This first of a three-part ACCA’s Easy Guide to Tax Filing for Employees looks at additional goodies for taxpayers
IT’S tax season again! Employees are required to submit their tax return Form BE for year of assessment (YA) 2008 on or before April 30, where the income assessed is in relation to the basis period of Jan 1 to Dec 31, 2008.
This time around, taxpayers get to enjoy additional tax goodies as part of the Government’s effort to cushion the impact of the economic downturn and higher cost of living on Malaysians.
Specifically, the Government announced via the Budget 2009 proposal and the second stimulus package on March 10, 2009, the following tax benefits for employees, which will take effect in YA2008. These benefits will help reduce taxable income and, consequently, the amount of tax payable.
Compensation for loss of employment
The tax burden is eased for retrenched employees as well as those who opt for voluntary separation schemes.
Employees who are retrenched on or after July 1, 2008 will be granted an income tax exemption of RM10,000 for each completed year of service with the employer or companies in the same group. This also applies to payments for employees who opted for voluntary separation schemes.
A is a salesperson working in Star New Enterprise from April 1, 2006. Due to the economic downturn in 2009, A was retrenched on Nov 1, 2008 and was paid compensation of RM25,000 for loss of employment. The amount to be taxed in YA2008 will be:
1.4.2006 – 31.3.2007
1.4.2007 – 31.3.2008
(2 completed years of service)
X RM10,000 RM20,000
If the retrenchment was before July 1, 2008, then the amount exempted for each year of service will be RM6,000.
Tax-exempt employee benefits — allowances
The following tax benefits provided to employees from Jan 1, 2008 to Dec 31, 2008 will be tax deductible against business income for employers AND exempted from tax on employees. These benefits are also available for YA2009.
(a) Petrol card/petrol allowance/travel allowance
An employer providing petrol cards, petrol allowance or travelling allowance to employees to travel from home to workplace or office will be allowed up to RM2,400 a year.
(b) Meal allowance for working overtime, travelling outstation.
(c) Parking allowance.
(For (b) and (c), the allowance must be reasonable and justifiable depending on the nature of work and position of employee.)
(d) Medical treatment for employees, spouses and children to include traditional medicine such as ayurvedic treatment and acupuncture.
(e) Interest subsidies on housing, car and education. The total loan amount is restricted to RM300,000.
(f) Childcare allowance up to RM2,400 a year.
(g) Employers’ products or services which can be provided free or at a discount which must not exceed RM1,000 a year.
Employers involved in the manufacture of food and car accessories may consider providing the products to employees to reduce their cost of living in the current economic slowdown.
These allowances need to be disclosed in the Form EA as tax-exempt benefits although they are not taxable on employees.
Official duties – travelling allowance
When employers provide petrol cards, petrol allowance or travelling allowance to salaried personnel, such as reporters and other employees, to carry out official duties, this form of allowance is taxable on the employee and must be reflected in their respective EA Forms.
Employees must keep a record of the actual expenses incurred in relation to official duties and set off the amount incurred against the allowance received. This is an added burden and responsibility on the employee. The records have to be kept for a period of seven years.
Employees may end up paying additional tax under the self-assessment system if they report the employment income as per the EA Form without deducting the actual travelling expenses incurred while on official duty to carry out the employers’ business.
In the Budget 2009 announcement, the Government said petrol cards, petrol allowance, travelling allowance and toll cards for official duties up to RM6,000 a year will be tax-exempt.
This means that the employer will exclude RM6,000 a year from the taxable income of employees as reported in the EA Form. However, the employer needs to disclose this RM6,000 as a tax-exempt benefit in the EA Form.
Employees receiving travelling allowances not exceeding RM6,000 a year will no longer be required to keep the required receipts to substantiate their claims.
This incentive applies from YA2008.
However, if the employer provides, for official duties, petrol card, petrol allowance, travelling allowance and toll card exceeding RM6,000 a year, the employer is required to report in Form EA in two sections:
(a) Tax exempt benefits: RM6,000
(b) Part of taxable employment income – salary, bonus, entertainment allowance – and the petrol/travelling/toll amount in excess of RM6,000
In this case, the employee is now required to keep all receipts to substantiate her claims.
Ming Hui has marketed agricultural products for Duck Rich Sdn Bhd since 2007. She receives a travelling allowance of RM14,000 per year.
For the year ended Dec 31, 2008, the company will provide Ming Hui with Form EA disclosing taxable income of RM8,000 as part of employment income and a tax-exempt benefit of RM6,000.
Ming Hui incurred RM9,000 for travelling expenses to carry out official duties for YA2008. She is required to set off these travelling expenses against the amount received from her employer of RM14,000 (and not RM8,000). The amount taxable on her is RM5,000 (RM14,000 – RM9,000).
Ming Hui is required to maintain the receipts of RM9,000 for a period of seven years.