CHAPTER 3: EMPLOYMENT INCOME YA 2021

CHAPTER 3: EMPLOYMENT INCOME

ROZANA BINTI CHE BIDI COMPILATION OF MALAYSIAN
SUHAILI BINTI YUSOF TAXATION – SMART REVISION MODULE

CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

CHAPTER 3: EMPLOYMENT INCOME

INTRODUCTION: NATURE OF AN EMPLOYMENT

The classes of income regarding section 4 income Tax Act (ITA) 1967 are taxable as
follows:

Section 4(a): Gains or Profits from Business
Section 4(b): Gains and Profit from Employment
Section 4(c): Dividends, Interests and Discounts
Section 4(d): Rents, Royalties and Premiums
Section 4(e): Pensions, Annuities or Other Periodical Payments
Section 4(f): Gains and Profits Exclude Section 4(a) – (e)

DEFINE EMPLOYMENT, EMPLOYER AND EMPLOYEE

Employment income means income that is derived or earned from exercising an
employment.

Section 2 of ITA 1967 defined ‘employment’ as:
- when there is a relationship of a master and a servant;
- When there is an appointment of office, whether public or not and whether or not
that relationship between master and servant subsists, as a result of which a
remuneration is payable.

‘Employee’ in relation to an employment, means:

- where the relationship of a master and a servant subsist, the servant;
- Where the relationship does not subsist, the holder of the appointment or office

which constitutes the employment.

‘Employer’ in relation to an employment, means:

- where the relationship of a master and a servant subsist, the master;
- Where the relationship does not subsist, the person who pays or is responsible

for paying any remuneration to employee who has the employment.

DIFFERENCES BETWEEN EMPLOYMENT AND PROFESSION

An employment generally involves the appointment to an office which is usually
maintained for some time and which ends with a resignation, retirement, termination or
the death of the employee. There is relationship between a master and servant to the
employer and employee.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

A Profession is related to one’s skill and qualification earned through higher education or
specialized training.

Difference between employment income and profession:

a) Employment income is assessable under section 4(b) while business income is
assessable under section 4(a) of ITA 1967.

b) Employment income is assessed by reference to the calendar year while business
income is assessed based on financial year.

c) Profession is given more flexible deductions for expenses compared to employment
income, provided these expenses are within scope ‘wholly and exclusively’ incurred in
the production of income.

d) Profession is eligible for deduction of capital allowance but not for employment
income because only profession has qualifying expenditure on certain assets.

e) Tax payer of employment income can deduct Monthly Tax Deduction (MTD), while
for profession can be required to pay income tax on a six bi-monthly basis.

BASIS OF ASSESSMENT AND DERIVATION OF EMPLOYMENT INCOME

Section 20 of the ITA 1967 states that the basis year is the calendar year. Hence, it can
be concluded that for an individual earning employment income, his income will be
assessed according to the calendar year i.e. 01 January until 31 December

Employment income is regarded as derived from Malaysia and subject to Malaysian tax
where the employee:

❖ Exercises an employment in Malaysia
❖ Is on paid leave which is attributable to the exercise of an employment in

Malaysia Perform duties outside Malaysia which are incidental to the
exercise of an employment in Malaysia
❖ Is a director of a company resident in Malaysia
❖ Is employed to work on board an aircraft or ship operated by a person
who isresident in Malaysia

Exemption on employment income (not applicable to a director of a company)
An employment income of a NON-RESIDENT individual is exempted from tax if his
employment is (Para 21, Schedule 6 of the ITA 1967):

i. For a period or periods which together do not exceed 60 days in the basis
year forayear of assessment; or

ii. For a continuous period (not exceeding 60 days) which overlaps the basis
years for two consecutive year of assessment; or

iii. For a continuous period not exceeding 60 days) which overlaps the basis
years fortwo consecutive year of assessment and for a period or periods
which together with that continuous period do not exceed 60 days

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

GROSS INCOME FROM EMPLOYMENT UNDER SECTION 13, ITA 1967

Types of gross employment income

SECTION 13(1)(a) Monetary Benefit/ Cash Remuneration

Such as Wages, Salary, Remuneration, Bonus, Allowances,
Gratuity, Perquisites, Leave Pay, Commission, Share Option

SECTION 13(1)(b) Benefits in Kind

Such as Company Car, Mobile Phone, Furniture, Interest
Subsidy and Etc.

SECTION 13(1)(c) Value of Unfurnished Accommodation.

SECTION 13(1)(d) Refund from Unapproved Fund.

SECTION 13(1)(e) Compensation for Loss Of Employment.

SECTION 13(1)(a) – Monetary Benefit/ Cash Remuneration

Gross income of an employee in respect of gains or profits from employment includes:
any wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisites
or allowance (whether in money or otherwise) in respect of having or exercising the
employment.

The following items would not constitute employment income:

➢ Reward or gift for personal qualities. Examples, passing an examination, marriage
etc.

➢ Payment to meet personal distress. Examples, compensation for house damage
or car accident

a) Salary, wages and Remuneration
❖ Salary or remuneration refers to fixed payment which paid on weekly or
monthly basis.

❖ Wages are usually paid on hourly, daily or productivity basis.
❖ Both items are taxed at gross income. If EPF has been deducted it

should be added back to bring back to gross.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Example 1:

Mr. Malik received a net salary of RM 96,800 per annum after 12% EPF deduction
in year of assessment 2021. Calculate his gross salary which will be taxed under
section 13(1) (a).

Answer:

Gross salary = Net salary / [100% - 12%]

= RM96,800 / 88%

= RM 110,000

b) Leave Pay
❖ Leave Pay refers to the salary, wages or remuneration that is paid when
an employeeis on leave. It is an annual leave encashment of employee
based on the unused leave.

c) Bonus
❖ Main purpose why bonus is paid to employees is to serve as an incentive
for better services and loyalty to the employer in the long term.

Example 2:

Mr. Dani received a bonus in the accounting year as below:

Accounting year ends on 30 April 2021 RM 12,000

Accounting year ends on 30 April 2022 RM 16,000

Calculate a bonus assessable to tax for the year of assessment 2021.

Answer:
(1/1/2021 – 30/4/2021) = RM 12,000 x 4/12 = RM4,000
(1/5/2021 – 31/12/2021) = RM 16,500 x 8/12 = RM11,000
RM15,000

d) Allowances/ Perquisites
❖ Perquisites is benefit in cash or in kind that are convertible into money
received by an employee from the employer or third parties in respect of
having or exercising the employment.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

❖ All allowance paid by employer to the employee will be assessed on gross
amount. Example of allowance such as entertainment, traveling, clothing,
housing, tuition etc. Allowance must be paid in cash.

❖ Exemptions are not extended to directors of controlled companies, sole

proprietorsand partnerships.

1. Travelling allowances, petrol card/allowances or toll rate received by
an employee for travelling in exercising an employment is exempted up
to an amount of RM 6,000per annum*. The employee can make further
deduction in computing his employmentincome on the amount spent for
official duties.

2. Childcare subsides/ allowances received by an employee or paid
directly by the employer to the child care centre is exempted from tax up
to an amount of RM 2,400per annum*. Child refers to legimate child of
the age of 12 years and below.

3. Entertainment allowance are assessing in full. If the employee is required
by the employer to spend them in performing his duties, these expenses
would then be allowed as deductions in arriving at his adjusted or statutory
income from employment

4. Clothing allowance is assessed in full. However, if uniforms are provided,
they are exempted from income tax.

5. Meal allowance received by an employee on a regular basis, for example
on a daily ormonthly basis, given at the same rate to all employees is fully
exempted from tax*.

6. Parking fees or parking allowances received by an employee is fully
exempted from tax*. This exemption includes parking rate paid by the
employer directly to the parking operator.

❖ With effect from year of assessment 2008, perquisite provided to

employee pursuant to his employment, whether in money or otherwise,

is exempted from tax up to maximum amount or value of RM 2,000

per annum * in respect of:

a. Past achievement award;
b. Service excellence award, innovation award or productivity award; or
c. Long service award provided that the employee has exercised an

employment for more than 10 years with the same employer.

❖ The following allowances of CIVIL SERVANT (Government servant)
are exempted fromincome tax:
a. Entertainment Allowance
b. Public Service Allowance
c. Housing Allowance
d. Cost of Living Allowance (COLA)
e. Regional allowance

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

❖ Credit card facilities provided by the employer to his employee for
performing his duties is not considered as perquisite. But any amount paid
by the employer to settle the privatepurchases and payments are considered
as perquisite under section 13(1)(a).

❖ Individual Membership for recreational club of the entrance, monthly or
annual membership, and subscription of term membership fees paid by
the employer is considered as perquisite.

❖ Tuition or school fees of employee’s children, study in or outside Malaysia
which are paid or reimbursed by the employer is also considered as
perquisite.

❖ Insurance premiums are paid by the employer for an insurance scheme
and the beneficiaries are the employee, his family or his nominee, the
amount of annual insurance premium is considered as perquisite.

❖ Gift of personal computers received from employers also considered as
perquisites.

Exercise 1:

Mr. Henry, age 57, retired from her job with Keeny Bhd. on 31 December 2021. He
has worked with Keeny Bhd. since 12 years ago. For the whole year 2021, he
received the following income:

Salary per month RM 3,000
Leave pay (1/11/2021 – 31/12/2021) RM 6,000

Gratuity RM 90,000

Commission RM 6,000

Bonus:

Accounting year ends on 31 March 2021 RM 12,000

Accounting year ends on 31 March 2022 RM15,000
Entertainment allowance RM 2,400

Travelling allowance (official duties) RM 3,600

Calculate Mr. Henry’s gross income from employment for the year of assessment
2021.

e) Gratuity

Gratuity refers to “a sum of money” given to the employee in recognition of past
year services. Sometimes it is called as golden-handshake or ex-gratia payment.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Gratuity was paid to the employee upon resignation or retirement from the
employment after serving for a long period with a company or group of companies
under common control. It not treated as a gift because a gift is in recognition of
personal qualities of the employee and not for the services rendered. Gratuity is
taxable but a gift is not taxable.

The following gratuity is fully exempted from tax:

i. Retirement was due to ill health.
ii. Retirement takes place on or after reaching the age of 55, or on reaching the

compulsory age of retirement from employment specified under any written
law, and in either case from an employment which has lasted 10 years with
the same employer or with companies in the same group.
iii. Compulsory age of retirement under a contract of employment at the
age of 50but before 55 and after working in the same company for more
than 10 years.
iv. Retirement from an employment or terminated of contract of employment for
Government employee.
v. Death gratuity - sums received by way of death gratuity.

Effective From YA 2016, gratuity exemption of RM 1,000 per completed
year isgiven if an individual does not qualify for fully exemption. The
amount of gratuityafter exemption shall be taxed in the period received.

Section 13(1) (a) RM
Gratuity XX
(-) Exemption (RM 1,000 x number of completed year of service) (X)
XX
Example 3 ===

Mr. Romeo who joined GFS Sdn. Bhd. on 1 January 2016 and left the company on
31 July 2021,the following income received until 31 July 2021.

Salary RM 85,000

Gratuity RM 155,000

Compute the gross income from employment of Mr. Romeo for the YA 2021.

Answer: RM
85,000
Section 13(1) (a)
Salary 150,000
Gratuity [155,000 – (1,000 x 5)] 235,000

Gross income

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Exercise 2

Mr. Fattah, age 58, retired from her job with FFF Bhd. on 31 July 2021. He has
worked withTERS Bhd. since 1 January 2013. For the whole year 2021, he
received the following income:

Salary per month (1/1/2021 – 31/5/2021) RM 7,000

Leave pay (1/6/2021 – 31/7/2021) RM 14,000

Gratuity RM 75,000

Calculate Mr. Fattah’s gross income from employment for the year of assessment
2021

f) Share Option

This is a scheme that allows an employee an option to acquire shares in a company
(where the employee works) at a fixed price and with a right to exercise the option at some
future dates. The income is calculated by taking the excess of the market price over the
option price at the time the option was granted (offered), not at the time the option was
exercised. Tax payer is taxed only when the option is being exercised.

TAXABLE SHARE OPTION = UNIT EXERCISE X (MARKET PRICE
OFFERED – PAR VALUE)

Example 4

Mr. Ghadd has worked with Super Best Bhd since 1 July 2019. On 31 October 2020 he
was offered an option to purchase 40,000 shares at RM 2.50 per share. On that date the
market price of the shares was RM 6.30 per share.

He exercised the option on 31 October 2021 when the market price of the shares was
RM 7.80 each.

Compute the value of income in the form of share option exercised by Mr. Ghadd.

Answer:
Share option = Unit Exercise X (Market Price Offered – Par Value)
= 40,000 × (6.30 – 2.50)

= RM 152,000

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

SECTION 13(1)(b) – BENEFIT IN KIND (BIK) OR AMENITY (CAR, DRIVER,
GARDENER, DOMESTIC SERVANT, MOBILE PHONE, UTILITIES, HOUSEHOLD
FURNITURE & APPLIANCES)

An amount equal to the value of the use or enjoyment by the employee of any benefit or
amenity (not convertible into money) provided for the employee by or on behalf of his
employer. The benefit or amenity for personal purposes only and cannot convert into cash.
It also called as benefit in kind.

Type of benefit or amenity:

Car, Fuel Refer IRB guidelines: Public Ruling 3/2013.

VALUE OF MOTOR VEHICLE BENEFITS

Cost of car Annual Fuel per
(when new) value of Annum (RM)
private
RM usage of car 600
900
Up to 50,000 (RM) 1,200
50,001 – 75,000 1,200

75,001 – 2,400
100,000 3,600
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
25,000 3,000
above

*A car of more than 5 years, the annual value of BIK
(prescribed value) would be reducedby half. The value of
fuel remains unchanged.

Driver Max RM 600 per month.

Domestic servant / Max RM 400 per month.
Domestic help

Gardener max RM 300 per month

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Guard Max RM 400 per month.

BUT if a driver, domestic servant, gardener and security guard is hired by employee
and paid by employer or the employer allows the employee to claim for
reimbursement of their salaries, the amount of the salaries paid (reimbursed) is
considered as perquisite under Section 13(1)(a).

Leave passages This benefit is exempt from tax:

i. 3 leave passages for travel within Malaysia (including
of fares, meals and accommodation);

ii. 1 leave passage for travel within outside Malaysia
max RM3000 (cost of fares only)

The exemption of this benefit is only applicable if it is
provided to the employeeand members of his immediate
family.

Medical, dental These benefits are fully exempted on the employee.
The benefits enjoyed not only by the employee but also
treatment and by the employee’s immediate family. Medical benefits
exempted include the expenses on maternity, traditional
childcare benefits medicine such as ayurvedic and acupuncture without
limit but not included complimentary medicine and
homeopathy. But Homeopathy treatment which are
certified or registered under Majlis Pertubuhan
Homeopathy Malaysia qualifies for the fully exemption.

Food and drinks Fully Exempt
provided free of
charge

Free Transportation between pick-up points or home and the place of work

(Fully Exempted)

Household furniture i. RM 70 per month – Semi furnished with furniture in the

and appliance lounge, dining rooms or bed-rooms.
ii. RM 140 per month – Semi furnished with furniture as in

(i) above plus, one or more of the following items; air

conditioners, curtains & carpets.
iii. RM 280 per month – Fully furnished with benefits in (i)

and (ii) above plus, one or more of kitchen equipment,

crockery, utensils and appliances.

Utilities Where service charge and utility bills such as water,
electricity and telephone bills under employer’s name and

are paid by the employer, the amount of benefit is based

on service charges and bills paid by the employer. But if

reimbursement, it is taxable under Section 13(1)(a).

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Telephone, Mobile Benefits and monthly bills for fixed line:

Phone, Pager, i. Benefits received by an employee in the form of fixed line

Personal Digital telephone, mobile phone, pager or PDA registered under
Assistant (PDA) And the employer’s name is fully exempted from tax. The

Subscription Of amount to be exempted includes registration cost and

Broadband installation cost. The exemption given is limited to one

unit for each asset.

ii. A monthly bill paid by the employer for fixed line

telephone, mobile phone, pager, PDA or subscription of

broadband is fully exempted from tax. The amount to be

exempted includes registration cost and installation cost.

iii.Exemptions are not extended to directors of controlled

companies, soleproprietors and partnerships.

Corporate Club Membership subscription paid by employer will be
Membership subjected to income tax. Entrance fee or membership a
fee is not subject to income tax. Monthly membership
subscription fees is a BIK under section 13(1)(b) and
is not a perquisite under section 13(1)(a) as this benefit is
not convertible into money even though there is money’s
worth.

If more than one recreation club’s fee is being paid by
the employer, only the highest monthly subscription
will be exempted and others are taxable as benefits
under section 13(1)(b).

Exercise 3

Mr. Morgan received the following income for the whole year 2021:

RM

Salary 74,200

Bonus

Accounting year ends on 30 Jun 2021 2,600

Accounting year ends on 30 Jun 2022 3,200

Entertainment allowance 1,800

Leave passages:

Sabah 800

Kenyir 700

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Langkawi Island 500

Kelantan 600

Krabi 1,800

Mr. Morgan was provided with a car by the employer of RM 9,000 and a driver’s salary
RM 600 per month. It was agreed by the IRB that 1/3 of the time the car, driver and
entertainment allowance were used for personal purposes.

Calculate the statutory income from employment of Mr. Morgan for the year of assessment
2021.

SECTION 13(1)(c) – VALUE OF UNFURNISHE LIVING ACCOMMODATION

An amount in respect of the use or enjoyment by the employee of living accommodation
in Malaysia (including living accommodation in premises occupied by his employer)
provided for the employee by or on behalf of the employer rent free or otherwise.

Calculations of unfurnished living accommodation are as follow:

a) To an employee or service director:
30% x Section 13(1) (a)

Or take the lower

Defined value

b) To non-service director (Director)
= Defined value (no comparison)

c) Hotel, hostel, quarters, house located in a plantation or forest
= 3% x Section 13(1) (a)

Apportionment of value of accommodation is applied when:

i. The accommodation is being shared with another employee.
ii. The accommodation is larger than is needed by the employee.
iii. The accommodation provided is less than 12 calendar months.
iv. Part of the accommodation provided is used to advance the company’s interest

(e.g. as meeting place, office).

The following expenses paid by the employee in respect of living accommodation
provided by the employer are allows to deduction:

i. Rent.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

ii. Any public rates or insurance premium.
iii. Expenses on repair or maintenance of premises.

Example 5

Qeesha is a M&E supervisor in manufacturing company operates in Penang and earned
the following remuneration for the year ended 31 December 2021.

Salary RM 75,000

Bonus RM 15,000

Entertainment allowance RM 4,000

Travelling allowance RM 3,500

During the year, he was provided with unfurnished accommodation. The rent paid by the
employer was RM 18,300 for the year.

Calculate the statutory income from employment of Qeesha for the year of assessment
2021.

Answer:

Section 13) (1) (a)

Salary RM75,000

Bonus RM15,000

Entertainment allowance RM 4,000

Travelling allowance (exempted to RM 6,000) -__ _____

RM94,000

Section 13) (1) (c)

Living accommodation:

30% × 94,000 = 28,200

Or

Define value = 18,300 18,300

Gross income from employment 112,300

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Exercise 4

Miss Shaeryl received the following income for the whole year 2021:

RM

Salary per month 1,650

Bonus 3,250

Entertainment allowance 1,200

Leave passages:

Johor Bharu 500

Pangkor Island 550

Kuala Lumpur 650

Terengganu 450

Vietnam 3,500

Sydney 2,400

Miss Shaeryl was provided with a car by the employer of RM 7,000 and a driver’s salary
RM600 per month. It was agreed by the IRB that 1/4 of the time the car and driver were
used for personal purposes. A fully furnished house was provided which has a defined
value of RM 36,000 per annum (including RM 3,360 value of furniture).

Calculate the statutory income from employment of Miss Shaeryl for the year of
assessment 2021.

Exercise 5

Mr. Kerk has worked with Nilam Puri Bhd. since 1 July 2012 with salary RM 3,000 per
month. On 1 January 2021, he was provided with a fully-furnished house which has a
defined value of RM 1,000 per month including RM 280 per month value of furniture.

Calculate the statutory income from employment of Mr. Kerk for the year of assessment
2021 if:

a) Mr. Kerk was required to share the house with another employee of the company.
b) Mr. Kerk was required by his employer to convert one of the rooms (altogether there

are 5 rooms) to be used as an office.
c) Mr. Kerk has worked as a director.
d) Mr. Kerk was provided with accommodation at the Holiday Inn, Subang Jaya.
e) A fully furnished house was provided commencing from 1 April 2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

SECTION 13(1)(d) – WITHDRAWAL OF MONEY FROM UNAPPROVED FUND.

Withdrawal of money from unapproved fund, scheme or society, and any interest earned
or bonus earned by such unapproved fund, scheme or society will be taxable. The amount
assessable to tax will be the amount contributed by the employer (employer’s portion)
plus interest or bonus earned on contributions.

Example 6

Mr. Remy has been working as an engineer since 2015. He contributed to unapproved
retirement fund set up by the company since 2009. On 31 October 2021, he left the
employment at the age of 49. On that date, he withdrawal all money from the unapproved
fund, which comprise of the following:

Amount contributed by Mr. Remy RM 40,000

Amount contributed by the employer RM 80,000

Amount of interest earned RM 6,500

Calculate the amount assessable on Mr. Remy for the year of assessment 2021 under
section 13(1)(d).

Answer: RM

Sec. 13(1)(d) 80,000
Withdrawal of money from unapproved fund: 6,500
86,500
Amount contributed by the employer
Amount of interest earned

SECTION 13(1)(e) – COMPENSATION FOR LOSS OF EMPLOYMENT

Any amount received by the employee, whether before or after his employment ceased,
by the way of compensation for loss of employment.

Exemption on compensation for loss of employment:

a) An exemption is given if individual received compensation for loss of employment due
to ill health and the Director General of IRB is satisfied.

b) An exemption of RM 20,000 is given for each completed years of service with same
employer in respect of an individual who ceased employment on or after 1 July 2008.
Prior to that date, the exemption sum was RM 6,000.

(EXEMPTION = RM 20,000 × COMPLETED YEARS OF SERVICE)

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

An employee who is given an option Voluntary Separation Scheme (VSS) for early
termination of an employment contract will grant an exemption of RM 20,000 for each
complete year of service with the same employer.

Example 7

Mr. Chandra, age 50, was retrenched as a lecturer from Star Shinning Center Sdn. Bhd.
On the retirement date 31 October 2021, he was paid a compensation which amounted
to RM 120,000. He commenced employment with Star Shinning Center Sdn. Bhd. on 1st
June 2015. Calculate the amount of compensation taxable on him for the Year of
Assessment 2021.

Answer:

Section 13(1)(e)

Compensation received RM 100,000

(-) Exemption (RM 10,000 × 6 years) (120,000)

NIL_____

Example 8

Mr. Aziz, a Malaysian resident (aged 48) had been employed by a Malaysian company
since 1 January 2009 as a retail manager. However, his service was terminated by the
company on 31 October 2021 due to non-performance. Upon his termination, he received
a compensation of RM 110,000.

Calculate the amount of compensation taxable on him for the Year of Assessment 2021.

Answer:
Section 13(1)(e)

Compensation RM 110,000
(-) Exemption (RM 20,000 × 12 years) (110,000)
NIL .

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

ALLOWABLE EXPENSES

Expenses incurred in respect of the employment such as:

➢ Travelling expenses
➢ 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 journal and magazines – required to discharge duties.
➢ Nominal rent – rental paid by employee for the accommodation providedby the

employer.

After determine and compute the allowable expenses, then we can calculate adjusted/
statutory employment income (Gross Employment Income – Allowable Expenses)

Any income of section 13(1)(a) used for official duties can be deducted at allowable
expenses BUT income of section 13(1)(b) used for official duties can be deducted
at the own section, section 13(1)(b).

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

FORMAT CALCULATION OF GROSS, ADJUSTED AND STATUTORY INCOME FROM
EMPLOYMENT

Section 13(1)(a) RM RM
Salary (gross) xx
Bonus xx
Gratuity (fully exempted @ less exemption) xx
Allowances xx
Leave pay xx
Credit card (private purchases) xx
Individual Club Membership xx xx

Section 13 (1)(b) xx
Furniture xx
Car, fuel (refer guidelines) xx
Driver (max RM 600 per month) xx
Domestic servant (max RM 400 per month) xx
Gardener (max RM 300 per month) xx
Leave Passage (less exemption) -
Medical, dental (exempt) - xx
Childcare benefits (exempt)

Section 13(1)(c)
Living Accommodation:
30% x Section 13(1)(a) = xx

@ take the lower

Defined value = xx xx
xx xx
AND

If Hotel:

3% x Section 13(1)(a)

Section 13(1)(d) xx
Withdrawal of money from unapproved fund: xx xx
Employer’s portion

Interest, bonus

Section 13(1)(e) xx
Compensation for loss of employment (less exemption)
GROSS EMPLOYMENT INCOME XXX

(-) ALLOWABLE EXPENSES:

Rental (paid by taxpayer) xx
Subscriptions to professional bodies’ xx

Allowances (for employment) xx (xxx)

ADJUSTED/ STATUTORY EMPLOYMENT INCOME XXX

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Example 8

(a) List down the following :
i. THREE (3) types of employment income under section 13(1)(a)
Income TaxAct 1967.
ii. THREE (3) tax exempted benefit in kind.
iii. FOUR (4) exempted gratuity

(b) Mr. Saidi, a Malaysian resident, has a contract of employment with SBS Sdn.
Bhd. Hisincomes for the year 2021 are as follows:

Salary RM156,000
Entertainment allowance RM40,000
Bonus RM26,000

Additional information:

1. Reimbursement of salary in respect of a driver employed by him
amounted toRM 4,800.

2. A domestic servant for Mr. Saidi was employed by SBS Sdn. Bhd. At a
monthlysalary of RM 950 commencing 1 May 2021.

3. The childcare allowance for his daughter amounted RM 2,000.
4. The company provided him a new car which cost RM 300,000,

including thepetrol.
5. Hotel room charges of RM 18,000 from 1 January to 31 March 2021.
6. The company provided him an unfurnished house from 1 April 2021

to 31December 2021. The company paid the rental at RM 5,000
per month.
7. He incurred entertainment expenses of RM 40,000 in carrying out of his
officialduties.

Required:
Compute the adjusted employment income of Mr. Saidi for the year of assessment
2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Answer:
(a) i. Any THREE types of employment income under section 13(1)(a) as below:
1. Salary
2. Wages
3. Bonus
4. Allowance
5. Gratuity
6. Perquisite
7. Leave pay
8. Share option

ii. Any THREE tax exempted BIK as below:
1. Medical, dental treatment and
2. Childcare benefits
3. Food and drinks
4. Free transportation
5. Telephone (including mobile telephone), telephone bills, pager,
personaldata assistant (PDA) and broadband subscription:

(limited to ONE unit for each asset)

iii. Any FOUR exempted gratuity as below:
1. Due to ill health.
2. After reaching the age of 55, or on reaching the compulsory age of
retirement from employment specified under any written law, and has
lasted 10 years withthe same employer or with companies in the same
group.
3. Compulsory age of retirement under a contract of employment at the age
of 50but before 55 and after working in the same company for more than
10 years.
4. Government employee.
5. Death gratuity

(b) Adjusted income of Mr. Saidi for the YA 2020 RM RM

Section 13(1)(a): 156,000 226,800
Salary 40,000
Entertainment allowance 26,00
Bonus
Childcare allowance (exempted) 0
-
Driver (reimbursement) 4,800

Section 13(1)(b): 3,200 20,600
Servant (400 x 8) 20 | P a g e
Car 15,000
Petrol 2,400

CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

Section 13(1)(c): 1,701
Hotel:
3% x RM 226,800 x 3/12 = 1,701 45,000 46,701
294,101
House:
30% x RM 226,800 = 68,040 (40,000)
254,101
@
Define value = RM 5,000 x 12 = 60,000

The lower: RM 60,000 x 9/12 = RM
45,000

Gross income

(-) Allowable expenses:
Entertainment expenses

Adjusted Income

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

PRACTICAL EXERCISE

QUESTION 1

Mr. Fazreen was resident in Malaysia in the basis year 2021. He served with Geege

Bhd. since1 January 2009. Incomes of Mr. Fazreen period as 31 December 2021

were as follows:

RM

Salary 5,900 per month

Gratuity 60,000

Gardener 300 per month
Bonus 2 months’ salary

Medical benefit 250 per month

Entertainment allowance 400 per month

Holiday airline ticket:

Paris 8,600

Kapas Island 1,800

Perhentian Island 2,400

Langkawi Island 2,000

Additional information:

a. Mr. Fazreen was provided with a car by the employer of RM 7,000 and a
driver’s salary RM600 per month. It was agreed by the IRB that 2/3 of the
time the car, driver and entertainment allowance were used for personal
purposes.

b. Mr. Fazreen place of residence is a fully furnished bungalow provided by
her employer. Monthly rental bungalow paid by the employer is RM 3,500
per month(include furniture RM 280 per month).

c. Mr. Fazreen also paid the nominal rent for RM 1,000 per month to the
employerplace of residence that has been prepared.

d. Mr. Fazreen retired on 31 December 2021.

Required:
Recognize the sources of income and exemption from income tax and calculate
adjustedincome of Mr. Fazreen for the year of assessment 2021. (Including
exemptions

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

QUESTION 2

Miss Hafizan is a Singapore citizen but a resident in Malaysia for almost 25 years. Her
aged is56, and she retired from her job as a senior officer at Syarikat Kemajuan Sdn.
Bhd. on 31 October 2021. On her retirement day, she received RM 89,000 as gratuity.
She had worked with Syarikat Kemajuan Sdn. Bhd. since 1 January 2009.

Miss Hafizan received a net salary RM 8,633 per month after 11% of EPF deduction.
She also received bonus of RM 16,000 for 2021 and entertainment allowance of RM
900 per month. However, she used 1/3 of the entertainment allowance in performing
her official duties.

Throughout the year 2021, she was provided with a new car which was purchase by
her employer for RM 220,000 together with free petrol. The annual value of benefit in
respect of the car is RM 9,000 and petrol RM 2,100. She also provided with a driver,
which salary paid by the company RM 600 per month. 2/3 of the car benefit is for
personal use.

She received the following leave passage benefits for year

2020: Bali RM 2,500

Beijing R3,900

Tioman Island RM 900

Kelantan RM2,000

Pangkor Island RM 700

Miss Hafizan was also provided with a fully furnished house situated in Pasir Gudang,
Johor since 2016 with a define value of RM 4,000 per month (including furniture RM 300
per month).She also required paying rent of RM 900 per month to her employer. The
company provided a domestic servant and a gardener, paid salary of RM 550 and RM
400 respectively.

Miss Hafizan had been contributing to an unapproved retirement fund set up by the
company.She withdrew all the money from the unapproved fund on October 2021,
which comprises the following:

Amount contributed by her RM 60,000

Amount contributed by the employerRM90,000

Amount of interest earned RM 9,750

Required:
Compute the Statutory Income for Miss Hafizan for the year of assessment 2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

QUESTION 3

Mr. Azman (born in 1970) was a sales manager with a company in Kuala Lumpur.
He wasemployed by the company on 1st January 2011 and retired on 31st December

2021.

Details of his income received in the basis year 2021 are as

follows:Salary RM 9,000 per month

Sales commission RM 22,000 per
annum Bonus RM 13,500

Entertainment allowance RM 2,000 per month.

He claimed that all the allowances had been spent on entertaining the
company’s

clients.

Gratuity RM 80,000 received in December
2021.

Gardener’s salary RM 400 per month paid by the

company.The service of the gardener was shared with

another employee.

A fully furnished house was provided by the company for the period from 1st January
2012 until 31st December 2021. The monthly rental paid by the company was RM 3,000
(including RM400 per month for the furniture). Mr. Azman was required to pay RM 350
per month to the company, as rental towards the accommodation provided.

For the period 1st January 2019 to 31st December 2021, a car was provided by the

employer. The cost of the car was RM 60,000 and was purchased in March 2016. Free

petrol RM900 also provided. Mr. Azman employed a domestic servant at a monthly
salary of RM 400 per month, paid out of the servant’s allowance of RM 600 per month
that he received from the company. Medical expenses paid by the company for his

family was RM 6,000.

The company incurred the following expenses for Mr. Azman’s holidays:

Air ticket Medan, Indonesia Tioman Island(RM)
Food and lodging (RM)
2,400
3,800 -
4,000

Withdrawal from unapproved fund: RM 45,000
Employee’s contribution RM 35,000
Employer’s contribution
RM 8,000
Interest received from unapproved fund

Required:
Compute the Statutory Income for Mr. Azman for the year of assessment 2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

QUESTION 4
Mdm. Danisha was resident in Malaysia in the basis year 2021. She served with
Makcom Sdn. Bhd. since 1 January 2009. Incomes of Mdm. Danisha period as 31
December 2021 were as follows:

RM

Salary 4,400 per month

Gratuity 60,000

Domestic servant 400 per month

Gardener 300 per month

Driver 600 per month

Bonus 4,500

Dental treatment allowance 50 per month

Person and family medical benefit 250 per month

Entertainment allowance 400 per month

Holiday airline ticket:

Bangkok 6,600

Langkawi Island 1,020

Perhentian Island 1,400

Tioman Island 1,350

Note:
(i) Employer has prepared and pay wages domestic servant, gardener and

driver.

(ii) Has been agreed with Inland Revenue Board (IRB) that entertainment
allowance to official business until RM 3,000.

Additional information:
(a) Mdm. Danisha place of residence is a fully furnished bungalow provided by

her employer. Monthly rental bungalow in pay by the employer as many as
RM 3,500per month (include furniture RM 280 per month).

(b) Mdm. Danisha also produces deep fund provident fund (not
approved):-RM 57,600 fund employer
RM 25,700 employee stock

(c) Mdm. Danisha has contributed as many as RM 700 for membership fee in
connection with his terms of reference as accountant company.

(d) Mdm. Danisha also already pay the rent nominal as many as RM 1,000 per
month to the employer place of residence that has been prepared.

(e) Mdm. Danisha was retired at 31 December 2021.

Required:
As tax assistant, you are asked to decide the adjusted income Mdm. Danisha for the
year ofassessment 2021 (including exemptions).

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

QUESTION 5

Mr. Lim was the general manager with a company in Perai, Penang. He was provided
with accommodation by the company. He was appointed by the company on 1 January
2010 and retired on 31 October 2021. Details of his income received in basis year 2021
were as follows:

Gross salary RM 62,000

Bonus RM 6,200

Travelling allowance RM1,200 per
month

Entertainment allowance RM 1,800 per month

Gratuity RM 60,000

Additional information:

i. Mr. Lim used RM 8,500 of the entertainment allowance in performing his official

duties.

ii. A fully furnished house was provided by the company for the period from 1 June

2019 until 31 October 2021. The monthly rental paid by the company was RM 2,800

(including RM 280 per month for furniture). Mr. Lim was required to pay RM 550 per

month to the company as rental towards the accommodation provided.

iii. Medical benefit was provided by the company amounted RM 8,000.

iv. Holiday airline ticket paid by the

employer:Korea RM 8,500

Indonesia RM 2,800

Sabah RM 1,600

v. The company provided a domestic servant and a gardener, paid salary of RM

400 permonth and RM 350 per month respectively.

vi. Withdrawal of money by Mr. Lim from unapproved fund:

Employee’s contribution RM 30,500

Employer’s contribution RM 28,000

Interest RM 8,300

Required:
Compute the Statutory Income for Mr. Lim for the year of assessment 2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

QUESTION 6

Mr. Muralli, a sales manager was transferred from Penang to Ipoh on 1 January 2021.
Duringthe first month in Ipoh, he was provided with accommodation in Heritage Hotel
and for the next eleven months, a bungalow rented by the company. His remuneration
in 2021 was as follows:

RM

Gross salary 90,000

Allowances 18,000

Employer’s contributions to an unapproved provident fund 8,530

Hotel accommodation (paid by employer) 7,500 per month

Rental of bungalow (fully furnished) 2,200 per month

The rental which related to the furnishing in the bungalow was RM 420 per month,
which isfully furnished.

Required:
a) Compute assessable benefit for Mr. Muralli in respect of:

i. Hotel accommodation
ii. The rented bungalows
b) Compute the Statutory Income for Mr. Muralli for the year of assessment 2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

QUESTION 7

Mr. Zubir was a sales manager with a company in Shah Alam. He was employed by
the company on 1 January 2012 and retired on 31 December 2021. Details of his
income receivedin basis year 2021 were as follows:

Salary RM 6,000 per month

Commission RM 10,000 per annum

Bonus RM 12,000 (for the year ended 30 September

2021)Entertainment allowance RM 5,000

Gratuity RM 80,000

Gardener RM 300 per month paid by the company (the
service ofthe gardener was shared with another
employee)

Additional information:

i. A fully furnished house was provided by the company for the period from 1
January 2013 until 31 October 2021. The monthly rental paid by the company
was RM 3,000 (including RM 280 per month for furniture). Mr. Zubir was required
to pay RM 350 permonth to the company as rental towards the accommodation
(fully furnished house) provided.

ii. Medical expenses paid by the company for his family amounted RM 6,000.
iii. He claims RM 6,000 of entertainment allowance that had been spent on

entertaining
the company’s clients.

iv. A car RM 2,400 per month and driver RM 600 per month was provided by his

employer.It was agreed by the IRB that 1/3 of the time the car and driver were

used for personalpurposes.

v. Cost of leave passages paid by the

employer:

Canada RM 4,500

Langkawi RM 2,000

Penang RM 1,800

vi. Withdrawal from unapproved fund:

Employee’s contribution RM 40,000

Employer’s contribution RM 30,000

Required:
Compute the Statutory Income for Mr. Zubir for the year of assessment 2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

QUESTION 8

Mr. Arfan is a managing director in audit department of established private company in
KualaLumpur. His income for the year 2021 is as follows:

Salary RM 8,000 per month

Bonus RM 50,000

Travelling allowance RM 20,000 (formal occasion)

Vacation fare to Hong Kong RM 5,000

Entertainment allowance RM 1,250 per month (work
occasion)Domestic servant RM 600 per month

Medical bill paid by employer RM 1,200

Additional information:

i. Mr. Arfan had given by his employer the free tickets to Switzerland for his
parent andhimself amounted RM 5,850.

ii. As an appreciation, his employer gives a new car valued RM 5,000 and petrol
RM 1,500.
¼ of this benefit used for personal.

iii. He also received child care benefit amounted RM 3,000 per year.
iv. His employer also gives him the personal membership card from Kelab

Kiara valuedRM 25,000 per annum.
v. He drawn his EPF’s contribution (not approve scheme) amounted RM 25,000.
vi. He also paid to MIA fee amounted RM 500 per year.

Required:
Compute the Adjusted Income for Mr. Arfan for the year of assessment 2021.

QUESTION 9

Mr. Romzi was resident for the basis year 2021. He has been working as a project
manager since 1.5.2012. On 31.12.2021 (55 years) his service was terminated due to
the restructure ofthe company. He received RM 56,000 as gratuity and RM 63,000 as
compensation for the lossof employment.

Other payments and benefits received by Mr. Romzi were as follows:

Salary (monthly) RM 3,300

Entertainment allowance (monthly) RM 600

Bonus RM 6,600

Medical Bills paid by the company RM 2,400

Gardener provided by the employer RM 400

(monthly)Cost of leave passages paid by

the employer:

To Europe RM 4,800

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

To Pulau Tioman RM 500

To Sarawak RM 1,200

A car provided by the employer (yearly benefit) RM 3,600

Accommodation provided by the employer (defined value) RM 24,000

Additional notes:

a) For the house provided by company, Mr. Romzi just stayed until 31.10.2021

and he was required to pay RM 200 per month. For the period 1.11.2021 to

31.12.2021 he was provided with accommodation in hotel. All expenses were

paid by the employer/company:

Hotel room RM 7,000

Food at the hotel RM

3,000Taxi fare from hotel to officeRM

1,000

b) On 1.6.2021, Mr. Romzi was offered an option to purchase 4,000 shares at RM
1.50 per share (the market price was RM 3.00 per share). He accepted the
option and purchased 4,000 shares on 1.9.2021 and on this date the market
price of the shares increased was RM 5.00 per share.

c) Servant was not provided by the company. Mr. Romzi employed a domestic
servant for a salary of RM 500 per month. The company agreed to pay half of
the amount and the servant just worked there until 31.10.2021.

d) He claimed RM 8,000 for the entertainment allowance with receipts.

e) Starting from 1.9.2021, he was provided a gardener by his employer. The
service of the gardener was shared with another employee.

f) A car was provided by the employer, 1/3 was used for personal purposes.

Required:
Calculate the statutory income from employment for Mr. Romzi for the year of
Assessment 2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

QUESTION 10

Mr. Lee started working as a manager at Lavender Bhd. on 1st July 2010. On 31st
December 2021, he resigned voluntarily from the company underwent a reorganization
scheme. He wasborn in December, 1972. He was paid gratuity of RM 50,000 and a
compensation for loss of employment amounting to RM 40,000, on the day of
resignation.

Other payments and benefits received by Mr. Lee from Lavender Bhd. in 2021 were as
follows:

a) Salary RM 6,000 per month (gross).
b) Bonus equivalent to three months’ salary received in July 2021.
c) Medical bills RM 4,000 (for his wife) paid by company.
d) Entertainment allowance RM 2,000 per month.

e) Cost of leave passages paid by the employer:
i. to Taiwan RM 2,800
ii. to Thailand RM 1,700
iii. to Sabah RM 1,200
iv. to Pulau Langkawi RM 900

f) A car was provided by the employer. The car was purchased in 2011 at a cost
of RM 80,000. Mr. Lee used the car until 31st October 2021. One-third (1/3) was

related to office use. The value of petrol was RM 1,200.

g) Accommodation:

i. A fully furnished house was provided from 2008 until 31st October 2021.

The monthly rent of RM 2,000 (including furniture RM 300) was paid by

the company.

ii. From 1st November 2021 to 31st December 2021, Mr. Lee was stay in a

hotel where the following expenses were reimbursed by the employer:

Hotel room RM 5,600

Food at the hotel RM 2,100

Laundry RM 600

Additional notes:

a) On 15th February 2021, Lavender Ltd. offered Mr. Lee the option to purchase
10,000 shares at RM 3.00 per share although the current price was RM5.00 per
share. Mr. Leeaccepted the option and purchased 5,000 shares on 1st July 2021
when the market price was RM 8.00 per share.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

b) For the house provided by company, Mr. Lee was required to pay RM 350 per
month.

c) Of the entertainment allowance received, Mr. Lee actually spent RM 18,000 in
2021 to entertaining the company’s clients.

d) He paid RM 750 in December 2021 to MIA for his professional membership
fees.

Required:
Compute the Statutory Income from Employment for Mr. Lee for the year of assessment
2021.

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CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2020

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