crowe perspectives - a look at the tax impact of malaysia

Smart decisions. Lasting value.

Maximising Your Individual Tax Reliefs

Crowe Perspectives 3 November 2020

By Shalina Jaafar,

Executive Director, Global Mobility Services

Crowe Perspective | 2

Introduction

Personal reliefs are generally allowed as deductions

from the total income of an individual in arriving at the

chargeable income. It is governed under Section 45A

to Section 49 of the Income Tax Act, 1967 (ITA).

Simply put, personal reliefs will reduce how much you

pay in taxes by lowering your taxable or chargeable

income. Pursuant to Section 7(1) of the ITA, there are

four (4) categories in which an individual is a tax

resident in Malaysia. If the individual does not fall

within these four (4) categories, he/she is a non-tax

resident. Generally, an individual is considered a tax

resident if he/she is present in Malaysia for 182 days

or more in a calendar year. Even if the individual is

present in Malaysia for part or parts of that day,

he/she is deemed to be present in Malaysia for a day.

© 2020 Crowe Malaysia PLT

Here is a simple scenario to describe the tax

impact of claiming tax reliefs:-

Let’s say you have a total annual income of

RM100,000, and you are a single person and

also a tax resident in Malaysia. You can claim a

total of RM13,000 in personal reliefs i.e.

RM9,000 for the self-relief and RM4,000 for the

contributions to an approved pension fund

[Employees Provident Fund (EPF)] which brings

your chargeable income down to RM87,000.

Consequently, you will pay a total of RM8,170 in

taxes.

On the other hand, if you are a non-tax resident,

your total income of RM100,000 will be taxed at

a flat rate of 30% without the entitlement to claim

any personal reliefs. As a result, you will pay a

total of RM30,000 in taxes as compared to

RM8,170 i.e. a difference of RM21,830

(RM30,000 - RM8,170).


How do you claim the tax reliefs?

There are two (2) types of tax reliefs for a tax resident individual:-

• Tax relief that is given not based on an expense incurred but based on a fixed amount - This is the easiest way to

claim the tax relief as it is a fixed amount granted automatically by the Inland Revenue Board of Malaysia (IRBM)

and you do not have to provide any documentary evidence; and

• Tax relief that is given based on an expense incurred and claimed by an individual but restricted to an allowable

amount. This requires more work but it is worth the effort as you can claim additional deductions on top of the

automatic tax relief to lower your taxable income.

There is also no time apportionment in claiming the personal reliefs i.e. personal reliefs can be claimed as long as

you qualify for the relief at any time during a basis year for a year of assessment (YA). Even if you work for less than

a year, the amount of tax relief will not be time-apportioned but will be allowed full deduction on your total income for

the YA.



What are the personal reliefs that can be claimed?

The IRBM has recently issued a Public Ruling (PR) No.8/2020 dated 9 October 2020 in relation to the

personal reliefs under the title of Taxation of a Resident Individual Part 1- Gifts or Contributions and Allowable

Deductions. Many examples were provided therein and each type of the tax relief described in detail which

helps the taxpayers to understand and identify the nature of allowable expenses. There are twenty one (21)

types of tax reliefs that are available for individual tax residents to claim on their tax returns and the lists are

published on the IRBM’s website as reference for the assessment years starting from the YA 2010 up to and

including YA 2020.



Let's see the illustration in the next page on how you can save on taxes by claiming the personal reliefs

described above for the YA 2020: -

Is it worth it to make these claims?



Below are the assumptions made in preparing the calculations:-

Scenario 1- M40 is a tax resident of Malaysia and earns RM70,000 a year.

M40 is married and has a child under 18 years of age during the calendar year

2020. M40 opted for a separate assessment and only claimed the standard

reliefs on his tax return for the YA 2020.

Scenario 2 – Same as Scenario 1 but M40 had claimed most of the common

deductions to maximise his personal tax reliefs for the YA 2020.

Scenario 3 – T20 is a tax resident of Malaysia and earns RM119,000 a year.

T20 is married and has a child under 18 years of age during the calendar year

2020. T20 opted for a separate assessment and only claimed the standard

reliefs on his tax return for the YA 2020.

Scenario 4 – Same as Scenario 3 but T20 had claimed most of the common

deductions to maximise his personal tax reliefs for the YA 2020.



Crowe Perspective | 6 Crowe Perspective | 6




Based on the illustration, Scenario 2 shows that M40 does not have to pay any tax after his chargeable income is

reduced to RM27,250 as compared to Scenario 1. Otherwise, he would have to pay a total of RM2,465 in taxes at

the tax rate of 14%. In comparison, T20’s chargeable income is reduced to RM76,250 from RM103,750 with a

decrease of 3% tax rate showing the tax payable being reduced to RM5,912.50 from RM11,800.

In short, by maximising personal reliefs for the basis year for the YA 2020, M40 and T20 can make a significant

difference to their taxes with potential tax savings of up to thousands of ringgit.




Summary

Personal tax planning is all

about understanding taxes you

are liable to pay and looking at

ways to minimise them. You can

enjoy favourable tax savings

when you maximise your claim

of personal tax reliefs.

With the tax regime becoming more

complex and more emphasis is being put

on taxpayers' individual responsibilities,

everyone who is subject to taxation

needs the professional advice and

support if he/she is able to optimise

his/her tax position and to ensure he/she

meets all the compliance requirements. Need assistance on these matters?

Please contact us if you wish to seek

clarification on any of these issues.

Shalina Jaafar

Executive Director of

Global Mobility Services


Klang Suite 50-3, Setia Avenue,

No. 2, Jalan Setia Prima SU13/S,

Setia Alam, Seksyen U13,

40170 Shah Alam,

Selangor, Malaysia

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Contact: Michael Ong

Email: [email protected]

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Contact: Eddy Chan


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Contact: Patrick Wong



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Contact: Choong Kok Keong


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Brighton Square,

Jalan Song,

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+6082 285 533 Fax

Contact: Eddie Wee


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iCom Square,

Jalan Pending,

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Contact: Kenny Chong


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Bulatan Business Park,

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Contact: Matthew Wong


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Jalan Abang Galau Shophouse,

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Contact: Lau Hin Siang


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Damai 88300, P.O. Box 11003,

88811 Kota Kinabalu, Sabah, Malaysia

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Contact: Michael Tong


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Pahlawan 7A2, Jalan Pahlawan,

96000 Sibu, Sarawak, Malaysia

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Contact: Morris Hii


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Jalan OKK Abdullah, P.O. Box

81599, 87025, Labuan, Malaysia

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Contact: Christabel Chieng


Our Offices (East Malaysia)


www.crowe.my

This communication is prepared and issued by Crowe Malaysia PLT, it is meant for general information purposes only and it is not intended to be professional advice. Recipients should not act upon this communication and please consult qualified advisors for professional advice and

services. Crowe Malaysia PLT or any of Crowe’s entities will not be responsible for any loss or consequences of anyone acting in reliance on this communication or for decisions made based on this communication.

Crowe Malaysia PLT is a member of Crowe Global, a Swiss verein. Each member firm of Crowe is a separate and independent legal entity. Crowe Malaysia PLT and its affiliates are not responsible or liable for any acts or omissions of Crowe or any other member of Crowe and specifically

disclaim any and all responsibility or liability for acts or omissions of Crowe or any other Crowe member.


About Crowe Malaysia PLT

Crowe Malaysia PLT is the 5th largest accounting firm in Malaysia and an independent

member of Crowe Global. The firm in Malaysia has 13 offices, employs over 1,300 staff,

serves mid-to-large companies that are privately-owned, publicly-listed and

multinational entities, and is registered with the Audit Oversight Board in Malaysia and

the Public Company Accounting Oversight Board in the US.

Contact us

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