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Employment income- part 2 - Coggle Diagram
Employment income- part 2
Basis of assessment
Section 25(1)
Gross income from an employment is receivable in respect of any particular period
It shall, when received be treated as gross income of the relevant person for the relevant period
Section 25(2)-(5)
The provisions were deleted by the 2016 Budget effective from 2016
Section 25(6)
Any gross income from employment for the basis period or basis period following the basis year of departure, is deemed to be income of the basis year in which an individuals departs Malaysia where the DG is satisfied that
An employee has left or will be leaving Malaysia and will not be resident for the basis period or following the year of assessment
No pension derived from Malaysia will be receivable receivable by the employee for the basis period for that following year
Gross income from the employee's employment will cease to be derived from Malaysia on the expiration of a period of leave following the employee's departure
However, the employee can make a written request to the DG that section 25(6) shall not apply when making their return of income for the relevant year
Then the leave pay in 2020 shall be treated as income for year 2020 instead of 2019
Section 29(4)
Tax treatment of employment between relatives
Shall be deemed to be obtainable on demand
Persons one of whom has control over the other
Individuals who are relatives of each other, or
Persons both of whom are controlled by some other persons
Relatives means parent, child (including step and adopted), brother, sister, uncle, aunt, nephew, niece, cousin, ancestor and lineal descendent
Gross employment income first receivable to a person in the relevant period shall be deemed to be obtainable on demand in the following basis year and treated as gross income in the following basis period
Taxability of employment
Def
Having an employment
Where a person is not actively involved in the performance of duties such as non-service director of a controlled company
Exercising an employment
There are duties to be performed by an employee including duties to be performed outside Malaysia, for example an extension of the local employment
Taxable
Where an amount is for future services
Where an employee receive a reward from a person other than the employer, it can be taxable
For example
Taxi drivers and waiters receiving tips from customers for whom services are performed
Non-taxable
A sum of money is paid to an employee for passing an exam. Failure to pass the exam would not bar the employee from continuing their employment
Inducement payment, if
The payment was an inducement to take the risks involved (by withdrawing as a partner)
It is not a reward for future services
It is in respect of taking up the employment
Was not from having or exercising an employment
Signing on fee for the individual to give up their amateur status
Personal gifts and voluntary payments to employees where there was no provision in their employment contract such as payment on their retirement as an appreciation of their personal qualities and not their services
Pure gifts and testimonials received by employee from their employer or third party purely for personal appreciation or for specific personal reasons
This is because it is not related to having or exercising an employment
For example,
Wedding gifts, whether in the form of cash, jewellery or other items given
Cash given to employee for passing a professional examination with excellent results
Cash, other item or certificates of appreciation for having achieved some extraordinary feats. (an achievement requiring courage, skills and strength)
Cash, other item and certificates of appreciation given to a bank employee by employer or third parties for successfully foiling an attempted bank robbery
Perquisites from employment
Perquisites are taxable
13(a)
Benefits in cash or in kind that can be converted into money
Received from employer or third parties
In respect of having or exercising an employment
13(b)
Benefits that are not convertible into money provided for employees by or on behalf of employer
Perquisites are gross income which have the following characters
Can be received regularly or casually
If the benefits are in kind, the benefits can be converted into cash, which means they can be sold, assigned, transferred, converted into cash
If the perquisites are received from third party, the employee must declare such income in the Income Tax Form B or BE
Notwithstanding the above, a perquisite is subject to tax only if it arises in respect of having or exercising an employment
Calculation
Amount/ Market value of the perquisites - amount paid for the perquisites received (if any)= value chargeable to tax
Employee's pecuniary liabilities
Paid by the employer either voluntarily or in the contract of employment irrespective of whether the payment is
Made direct to the person who should receive the amount owning
Given to the employee so that the employee can settle their pecuniary liability
Given to the employee as a reimbursement
Example
Income tax
Treated as perquisite when the actual amount of tax for that year of assessment can be ascertained
Water, electricity, telephone bills
13(b)
The employer subscribes to these utilities
The bills are under the name of employer and not that of employee
The employee only enjoys the benefits when provided by the employer who subscribes for them
13(a)
If the utilities are under the employee's name, and
Pays the amount to the employee itself
Pays directly to the authorities concerned
Car insurance premium, road tax, car maintenance charges (personal liability of the employee)
Paid by the employer
Parking fees
Can be reduced if the employees make use of such amenities in the performance of their official duties, on condition that such duties can be substantiated with a cert by the employer
Credit card facilities
Used for entertaining the client
The annual membership fees of the credit card are not perquisites to the employee
Used also for private purchase and payments
The annual membership fees and all the payments and purchases are perquisites to the employee under 13(1)(a)
Loan interest
When the employer provide the loan to the employee for any of the following
Interest free loan
Loan where only part of the interest is borne by the employer
Interest charged is below the market rate
Primary factor that determines whether the receipt of such benefit is taxable on the employee
The source of funding for the loan
Loan given which arises from the internal funds of the company
No benefits is taxed on the employee even though the employee actually derives monetary benefit from the loan given to them since the employer did not bear any cost when the loan was given
Employer obtains the loan from third party to provide interest-free loan to the employee
Falls under 13(1)(a), the cost borne is the perquisites to the employee
Employer receives a preferential rate from the loan provider due to good credit standing
13(1)(a), Preferential rate= Market rate
Employer obtains the loan from a third party, the employee is required to pay only the nominal interest, while the balance of interest is paid by the employer
The amount of perquisites is the diff between the interest charged on the employer by the provider and the nominal interest paid by the employee
If the rate on loan given to employee is the same rate of the cost borne by the employer, then there is no perquisites to be taxed
This would only arise where
The funds for providing the loan facility originate from external funds
The rate of interest charged on the employee for the loan provided by the employer is lower than the rate of interest borne by the employer
Subsidies on interest on a loan obtained by an employee totaling up to RM300000 for housing, passenger motor vehicles and education is exempted
Recreational club membership
Individual membership
The membership is owned by the individual
The cost borne by the employer includes all the pecuniary liabilities of the employee
Falls under the 13(1)(a)
The entrance, monthly or annual membership subscription or term membership fees and other related reimbursements
Corporate membership
The membership is owned by the employer
When the employer pays for the employee the entrance fees and the monthly or annual subscription, the amount paid is not perquisites under 13(1)(a) to the employee as it is owned by the employer
Instead, it falls under 13(1)(b) as this benefits cannot be converted into money
Annual or monthly subscription
Tuition or school fees of a child
Payment or reimbursement to an employee, whether studying in or outside Malaysia, is a perquisites to the employee and is their gross income from employment 13(1)(a)
Reimbursement from an education refund plan, the reimbursement is not a benefit to the employee
This is because the education refund plan is a fund established by the employer to enable the employee of the company, upon successful completion of part time course or study at the cert of diploma, degree level, to claim expenses on
Registration fees
Course or tuition fees
Examination fees
The course of study undertaken must be for the purpose of enhancing the education and skills of the employee and is directly related to the performance of duties of the employee
Insurance premiums
Certain insurance premiums that are exempted and therefore not taxable
Insurance premiums that are obligatory for foreign workers as a replacement to SOCSO
Group insurance premiums to cover workers in the event of injury or accident
Under the Aviation Travel Insurance for travelling on official duty
Contributions by the employer on the health care management organisation for payment of the medical and treatment costs of employee
Gardener, driver, domestic help or guard
Section 13(1)(a)
Hired by employee
The amount of salary or reimbursement from employer
Section 13(1)(b)
Hired by employer, and the employee is entitled to get the benefits
Not taxable
If the driver is provided by the employer for the usage of the employees of the company in general
Scholarship
Any sums paid by way or in the nature of scholarship or other similar grant or allowance to an individual, whether or not in the connection with an employment of that individual, is exempted from income tax
However, the salary paid to an employee during the study leave period is taxable as income from employment
Waiver of loan or advance
It is payment for services performed after the employee has served the required time with the employer
It is taxable under 13(1)(a) for the basis period for the year of assessment in which the loan or advance is waived
Assets provided FOC or sold at discount
The diff between the market price and the amount paid by the employee (if any) falls under 13(1)(a). It is the gross income from employment
The discount is the perquisites because
The asset has money's worth and can be converted into money
The employee has ownership rights and can sell the car to third parties
Gift vouchers
Normally. gifts vouchers are not taxable in the hands of the employee unless
They are of a recurring nature
They are provided in the circumstances where the employee expects such gifts as their remuneration
The gifts vouchers can be used to buy goods from a particular shop
Gift of personal computers
The market value of the computers falls under 13(1)(a)
Excellent Public Service Award
Given to the staffs of public sector by Government
Must be treated as gross income under 13(1)(a)
There is an exemption of rm2000 on any award for long service (10 years) , past achievement or service excellent, whether in money or otherwise, the exemption is extended to awards related to
Innovation, productivity, efficiency
Professional subscriptions
Subscription to a professional body paid by employer on behalf of the employee will not be considered as perquisites if membership to that body is essential to the business of the employer in terms of enhancement of knowledge for the employee to facilitate them in carrying out their duties
If it cannot be proved that the membership is relevant to the business of the employer, then it is perquisites under 13(1)(a)
Relocation package
Transfer of employees from one place to another
The appointment or termination of an employee
Expenses cover transporting an employee and members of family and the household goods or possessions of the employee
It can be within Malaysia or outside
This benefit is not taxable since the employee is not gaining any benefits
Consumable business products of the employer
Either free or at partly discounted price
The value is exempted up to rm1000
Share option (excluded from this paper)
The amount assessable is the value of the share option granted
It is only assessable at the time the option is exercised by the employee
Either a or b
Where an employee is given a preferential right to acquire shares of the employer company which were offered for public sale at a preferential price, a taxable benefit shall accrue to the employee