TAXATION 1

EMPLOYMENT INCOME
WEEK 4&5
Week 4
Income tax is the source of revenue for the  In the contract, it usually has stated whether
government. It is assasable under s 4(b). it is an employment or self-employed.

THE LEGISLATION 2.5 Nature of remuneration and benefits

1.1 Employment  Employee who received monthly fixed rate of
Define in S2 as: salary and would be entitled to benefits.
a) Relationship of master (employer, offer) and  Business owner who received monthly fixed
servant (employee, acceptance) subsists. rate salary is also an employee.
(have contact)
b) Any appointment & office (means either u r 2.6 Sharing of Financial Risk and Success
appointed to do a job or jobs, u get  Employess only share profit but not risks.
renumeration)  Self-employed is fully accountable for the
business success and risks.
1.2 Employee
Employee means: CASE LAW PRINCIPLE
a) Relationship of master (employer, offer) and Principles that derived from cases for determine the
servant (employee, acceptance) subsists, the employment source:
servant. a) Exists master & servant relationship
b) When the relationship does not exist, the b) Right to control
holder of the appointment or office which c) Right to suspension or dismissal
constitutes the employment. d) Employee a full time job and not subtitutes of
This includes directors, secretary . treasurer and etc. duties
e) No financial risks
1.3 Employer f) Employee enjoys benefits
Employer means: g) Employee uses tools to carry out duties
a) Relationship of master (employer, offer) and h) Employee dutied would form part of the
servant (employee, acceptance) subsists, the business activites.
master.
b) When the relationship noe exist, the one who IMPORTANCE IN DISTINGUISH EMPLOYMENT
responsible on paying any remuneration to INCOME FROM BUSINESS INCOME
the employee . Employment Income Business Income
Advantages
THE ACID TESTS EPF contributor by Flexible deduction of
The following principle may guide as to whether employee expenses
there exist an employment source. Medical benefits, sick Capital allowance r
pay and leave pay available
2.1 Control assured.
 The employer ‘control’ employee to direct the Tax exemption on Can utilized unabsorbed
way to accomplish a job and timing to gratuity, compensation loss of the taxpayer
perform the job. for loss on employment
 Employee cannot decline any work given by Non-resident will be
the employer. BUT self-employed can! exempted from taxation
if the employment is <
2.3 Substitution of staff 60 days
 Employees r not allowed to substitutes any Disadvantages
staff to carry out their duties. Risk of job termination Risk of failure in
 BUT self-employed can! business
bankruptcy
2.4 Contract of Engagement
 Employee usually would work under a
contract.

EMPLOYMENT INCOME 1
 TAXATION 1
EMPLOYMENT INCOME
WEEK 4&5
Week 4
DERIVATION OF EMPLOYMENT INCOME
Employment income will be taxed under:
a) The employment income deemed derived
from Malaysia (s 13(2), s 13(b))
b) Employment income received in Malaysia
from outside Malaysia by resident individual.
(foreign source employment income)

SCOPE OF S 13(2)(a)
 Where the employee exercise the
employment?
o IN MALAYSIA
 Where the employee discharge the duties?
o IN MALAYSIA
 Income derived?
o IN MALAYSIA
If we were paid from outside Malaysia, the source of
employment income is not relevant. Where the
employee exercise the duties is relevant.

SCOPE OF S 13(2)(b)
(leave pay)
 Any employment income in the respect of the
leave period is deemed to be derived from SCOPE OF S 13(2)(d)
Malaysia, it would attributable to the exercise  Remuneration received by director shall be
of such employment in Malaysia. deemed derived from Malaysia
 Attributable to Means, kalua dia amik cuti, notwithstanding that he does not discharge
but the connection exist, dia under 13(2)(b). hos duties from Malaysia.
 If the comp
SCOPE OF S S 13(2)(c)
 When an employee perform his duties
outside Malaysia, but it would be incidental to SCOPE OF S 13(2)(e)
the Malaysia employment. (specific for sea, airline)
 Employees of resident sea or air transport in
Malaysia are deemed to derive their gross
income from Malaysia.

13.0 EXAMPTION OF EMLOYMENT INCOME

EMPLOYMENT INCOME (TYPES)

SECTION 13(1)(a)
(1) Gains or profit from an employee includes-
(a) Wages, salary, renumeration, leave pay,
fee, commission, bonus, gratuity,
perquisite or allowance.

1.2 Case Law

13(1)(a) comprise of income that is convertible into
money.

EMPLOYMENT INCOME 2
 TAXATION 1
EMPLOYMENT INCOME
WEEK 4&5
Week 4
i. Amount received in the ordinary couse of
employment. Ex: tips Perquisite or Allowances (money or other form)
ii. Make reference to service rendered. When the employer discharge its obligation to the
iii. Voluntariness is not relevant for employee by way of settlement of employee income
consideration. tax, it would be treated as PERQUISITE under 13(1)
iv. Amount accrued from or directly connected (a).
to employment.
v. Employee is entitled to the payment.  Share option and share incentive scheme
Items that not constitute employment income: - Employee an option to acquire share in a
i. Reward for personal qualities company at a fixed price.
ii. Payment to meet personal distress. (house - The option value that constitutes ‘perquisite’
compensation) is the excess of the market price over the
option price at the time of option
BONUS - To compute perquisite share
Bonus would be assed to tax when: Lower of:
i. Bonus is paid in addition to the salary. Market value when granter OR market value
Conratual or non-contractual. when exercise
ii. Amount can be fixed or contingent Less: option price
iii. True nature and character of the payment Times: number of shares
need to be examined. Sometimes, gift is a
bonus. Allowances
iv. Paid by reference services rendered All allowances paid by the employer will be asses on
v. Paid on recurring basis. If the bonus paid gross amount
once for all and mark as personal excellence,  Clothing Allowances
it would not be taxed. - TAXABLE

 Travelling and Entertaiment Allowances

- Taxable under gross amount
- Deduction: when incur expenses for perform
duties.
Gratuity - Travelling allowance for official duties can be
Referred to ‘money present of amount fixed by giver exampt RM6000
in recognition of n inferior’s good office.  Gift Vouchers
Normally paid upon resignation or retirement as a - When the nature is given based on the length
recognition on the service. of service of employees, taxable

Requirement of full exemption: Inducement Payment

Payment to an individual to compensate for the
loss on his status for taking up another
employment is a CAPITAL RECIEPT (receive
when we not their employee lagi) it is not an EI.
 Gift
- Cash gift to appreciate his personal qualities
on special occasion is NOT EI, not taxable

Loan on Employee
Partial partial exemption:  Internal fund (loan company)
- If not meet any full exemption requirement, - NOT TAXABLE
the exemption of RM 1000 for each  External fund (bukan loan company)
completed year.

EMPLOYMENT INCOME 3
 TAXATION 1
EMPLOYMENT INCOME
WEEK 4&5
Week 4
- Loan kat bank (10%), company subsidies
3%(TAXABLE) , we only pay 7% Asset provided free of charge or sold at discounted price
 Waiver of loan Asset such as car, house or office equipment will be
- When the employee waived to loan to the taxable like:
employer, the waived amount is taxable to Market value
employee. Less: amount paid by employee
Perquisite 13(1)(a)
School/Tuition Fees
Actual expanses waived to the employer is taxable to EXAMPTIONS
employee  Petrol card, petrol allowances and toll card
for official duties is exempted up to RM 6,000
Insurance Premium a year.
If the employer subscribe insurance for their  Allowance for parking
employee and employee receive the benefits but  Meals allowance
employer paid annual premium, taxable for  Allowance or subsidies for childcare is
employee. exempted up to RM2,400 a year (<12 years)
 Phone bills paid by employer under employee
Professional subscription name is exempted but limited to 1 unit under
Payment to subscribe to professional bodies and it is each asset
essential to enhance their knowledge and facilitate  Employer provide employee consumer
their duties will be not tax. product at
a) FOC
Excellent public service award b) Partly discounted price
Performance award for PUBLIC SECTOR given by Is exempted up to RM 3,000
GOV in MONEYTARY FORM is taxable  Employer provide service such as dentist,
hair dresser and etc is exampted

 Interest subsidies for

Excellence Service a) Housing – restrict to residental property
It is taxable with exemption of RM 2000 if: b) Education – employee pursue studies
a) Employment is > 10 years c) Car – restrict to private motor
b) Past achievement award Exempted up to RM 300,000
c) Service excellence, innovation and
productivity award Empowering woman retuning to work

Pecuniary Liabilities
When employer pay income tax, utilities bills, car
charges on behalf of employee, UNDER EMPLOYEE
NAME is TAXABLE

Credit Card Facilities

Credit card is provided by employer to employee to
carry out duties an private purchase, the:
a) Annual membership fee
b) Amount paid for private purchase
Will be taxable, but credit card membership is no
taxable
Working from home
Scholarship Exempted an employee up to RM 5,000 on:
Exempted a) Smartphone

EMPLOYMENT INCOME 4
 TAXATION 1
EMPLOYMENT INCOME
WEEK 4&5
Week 4
b) Tablet
c) Personal computer

Motor vehicle an related benefits

 Prescribed method for motor vehicle
- When employer provides motor vehicle to
employee for duties n private use, the
benefits will be based on the value of the car
n fuel.
- The table is provided in exam
 Cost of car
SECTION 13(1)(B) - New, secondhand or rented car is based on
Any amount equal to the value of the use or the market value or actual value.
enjoyment by the employee (not convertible to  Provision of Driver
money) - If the employee got driver from employer, the
Excluding: amount assessable is only RM 600.
I. Medical or dental treatment or a benefit for  Age of car exceed 5 years
child care. - When the car age is > 5 years, the amount
II. Any benefits consists of: would reduce by HALF. Only HALF exempted.
a. Leave passage within Malaysia NOT
EXCEED 3 times in a year
b. One leave passage outside Malaysia in
any calendar year limited to a
maximum of RM 3,000 Household furniture and appliances
i. SEMI-furnished furniture in lounge, dining
Distinction between s 13(1)(a) and 13(1)(b) room or bedrooms
o RM70 per month (RM840/annum)
i. SEMI-furnished curtains, aircond carpets
o RM 140 per month (RM
1680/annum)
i. FULLY-furnished kitchen equipment, etc
o RM 280 per month (RM
3360/annum)
Utilities
If the employer paid the utilities but under employer
name

EMPLOYMENT INCOME 5
 TAXATION 1
EMPLOYMENT INCOME
WEEK 4&5
Week 4

Membership in clubs
 Individual membership
- Taxable under s 13(1)(a)
 Corporate membership
- Only monthly/annual subscription is taxable
under 13(1)(b)

Gardener/ domestic servant/ guard

Lesser than 1 year
i. Gardener: RM 3600
ii. Domestic servant: RM 4800
iii. Guard: RM 4800
If these is provided for entertaint client, it is not
taxable.
If the employee reimbursement it is under 13(1)(a).
Driver would be exempted if the driver comes from
pool drivers and it is for business purposes only.

Leave passage
Tax is an exempted if:
i. 3 leave passage for travel within Malaysia
(take highest 3 ) Provision of hotel/hostel
ii. One leave passage any place outside Malaysia Value is taken from 3% of 13(1)(a).
and limited to RM 3,000 It would be reduced on time basis if accommodation
It is restricted to costs of passage such air fares, is provided <12 months.
insurance and transit costs but NOT hotel
accommodation. SECTION 13(1)(d)
Include:
Tax exempt benefits a) Contribution made by employer to the
 Fee transportation. unapproved pension or provident fund.
 Food and drinks provided FOC or subsidies b) Any income earned by such unapproved fund.
by employer.
SECTION 13(1)(e)
Any amount received before or after employment
ceases
a) Salary or wages in lieu of notice
b) Compensation for breach of contract of
service
SECTION 13(1)(c) c) Payment for the release of the employer’s
An amount of the use or enjoyment by the employee obligation under contact of service
of living accommodation in Malaysia. d) Ex-gratia who have become redundant
Only the value of unfurnished living accommodation e) Restrictive covenant
(without rental value of furniture).
DEDUCTIONS
Accommodation provided to employee or service a) Travel expenses for official duties (need to
director of a controlled company match with travel allowances)
b) Entertainment expenses
c) Professional subscription
d) Accommodation (rental, rent assessment,
repair maintenance)

EMPLOYMENT INCOME 6