Tips On Filing Your Income Tax Q & A

Part 2 Q & A

This is the second of a two-part article to guide employees on common tax issues

On short-notice payment and child-care allowance

Q: In November 2008, I voluntarily ceased my employment and had to pay short notice of RM2,000 (supported by an official receipt). However, I was compensated with a sign-in bonus of RM6,000 from my new employer.

The problem is the sign-in bonus is stated in my EA form but the short notice of RM2,000 is not deducted from the form. Can I automatically net off the amounts and disclose RM4,000 as my sign-in bonus because RM2,000 is my actual expense?

A: Sign-in bonus is capital in nature and not taxable in the event the salary that you receive subsequently upon commencement/exercising of employment with the new company is at the commercial rate. The amount is not to be included in the EA form.

However, if the sign-in bonus is in lieu of reduced salary, the amount is income in nature and subject to income tax. In this scenario, the amount is to be included in the EA form.

The amount paid by you as compensation for short notice of resignation is not deductible as it is not directly incurred in deriving employment income as you have stopped working in your old company.

My former company did not disclose my travelling allowance of RM1,500 in my EA form as tax-exempt benefits. Upon calling it, the company refused to issue a fresh EA form to me. What can I do?

Travelling/petrol allowance received by an employee for travelling from home to workplace and vice-versa is exempted up to RM2,400 while travelling/petrol allowance received for travelling in exercising employment, is exempted up to RM6,000.

In your case, if the amount is authentic and verifiable, even without a revised EA form, you may straight away deduct the amount from your total income reported in the EA form. The adjustment is at column C1 where, the amount is represented by: Total income (as per EA form) – travelling allowance incurred (RM1,500) = Total income from employment (C1)

I paid RM280 per month for my four-year-old daughter’s nursery in 2008. I understand that child-care is exempted from tax up to RM2,400 per year. Can I claim it (since I paid for it and it’s not an allowance)?

Child-care allowance of RM2,400 is tax exempted if provided by employer to staff. In your case, no deduction is available as such allowance was not paid by your employer. You have only incurred a domestic expense which is irrelevant in computing your employment income tax. Domestic expense is not deductible.

I sought treatment using the “Tui-Na” therapeutic massage for my left leg. The total cost of treatment was RM89.60. Can this sort of expense be treated as a form of medical expense tax relief under the traditional acupuncture and ayuverdic categories?

The medical benefit (including Chinese Tui-Na) is tax exempt provided it is given by the employer to the employee. Benefits cover ayurvedic and acupuncture effective YA2008. However, you cannot claim this expense when computing your employment income, since it is paid by you and not your employer.

If a self-employed person makes a contribution of 12% to the EPF under his firm, is the contribution deductible to the proprietor firm and is there any limit?

If you are earning business income as a sole proprietor, you may utilise the B form to submit your tax return. BE form is for individuals earning employment income. In both cases, the total EPF contribution by the employee or the self-employed person plus the amount of insurance premium paid are deductible up to the aggregate of both amounts (up to a maximum of RM6,000).

Where the employer is concerned, a Sdn Bhd firm is entitled to claim the EPF contributions for employees as a full deduction from their business income and the maximum contribution is 19%, as governed by Section 34 (4) of the Income Tax Act, 1967. However, for the sole proprietor, the amount is not deductible when computing business income.

How do I disclose interest subsidies on housing, car and education loans?

Interest subsidies on housing, education or car loans provided by the employer to the employee are all tax-exempted in full, provided the aggregate amount of loans from all of the above does not exceed RM300,000.

If you qualify for exemption and your documentation is verifiable, you may deduct the appropriate amount from your total income reported in the EA form. The adjustment is at column C1 where the amount is represented by:

Total income (as per EA form) – exemptions entitled (subject to maximum) = Total income from employment (C1)

How do I apply for retrenchment benefits for my husband?

As long as the compensation is given by the employer to the employee (your husband), he is entitled to claim the exemption. No prior approval from Inland Revenue Board is required. The computation is as follows: Employment income as per EA form – (RM10,000 x the years of completed service) = Total employment income (column C1 in BE form)

I understand that the payment of bonus/directors’ fees related to 2008 in year 2009 has the tax savings advantage of 1% if the annual income is RM250,000 and above. Please explain.

If the chargeable income is more than RM250,000, the tax rate is 28% for YA2008. However, the tax rate will be 27% in YA2009. Hence, if your bonus is disclosed in the EA form in 2009, you will save 1% since your chargeable income is assessed on 27% (YA 009) instead of 28% (YA2008).

Source: The Star

See Part 1

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