Some Tips on Filing Your LHDN Income Tax

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Some useful tips on filing your income tax returns, courtesy of PremierOne, an income tax consultant, and as published as in The Star online.

Q: IF I am paid a fixed monthly travel allowance (with EPF contribution) which covers fuel for travel within Peninsular Malaysia, parking and toll, am I allowed to take advantage of tax exempt benefits? – GOH C.H.

A. YES, with effect from year of assessment 2008, tax exemption is given on petrol card, petrol allowance or travel allowance and toll card for official duties provided by the employer. The tax exemption is up to RM6,000 per annum.

Q: ARE dentures for parents eligible for tax rebate? – Lii

THE tax deduction for medical expenses for parents is up to a maximum of RM5,000.

Medical expenses that qualify would cover medical treatment for the parent evidenced by a receipt issued by a medical practitioner. It also includes dental treatment but this is limited to tooth extraction, filling, scaling and cleaning and does not include cosmetic dental treatment expenses such as teeth restoration and replacement involving crowning, root canal and dentures.

Therefore, the expense for your parent’s dentures would not qualify for the tax deduction.

On a separate note, it is important to differentiate that the RM5,000 maximum claim is for a tax deduction (i.e. to be deducted against your total income to arrive at your chargeable income) and not a rebate (i.e. a rebate is deducted from your income tax charge to arrive at your tax payable).

Q: I HAVE two questions: 1) The RM3,000 rebate for purchase of computers every three years. I last purchased a computer in August 2006. Can I purchase a new computer now (March 2009) to enjoy the rebate again or do I have to wait after August 2009 or some other date?

2) My wife and I jointly own two commercial properties which are rented out. My wife is a full-time housewife and has no income. I am at the maximum tax rate currently and on combined assessment filing. Can my wife take up the full rental income or at least 50% of the income and file for separate assessment?

If only 50% of rental income is allowed, do we need to split the property expenses like quit rent, insurance and assessment 50/50 also? – William Tan

A: FIRSTLY, it is important to differentiate a tax deduction from a tax rebate. The RM3,000 maximum claim for the purchase of a personal computer for non-business use is for a tax deduction (i.e. to be deducted against your total income to arrive at your chargeable income) and not a tax rebate (i.e. a rebate is deducted from your income tax charge to arrive at your tax payable).

Prior to year of assessment 2007, a RM500 rebate was given for the purchase of a personal computer used for non-business purposes on a household basis once in every five years of assessment.

Currently, the relief given is a tax deduction for the purchase of a personal computer for non-business use up to a maximum of RM3,000 given on an individual basis once in every three years of assessment.

Since your claim for the RM500 tax rebate was in year of assessment 2006 under the old tax provisions, you will be entitled to claim the RM3,000 tax deduction for another computer purchase anytime after the new tax provision took effect from year of assessment 2007. Therefore, you may purchase a new computer now (March 2009) and claim the RM3,000 tax deduction. Provided the existing law on the tax deduction does not change, your next qualifying purchase would be in year of assessment 2012.

2) Since your two properties are jointly owned, each of you would declare half the rental income equally in your respective tax return. Any expenses expended to generate the rental income from the jointly-owned properties (for example, property quit rent and assessment, insurance and repair and maintenance) must also be split equally to be deducted against the rental income.

Your wife may elect for a separate assessment to report her half share of the net rental against her personal tax relief.

Q: UNTIL last year, taxpayers could claim back excess tax paid on dividends received in 2007. Is this still possible in 2009? – Taxpayer

A: WHETHER you are still able to claim back the excess tax paid on dividends in year of assessment 2008 and 2009 would depend on the type of dividend that you receive from the company i.e. whether it is a franked (or tax deducted) dividend or exempt dividend.

With effect from year of assessment 2008 under the single-tier system, there is no further need for the company to deduct tax when paying dividends and any dividends distributed by the company will be exempt from tax in the hands of the shareholders.

However, transitional provisions in the tax legislation allow two options for companies with a credit balance in their section 108 accounts as of Dec 31 2007 when they want to pay dividends to the shareholders:

The company can continue to use such credits in the section 108 account to pay franked dividends to shareholders up to Dec 31, 2013 or until the section 108 credits are exhausted, whichever comes earlier.

Alternatively, the company may at any time make an irrevocable election to forgo the right to distribute franked dividends and pay dividend under the single-tier system.

The company, upon paying the dividend, is required to furnish the shareholders with a certificate warrant which will state whether tax has been deducted from the dividend or whether it is tax exempt pursuant to the single-tier system. If it is franked dividends, you can continue to claim back the excess tax paid, if any.

Q: I AM a sole proprietor. I draw a monthly salary from my business net EPF deduction of 11%. My business pays the employer’s portion of EPF contribution (12%). I understand the 12% EPF contribution for its proprietor is not a tax-deductible expense for the business. For my personal computation of tax payable, can I utilise the 11% deduction as a tax relief lumped together with my insurance premium giving a maximum relief of RM6,000? – Lim Jun Kean

A: THE 11% employee portion of EPF contribution is considered as part of your gross salary and subject to income tax (in addition to the sole proprietor business profit) on you. You are however entitled to claim the 11% EPF deduction as part of the maximum RM6,000 together with the life insurance premium tax relief in your personal tax return.

Q: I GET newspapers delivered to my home for which I get a monthly bill. Can I claim this as a deduction under reading materials?

Also, my mother has undergone ayurvedic treatment. Can I claim deduction under parents’ medical expenses? The expense is supported by official bills and receipts – S.Thiruchelvam

A: AN amount of up to a maximum of RM1,000 is deductible in respect of the purchase of books, magazines, journals or other similar publications (in hard copy or electronic form) for the purposes of enhancing knowledge of the individual, spouse or child. However, newspapers and banned reading materials are specifically excluded. Therefore, you cannot make a claim on your newspaper bills.

Medical expenses that qualify for the tax deduction for medical expenses for parents of up to a maximum of RM5,000 would include medical treatment evidenced by a receipt issued by a medical practitioner registered with the Malaysian Medical Council.

Unless the ayurvedic practioner is registered with the Malaysian Medical Council, the medical expenses will not qualify.

Q: I AM a retiree with no regular source of income except for dividends on investment in shares. Since the amount of yearly dividends I receive is less than RM30,000, I regularly claim RM4,000 to RM5,000 tax rebate under section 110 (dividends). Lately, I have received many Tier 1 dividends which do not indicate the amount of tax paid on behalf of the shareholders. Being a retiree, can I claim the tax rebate? If not, then all shareholders including retirees are paying the corporate tax of 25% on their dividends received. With the banks’ savings and FD interest rate of 2% to 3% per annum, how are the retirees going to survive? I hope you can assist by bringing up the plight of the retirees during the next budget dialogue. – Lim

A: WITH effect from year of assessment 2008, the single-tier system took effect. Under this system, there is no need for the company to deduct tax when paying dividends and any dividends distributed by the company will be exempt from tax in the hands of the shareholders.

However, transitional provisions in the tax legislation allow two options for companies with a credit balance in their section 108 accounts as at Dec 31, 2007 when they want to pay dividends to the shareholders:

The company can continue to use such credits in the section 108 account to pay franked dividends to shareholders up to Dec 31, 2013 or until the section 108 credits are exhausted whichever comes earlier.

Alternatively, the company may at any time make an irrevocable election to forgo the right to distribute franked dividends and pay dividend under the single-tier system.

If the dividends you receive indicate that no tax has been deducted, these dividends would be either exempt dividends or dividends paid under the single-tier system. In both cases, the dividends are exempt from tax in your hands and you are not entitled to claim the section 110 tax credits on such dividends.

You are correct in saying that retirees are one of the most-impacted group as a result of the single-tier system since under the previous full imputation system, you are able to get tax refund from claiming the section 110 tax credit due to your lower personal tax rate compared to the company tax rate. This has been brought to the attention of the relevant authorities in the dialogues and discussions by the professional bodies.

Q: I READ in the papers that the recent mini budget has increased the current RM6,000 tax relief per year of service to RM10,000 for retrenched workers. Is there a limit on the number of years and does it apply for voluntary separation and early retirement? – Worried Worker

A: THE tax exemption on compensation for loss of employment received by employees (including payment pursuant to a separation scheme where employees are given an option for an early termination of an employment contract) is increased from the current RM6,000 to RM10,000 per completed year of service with the same employer or with companies in the same group. It covers the voluntary separation scheme but does not cover early retirement.

There is no limit on the number of years of service. However, please note that the RM10,000 exemption is applicable on the number of completed years of service.

In addition, the increased tax exemption is only applicable on payments made in respect of individuals who have ceased employment on or after July 1, 2008. If the individual has ceased employment on or after July 1 2008, and tax clearance has been issued by the IRB with the RM6,000 tax exemption (prior to the mini budget announcement on March 10 2009), the individuals can make an appeal to the IRB for a reduced assessment.

Q: MY wife and I have a combined assessment. However, my wife was retrenched from her company on Dec 7. She has not found a new job and has had no income since then. Do I still continue to submit the combined tax assessment for 2008 and subsequent years despite her not earning any income? – Ismail

A: YOU should fill code 4 – “Diri sendiri, isteri tiada punca pendapatan” under Part A5 – “Jenis Taksiran” in your tax return. If your wife has received the year of assessment 2008 tax return, she should complete and file a “Nil” return to the IRB, together with a cover letter stating that she has no income in 2008.

Q: I OWN five units of properties with three units in joint names with my spouse and the others solely owned by me. My question is, every month my spouse will collect the rental on my behalf, and she also troubleshoots if there are problems with the houses. Since she uses her own transport, makes telephone calls, pays parking and toll fees, goes to the bank etc. can I pay her a salary for her help? My spouse is a housewife – Sam

A: THE tax law allows you to claim a deduction for expenses that you have expended to generate the rental income from your properties. These may include quit rent, assessment, insurance, repairs and maintenance, housing loan interest taken on the properties and rent collection fee paid to an estate agent.

As your wife is a “related party” and not a registered real estate agent, there could be more scrutiny by the IRB on the claim for the fee paid to her. For example, whether the fee payment is at market rate, whether the fee is commensurate with the services provided or is it excessive, etc. If a fee is paid to your wife, she will have to report the income in her tax return.

Q: I WRITE academic books and earn a few thousand from the payment of royalty. Actually, I am not selling the books or doing any business from the sale of the books. The publisher does all the marketing and selling. I just do the writing. Every year I report the income from the royalty together with my salary from the Government minus some of the expenses. My questions are:

(a) Presently I am given the OG or the B form. Should I be using the SG form instead because I am not doing any business?

(b) How is the RM20,000 exemption considered in a case like mine? – Anonymous

A: THE IRB have treated your royalty income as a business source and issued you a Form B (under an OG tax reference number). On the basis that you receive the royalty income and presumably claim some direct expenses against it, the tax treatment of your royalty income would essentially be the same whether it is reported under a Form B or Form BE. The tax filing deadline if the royalty is treated as a business source under Form B is June 30 whereas if it is a non-business source, the deadline is April 30.

There is a specific provision in the tax legislation to exempt RM20,000 royalty income or payment in respect of the publication of, or the use of or the right to use any literary work. You should exclude the RM20,000 exempt royalty income and declare the net (after deducting related expenses) balance of royalty income in your tax return.

Q: I WAS told by the officers at IRB that filling the HK-3 forms this year will be simple. I only have to fill in according to what is required by that form. Firstly, I don’t have to submit the dividend vouchers to the Income Tax office, together with the Borang BE.

Secondly, according to the instructions accompanying the borang BE, I have to correct/adjust for the Z, X and Y column. Is this correct? – K T KHOO

YES, you need to only submit worksheet HK-3 and are not required to submit the dividend vouchers in order to claim a tax refund on your dividend income.

If you are submitting your tax return via e-Filing, the computer system will calculate the re-grossing of the net dividends automatically. However, if you are submitting the hard copy of your return, you will need to compute the re-grossing yourself and complete the worksheet accordingly.

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10 thoughts on “Some Tips on Filing Your LHDN Income Tax

  1. Chong Lee Ying

    if I buy a residential property that comes wiht a tenant, would the agent’s commission (which you pay 2% on the SPA) and legal fees for the tenancy agreement be qualified for tax deduction in addition to the interest expense, assessment etc?

    Reply
  2. chee

    I`m malaysian,working in singapore almost 10 year,no income in malaysia.
    Do not have income tax account in malaysia.
    i buy some malaysia shares and keep it ,some shares give dividend and charge 25%~28%,
    Can i Claim Back from Shares Dividend ?

    Reply
  3. Melanie

    Hi,

    I have bought a property on August 2009, and I notice that the mini budget 2009 has mentioned this:
    “Housebuyers given tax relief on interest paid on housing loans up to RM10,000 a year for three years”.
    1) Is this tax relief effective for 2009 Income Tax?
    2) How is the formula for the mentioned interest paid?
    3) Do I need to get any document from bank for proof of the tax relief?
    I check with the LHDN, but they seems do not aware of this, so wonder the mini budget is still valid.
    Thanks.

    Reply
  4. the goverment

    To stimulate the housing sector, the Government proposes that house
    buyers be given tax relief on interest paid on housing loans of up to
    RM10,000 a year for 3 years.
    The claim for deduction is subject to the following conditions:
    the taxpayer is a Malaysian citizen and a resident;
    i.
    limited to one residential house including flat, apartment or
    ii.
    condominium;
    the sale and purchase agreement is executed between 10 March
    iii.
    2009 and 31 December 2010; and
    the taxpayer has not derived any income in respect of that
    iv.
    residential property.
    The tax deduction is given for 3 consecutive years from the first year
    the housing loan interest is paid.
    The proposal is effective from YA 2009.

    Reply
  5. Joanne

    I recently registered my society with the Penang Registrar of Societies.

    How/Where can I obtain the tax exemption receipt for donors? or Do I have to send it to the printing companies to design?

    How will I know the LHDN Reference number and the tarikh kuatkuasa?

    As I have been to the LHDN offices around Penang & their websites, but no one seems to be able to help me with this matter under the 44(6) Income Tax 1967.

    I hope to hear from you soon. I would really appreciate it.

    Thank you.

    Reply
  6. Terri

    I have been requested to re-filing my LHDN Income Tax due to mistake in my bonus part. Thus, i’m required to give all supporting for my tax relief items.
    1. Do i need to provide original copies for my parent medical receipt?
    2. How about books/journals/magazine? as per my knowledge, there only a need to list down in a paper for this.
    3. Broadband.. my maxis broadband bill only show a number (eg. 012-23X XXXX) instead of written a broadband line, do i need to get a bill from maxis stated it was a broadband rather than a normal line?

    Thanks.

    Reply
  7. edlin

    if I have a tax refund for 2008 and 2010 (since 2008 was filed late), will I get the cheque separately or in 1 cheque only?

    Reply

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