CHAPTER 3: EMPLOYMENT INCOME ROZANA BINTI CHE BIDI SUHAILI BINTI YUSOF COMPILATION OF MALAYSIAN TAXATION – SMART REVISION MODULE
1 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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. CHAPTER 3: EMPLOYMENT INCOME
2 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 A Profession is related to one’s skill and qualification earned through higher education or specialized training. For example, individual who have a firm of accountants, lawyers, architect, engineers, doctors or other professions registered in Malaysia. 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
3 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 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.
4 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 Example 1: Mr. Malik received a net salary of RM 96,800 per annum after 12% EPF deduction in year of assessment 2022. 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 2022 RM 12,000 Accounting year ends on 30 April 2023 RM 16,000 Calculate a bonus assessable to tax for the year of assessment 2022. Answer: (1/1/2022 – 30/4/2022) = RM 12,000 x 4/12 = RM4,000 (1/5/2022 – 31/12/2022) = 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.
5 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 ❖ 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
6 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 ❖ 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 58, retiredfrom her job with Keeny Bhd. on 31 December 2022. He has workedwith Keeny Bhd. since 12 years ago. For the whole year 2022, he received the following income: Salary per month RM 3,000 Leave pay (1/11/2022 – 31/12/2022) RM 6,000 Gratuity RM 90,000 Commission RM 6,000 Bonus: Accounting year ends on 31 March 2022 RM 12,000 Accounting year ends on 31 March 2023 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 2022. 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.
7 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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. The Director General is satisfied that retirement was due to ill health. ii. The 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 employment which has lasted 10 years with the same employer or with companies in the same group. iii. The retirement takes place on reaching the compulsory age of retirement pursuant to of contract of employment or collective agreement at the age of 50 but before 55 and the employment has lasted for 10 years with the same employer or with companies in the same group. iv. Gratuity paid out of public funds: Gratuity paid to an employee out of public funds on his retirement from an employment under any written law. v. Gratuity paid to a contract officer: Gratuity paid out of public funds to a contract officer on termination of a contract of employment regardless of whether the contract is renewed or not. vi. 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 2017 and left the company on 31 July 2022,the following income received until 31 July 2022. Salary RM 85,000 Gratuity RM 155,000 Compute the gross income from employment of Mr. Romeo for the YA 2022.
8 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 Answer: Section 13(1) (a) RM Salary 85,000 Gratuity [155,000 – (1,000 x 5)] 150,000 Gross income 235,000 Exercise 2 Mr. Fattah, age 58, retired from her job with FFF Bhd. on 31 July 2022. He has worked withTERS Bhd. since 1 January 2014. For the whole year 2022, he received the following income: Salary per month (1/1/2022 – 31/5/2022) RM 7,000 Leave pay (1/6/2022 – 31/7/2022) RM 14,000 Gratuity RM 75,000 Calculate Mr. Fattah’s gross income from employment for the year of assessment 2022. 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 2020. On 31 October 2021 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 2022 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
9 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 (when new) RM Annual value of private usage of car (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 *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 / Domestic help Max RM 400 per month. Gardener max RM 300 per month
10 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 treatment and childcare benefits These benefits are fully exempted on the employee. The benefits enjoyed not only by the employee but also by the employee’s immediate family. Medical benefits exempted include the expenses on maternity, traditional 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 provided free of charge Fully Exempt Free Transportation between pick-up points or home and the place of work (Fully Exempted) Household furniture and appliance i. RM 70 per month – Semi furnished with furniture in the 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).
11 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 Telephone, Mobile Phone, Pager, Personal Digital Assistant (PDA) And Subscription of Broadband Benefits and monthly bills for fixed line: i. Benefits received by an employee in the form of fixed line telephone, mobile phone, pager or PDA registered under the employer’s name is fully exempted from tax. The amount to be exempted includes registration cost and 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 Membership subscription paid by employer will be subjected to income tax. Entrance fee or membership a fee is not subject to income tax. Monthly membership subscription fees are 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). * Exemptions are not extended to directors of controlled companies, sole proprietors and partnerships. Exercise 3 Mr. Morgan received the following income for the whole year 2022: RM Salary 74,200 Bonus Accounting year ends on 30 Jun 2022 2,600 Accounting year ends on 30 Jun 2023 3,200 Entertainment allowance 1,800 Leave passages: Sabah 800
12 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 Kenyir 700 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 2022. 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:
13 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 i. Rent. 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 2022. 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 2022. 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 Exercise 4 Miss Shaeryl received the following income for the whole year 2022: RM Salary per month 1,650 Bonus 3,250 Entertainment allowance 1,200 Leave passages: Johor Bharu 500 Pangkor Island 550
14 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 2022. Exercise 5 Mr. Kerk has worked with Nilam Puri Bhd. since 1 July 2013 with salary RM 3,000 per month. On 1 January 2022, 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 2022 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 2022. 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 2016. He contributed to unapproved retirement fund set up by the company since 2010. On 31 October 2022, he left the employment at the age of 50. On that date, he withdrawal all money from the unapproved fund, which comprise of the following:
15 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 2022 under section 13(1)(d). Answer: RM Sec. 13(1)(d) Withdrawal of money from unapproved fund: Amount contributed by the employer 80,000 Amount of interest earned 6,500 86,500 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 10,000 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 10,000 × COMPLETED YEARS OF SERVICE) An employee who is given an option Voluntary Separation Scheme (VSS) for early termination of an employment contract will grant an exemption of RM 10,000 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 2022, he was paid a compensation which amounted to RM 120,000. He commenced employment with Star Shinning Center Sdn. Bhd. on 1st June 2016. Calculate the amount of compensation taxable on him for the Year of Assessment 2022.
16 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 Answer: Section 13(1)(e) Compensation received RM 120,000 (-) Exemption (RM 10,000 × 6 years) (60,000) 60,000 Example 8 Mr. Aziz, a Malaysian resident (aged 48) had been employed by a Malaysian company since 1 January 2010 as a retail manager. However, his service was terminated by the company on 31 October 2022 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 2022. Answer: Section 13(1)(e) Compensation RM 110,000 (-) Exemption (RM 10,000 × 12 years) (120,000) NIL . 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).
17 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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) 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) xx Medical, dental (exempt) - Childcare benefits (exempt) - xx Section 13(1)(c) Living Accommodation: 30% x Section 13(1)(a) = xx @ take the lower Defined value = xx xx AND If Hotel: 3% x Section 13(1)(a) xx xx Section 13(1)(d) Withdrawal of money from unapproved fund: Employer’s portion xx Interest, bonus xx xx Section 13(1)(e) Compensation for loss of employment (less exemption) xx 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
18 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 2022 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 2022. 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 2022. 6. The company provided him an unfurnished house from 1 April 2022 to 31December 2022. 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 2022.
19 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 2022 Section 13(1)(a): RM RM Salary 156,000 Entertainment allowance 40,000 Bonus Childcare allowance (exempted) 26,00 0 - Driver (reimbursement) 4,800 226,800 Section 13(1)(b): Servant (400 x 8) 3,200 Car 15,000 Petrol 2,400 20,600
20 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 Section 13(1)(c): Hotel: 3% x RM 226,800 x 3/12 = 1,701 1,701 House: 30% x RM 226,800 = 68,040 @ Define value = RM 5,000 x 12 = 60,000 The lower: RM 60,000 x 9/12 = RM 45,000 45,000 46,701 Gross income 294,101 (-) Allowable expenses: Entertainment expenses (40,000) Adjusted Income 254,101
21 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 PRACTICAL EXERCISE QUESTION 1 Mr. Fazreen was resident in Malaysia in the basis year 2022. He served with Geege Bhd. since1 January 2010. Incomes of Mr. Fazreen period as 31 December 2022 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 2022. Required: Recognize the sources of income and exemption from income tax and calculate adjustedincome of Mr. Fazreen for the year of assessment 2022. (Including exemptions)
22 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 2022. On her retirement day, she received RM 89,000 as gratuity. She had worked with Syarikat Kemajuan Sdn. Bhd. since 1 January 2010. 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 2022 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 2022, 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 bythe company RM 600 per month. 2/3 of the car benefit is for personal use. She received the following leave passage benefits for year 2022: 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 2017 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 2022, 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 2022.
23 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 QUESTION 3 Mr. Azman (born in 1971) was a sales manager with a company in Kuala Lumpur. He wasemployed by the company on 1st January 2012 and retired on 31st December 2022. Details of his income received in the basis year 2022 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 2022. 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 2013 until 31st December 2022. 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 2020 to 31 st December 2022, a car was provided by the employer. The cost of the car was RM 60,000 and was purchased in March 2017. Free petrol RM900 alsoprovided. 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: Medan, Indonesia (RM) Tioman Island(RM) Air ticket 3,800 2,400 Food and lodging 4,000 - Withdrawal from unapproved fund: Employee’s contribution RM 45,000 Employer’s contribution RM 35,000 Interest received from unapproved fund RM 8,000 Required: Compute the Statutory Income for Mr. Azman for the year of assessment 2022.
24 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 QUESTION 4 Mdm. Danisha was resident in Malaysia in the basis year 2022. She served with Makcom Sdn.Bhd. since 1 January 2010. Incomes of Mdm. Danisha period as 31 December 2022 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 2022. Required: As tax assistant, you are asked to decide the adjusted income Mdm. Danisha for the year ofassessment 2022 (including exemptions).
25 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 2011 and retired on 31 October 2022. Details of his income received in basis year 2022 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 2022. 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 2022.
26 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 QUESTION 6 Mr. Muralli, a sales manager was transferred from Penang to Ipoh on 1 January 2022. 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 2022 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 2022.
27 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 QUESTION 7 Mr. Zubir was a sales manager with a company in Shah Alam. He was employed by the company on 1 January 2013 and retired on 31 December 2022. Details of his income receivedin basis year 2022 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 2022)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 2014 until 31 October 2022. 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 2022.
28 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 QUESTION 8 Mr. Arfan is a managing director in audit department of established private company in KualaLumpur. His income for the year 2022 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 2022. QUESTION 9 Mr. Romzi was resident for the basis year 2022. He has been working as a project manager since 1.5.2013. On 31.12.2022 (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) Entertainment allowance (monthly) RM 3,300 RM 600 Bonus RM 6,600 Medical Bills paid by the company RM 2,400 Gardener provided by the employer (monthly)Cost of leave passages paid by the employer: RM 400 To Europe RM 4,800 To Pulau Tioman RM 500
29 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 31.10.2022 and he was required to pay RM 200 per month. For the period 1.11.2022 to 31.12.2022 he was provided with accommodation in hotel. All expenses were paid by the employer/company: Hotel room RM 7,000 Food at the hotel RM3000 Taxi fare from hotel to office RM1000 b) On 1.6.2022, 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 1.9.2022 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 31.10.2022. d) He claimed RM 8,000 for the entertainment allowance with receipts. e) Starting from 1.9.2022, 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 2022.
30 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 QUESTION 10 Mr. Lee started working as a manager at Lavender Bhd. on 1st July 2011. On 31st December 2022, he resigned voluntarily from the company underwent a reorganization scheme. He wasborn in December, 1973. 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 2022 were as follows: a) Salary RM 6,000 per month (gross). b) Bonus equivalent to three months’ salary received in July 2022. 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 2012 at a cost of RM 80,000. Mr. Lee used the car until 31st October 2022. 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 2022. The monthly rent of RM 2,000 (including furniture RM 300) was paid by the company. ii. From 1st November 2022 to 31st December 2022, 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 2022, 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 2022 when the market price was RM 8.00 per share.
31 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022 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 2022 to MIA for his professional membership fees. Required: Compute the Statutory Income from Employment for Mr. Lee for the year of assessment 2022.
32 | P a g e CHAPTER 3: EMPLOYMENT INCOME YEAR ASSESSMENT 2022