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TAXABLE INCOME FOR INDIVIDUAL

All revenue income derived from a source within Malaysia are subject to tax unless specifically exempted. Foreign source income remitted into Malaysia are exempted from tax.

The following are classes of income that are subject to tax for an individual:

Employment Income – must be reported in the employee’s tax return.

  • Salay, wages, commission, bonus, gratuity, allowance or prequisite (including payaments made by employer on behalf of the employee for utility bills, income tax, children’s education expenses. individual club membership, employee share option scheme and loan interest.
  • Benefits-in-kinds such as ca, driver, corporate club membership, mobile phone, household furniture and appliances
  • Value of living accommodation, servant and gardener

Certain expenses are allowable against employment income such as professional membership fees, and travelling and entertainment expenses. The onus is on the employee to prove to the LHDN that the expenses were incurred for business purposes.

Employment income which is exempted from tax and need not be reported includes:

  • Leave passages provided to the employee, his spouse and childred up a maximum of RM3,000 for one(1) overseas trip and up to maximum of three(3) local trips per year
  • Retirement gratuities (conditions apply)
  • Dental or medical treatment or child care benefit

Dividend Income

Local Company dividends are received net of tax by individual shareholders. The gross amount of the dividend is declared in the tax return. A Section 110 tax credit can be claimed against the income tax suffered on the dividend income. If a resident individual’s marginal tax rate is lower that the current prescribed tax rate, the excess tax credit can either be refunded or used to set off against the tax payable on the other source of income.

Foreign dividends need not to be declared in the tax return and exempted from tax.

Expenses which are deductible against the dividend income are:

  • Commission or brokerage
  • Stamp duty on transfer of shares
  • Interest on loan obtained to purchase the shares

Interest Income

Interest in ncome received is subject to income tax and is required to be reported in the tax return. However, interest paid by a financial institution in Malaysia to a resident individual is not required to be reported in the individual’s tax return as the witholding tax of 5% is treated as a final tax.

Rental Income

Rental income is required to be reported in the tax return and is normally treated as an investment income. Expenses which are allowable against the rental income are:

  • Quit rent and assessment
  • Insurance premium
  • Replacement costs on assets used in the property
  • Repairs and maintenance
  • Interest on loan obtained to purchase of the property
  • Commission and agency fee
  • Advertisement for letting out of property

Note: Advertisment, commission and legal fees for the first tenancy agreement are not allowed as these expenses are capital in nature. Rental losses are not allowed to be utilized to set-off against other sources of income.

Business income 

A business income is taxable after deduction of the following:

  • All expenses and outgoings incurred wholly and exclusively in the production of the business income
  • Capital allowances
  • Unabsorbed business loss brought forward, if any

Expenses which are wholly and exclusively incurred in the production of the business income would include:

  • Interest on loan used in the business
  • Rental of land or building occupied
  • Employee cost
  • Specific provision for doubtful debts/bad debts
  • Repairs and maintenance

Depreciation on fixed assets is not deductible. However, capital allowance can be claim provided the fixed assets are owned by the taxpayer and are in use for the business at the end of the basis period.

 

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Email: tan@fswongco.com

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