employment income_basis period

8/13/2019 Employment Income_basis Period

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Basis periodWith effect from YA 2000, the basis for employment

income is the current calendar year (Section 20); i.e.,the year ending Dec. 31st.

The basis YA for employment income is governed bySection 25.


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Section 25 Section 25(1)

Where gross income from employment becomesreceivable in a given basis period AND it does not relate toany particular period, upon receipt of the income, it shallbe treated as income in the period it first becomes

receivable ; E.g.. Kok Keong was told by his employer that the board,

at a meeting on 8 Dec. 2011 has approved a special salaryof RM9,000 for his excellent performance all these years.He received the payment on 8 Feb. 2012 .

To which YA will the salary be attributable to?


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Section 25 Section 25(2), 25(2A)

If income is receivable in respect of the whole or part of a basisperiod, upon receipt of the income it shall be treated as incomefor the relevant period(i.e. the period when it is receivable);

However, with effect from YA2009, to facilitate self assessment,

director fees and bonus attributable to prior years, receivedafter those years, such income will treated as income in the yearreceived. As such the taxpayer does not need to revise his taxcomputation for the prior years to which the income wasattributable to;

E.g.. 1. Melissa received her director fees of RM24,000 inrelation to YA 2010 from ABC Bhd. on 1 Mar 2011. To which YAshould the fees be assessable in?


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Section 25(2), 25(2A)cont.

E.g.. 2. Charles received his bonus of RM4,000 inrelation to YA 2009 on 1 April 2011. To which YA shouldthe bonus be assessable in?

E.g.. 3. Nora received her bonus of RM4,000 inrelation to YA 2004 on 14 February 2008. To which YAshould the bonus be assessable in?


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Section 25 Section 25(3) past services

Where income in the past YA fails to be treated under S 25(1),or (2), upon receipt of such income if known to the IRB afterfive years after the end of the relevant period to which theincome should be related to, it shall be treated as income in the

YA five years prior to its receipt.

E.g.. Ewe received his bonus for 1993 on 31 January 2011 i.e..more than five years from the actual relevant basis year of 1993.So, IRB will treat the bonus as income in YA 2006 (2011 - 5 yrs).

This section only applies if the DG discovers the receipt of theincome is time barred.

IRB is time barred under the ITA to raise a tax assessmentbeyond six years. This sub-section enables IRB to includeincome for taxation even if related to a period more than pastsix years


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Section 25 Section 25(4): spread back of income which relate to more than

one basis period (income for several overlapping periods) E.g. 1 Mr. A receives a commission of RM18,000 for the period 1

April 2010 to 31 Mar 2011.

Based on S 25(4), the commission would be assessable as

follows: YA 2010 18K x 9/12 = RM 13,500 (1/4/2010 31/12/2010):9 mths.

YA 2011 18K x 3/12 = RM 4,500 (1/1/2011 31/3/2011): 3 mths

The tax authorities may grant a concession to treat income such

as commission, director fees or bonus in line with the employersfinancial year end where it is not Dec. 31st. As such in the aboveexample, IRB may treat the whole RM18,000 commission asincome in YA 2011 if the commission was paid for the year ended

31st Mar 2011. In the exam just apply the 25(4) unless thequestion state otherwise.


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Section 25(4)cont.

Gratuity & deferred pay If the total employment period is more than 5 years,

spread the income back equally over the last six YA.

E.g.. Ahmad received a gratuity of RM120,000 on 31Mar 2011 on his retirement at the age of 48. Hisemployment period was 1 June 1999 to 31 Mar 2011 i.e.more than 5 years. The gratuity would be assessable as

follows:

YA Assessable amounts Attributable period

2011 20,000 1/1/2011- 31/3/2011

2006 - 2010 20,000 /year


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Section 25(4)cont.

Gratuity & deferred pay

b) If the total employment period is LESS than 5 years,spread the income back on a time basis over the actualemployment period.

E.g.. Mutusamy received a gratuity of RM120,000 on 31Mar 2011 on his retirement at the age of 50. Hisemployment period was 1 June 2006 to 31 Mar 2011 i.e. 58

months (less than 5 years). The gratuity would beassessable as follows:

YA Assessable amounts (RM) Attributable period

2011 6207 ((120K/58 x 3) : 3 months) 1/1/2011- 31/3/2011

2007 - 2010 24,828 /year ((120K/58 x 12) : 12 mths) 1/1 31/12 (each year)

2006 14,483 ((120K/58 x 7) :7 months) 1/6/2006- 31/12/20106


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Section 25(4)cont. Overlapping income which relates to a period more than 5

years ago upon receipt.Amount received would not be apportioned to related

periods. The whole amount be assessable to the YA of(Year of receipt 6 years);

E.g. On 1 May 2009, Aming received a bonus of RM5,000for the period 1 July 2002 to 30 June 2003.

Income attributable to YA2003 can be assessed in any yearup to (2003 + 6 years) YA2009 . However income

attributable to YA2002 is already time barred as it has pastthe 6 year limit.

So IRB will apply S 25(4): the whole of RM5,000 would berelated back to YA2003.


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Section 25

Section 25(5): income relating to a future period The amount received would treated as income in the

period of receipt. It would not be assessed in thefuture period to which the income is attributable to.

e.g.. Boon Hui ceased his employment on 30 Nov.2010. On 30 Nov. 2010 he received a salary ofRM45,000 for the period 1 Jan. 2010 to 31 Mar 2011.

The whole RM45,000 would be assessable in YA2010.


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Section 25 Section 25(6): leaving Malaysia

Applied to an employee who:

has left or will be leaving Malaysia

will not be a resident in the following year

Will not receive any pension from Malaysia upon leavingMalaysia in the following year; AND

will ceased to be derive gross income from Malaysia upondeparture from Malaysia

The preceding sub-sections shall not apply;

The amount received shall be assessable in period ofreceipt unless a written request is made to IRB to prorate

any income received in advance


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Section 25(6): leaving Malaysia (cont.)

E.g.. Any, a Hong Kong citizen ceases his employment and left

Malaysia on 1 Nov. 2010. He fulfilled the conditions laid down inSection 25(6). He received a salary of RM88,000 for the year 2010 plusleave pay of RM22,000 for the period 1 Nov. 2010 to 31 Mar 2011.

Based on S 25(6), his income would be assessable in the followingmanner in YA2010

Section 13(1)(a)

Salary RM88,000

Leave pay (1/11/2010-31/3/2011) RM22,000

If Andy made a written request to prorate his leave pay, then he wouldbe assessed as follows:

YA2010 YA2011

Salary 88,000 Leave pay (22K/5 x 3) 13,200

Leave pay (22K/5 x 2) 8,800


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