explains the tax treatment of value of living
accommodation .
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Sec 13(1)(c) (cont’d)
• Defined Value means (sec 18):
i. the rent on the unfurnished accommodation if it is rented leased from an independent lessor dealing at arm’s length (provided not under rent control); or
ii. in any other case, the annual value or in its absence the ‘economic rent’.
iii. Other Employees
Section 32(2): Assessable value of living accommodation provided for an employee is
(a) the defined value of the accommodation OR 30% of the gross employment income from the employment falling within sec 13(1)(a), whichever is LOWER; OR
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Sections 13(1)(c), (d), (e)
(b) 3% of the gross employment income within Sec. 13(1)(a) if the
living accommodation is a hostel, hotel or any premises on a
plantation and forest.
• Section 13 (1)(d): Receipts from unapproved provident funds
• Section 13(1)(e): Compensation from loss of employment. But
exemptions are given for each completed year of service.
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Deductions from Employment Income
Deduction of expenses from gross employment income is governed
by:
i. Section 33 [Deductions in general] ;
ii. Expenses only deductible if incurred in production of
employment income, i.e. must be ‘incurred in the performance of
employment duties’. Example: fees paid to professional bodies.
iii. Sec 38 – [Deductions against benefits in kind on furnishing and
living expenses]; and
iv. Sec 38 A – [Deduction for entertainment expense]
Deduction for entertainment expenses so long as they are taxed on
the entertainment allowance under sec 13(1)(a). 13