Personal Tax Planning - Part 1

By Tan Thai Soon

Updated on 30 March 2011 to include Budget 2011

A)Introduction
Tax planning, whether personal or company, are interrelated and integrate part of the planning process. In general, personal tax planning involves the following areas:

• Personal relief
• personal rebate
• tax deduction
• tax exemption

B)Personal Relief
The main intention of the personal reliefs and rebates is to help the lower and middle income group.In addition, the senior citizens and the disabled persons have been included for further relief.

Individual taxpayer who is a tax resident in Malaysia is entitled to claim personal tax relief to derive a personal chargeable income. The following personal relief are available in the Year of Assessment 2010 and 2011.

1.Personal tax relief for individual is RM9,000.

Comment:
a)For Husband & wife who elect for separate assessment, the tax relief includes Husband (RM9,000) and wife (RM9,000), therefore the total personal relief for a couple is RM18,000.
b) If a couple elect for combine assessment the total tax relief is RM12,000 (Individual=RM9,000, Husband/wife=RM3,000). Therefore, it is more beneficial to the couple to elect for separate assessment. The combined assessment is only beneficial, if either husband or wife does not have a total income.

2.Disable individual is entitle, in additional to (1) above, a sum of RM6,000.

Comment:
a) This is an additional personal relief given to those disable individual but having chargeable income.

3. Wife or husband tax relief is RM3,000.

Comment:
a) The tax relief is only apply to individual who elect under combined assessment. It is only beneficial if the wife or husband have no total income which can be aggregated with that of his wife or husband.

4.Disable wife/Husband tax relief is RM3,500

Comment:
a)This is an additional tax relief given to individual who elect a combined assessment and having a disable wife or husband.

5. Medical expenses for own parents certified by medical practitioner for up to RM5,000.

Comment:
a) The tax relief only given to individual taxpayer for medical expenses incurred on their own parents (not parents in law), certified by medical practitioner. The medical expenses for parents is for: treatment in clinics and hospitals; treatment in nursing homes; and dental treatment excluding cosmetic dental treatment.

Under the budget 2011 the existing tax relief has been extended to include expenses to care for parents, who suffer from diseases or with physical or  mental disabilities and who need regular treatment certified by a qualified medical practitioner. Such treatment and care provided include treatment and care at home, day care centres or home care centres.



Qualifying expenses related to the treatment and cares are as follows:

• treatment and medical expenses supported with receipts issued by registered medical centres, pharmacies or licensed medical stores; or
• expenses for the care of parents supported with receipts or written certification by carers, certifying that the care was provided and the total payment involved. Foreign hired carers are required to processes valid visa/special work permit for the care of parents of taxpayers; or
• expenses on special needs for parents certified by qualified medical practitioner and supported by receipts as proof purchase.

6.Cost of basic supporting equipment for disabled self, spouse, child or parent given to individual taxpayer for up to RM5,000.

Comment:
a) The tax relief only apply to disabled self, spouse, child or parent. In other word, it does not apply to taxpayer brother, sister or close relative.

7. Medical expenses for serious diseases (and full medical examination up to RM500) for self, wife and child of up to RM5,000.

Comment:
a) The medical expenses is only for serious diseases.
b) Serious diseases include AIDS, parkinson's, cancer, renal failure, leukaemia, heart diseases and related diseases.

8. Tax relief for fees expended at a recognized institutions of higher learning by individual taxpayer of up to RM5,000.

Comment:
a) For acquiring skills or qualification on technical, vocational, industrial, scientific, ICT, accountancy, Islamic finance and law.
b) Masters or Doctorate level of any course of study.

9. Purchase of books, journals or magazines and other similar publications for self, wife or child of up to RM1,000.

Comment:
a) The above specifically exclude newspapers and any prohibited publication.
b) It include cost of purchase of school textbooks for primary, secondary and higher institution.
c) Taxpayer must keep the original receipts. IRD randomly issue letter to the taxpayer to show proof of the purchase.

10. Purchase of personal computer for individual of up to RM3,000 (allow once in 3 years)

Comment:
a) Purchase of personal computer include both hardware and software.

11. Net deposit in skim simpanan pendidikan national (SSPN) of up to RM3,000.

Comment:
a) The above deduction is for the net amount deposited. For example, in any basis period, total deposit is RM4,000 and total withdrawal is RM1,500, the allowable deduction is RM2,500. The balance brought forward is not taken into account.

12. Purchase of sports equipment for any sports activity for up to RM300

Comment:
a) It is deducted in respect of expenses expended by the individual for the purchase of spots equipment for any sports activity as defined under the Sports Development Act 1997.
b) Sports equipment includes equipment with short lifespan e.g. golf balls and shuttlecocks but excluding sports attire e.g. swimsuits and sports shoes.
c) Taxpayer should keep the official receipt from the respective stationery or sport shop.

13. Child relief of RM1,000 per child for the maintenance of each unmarried child under the age 18 years.

14. Child relief for unmarried child of 18 and above:

• receiving full-time education at school (e.g. STPM or A-level) of RM1,000 per child;
• receiving further education in Malaysia in respect of an award of diploma or higher of RM4,000 per child;
• receiving further education outside Malaysia in respect of award of degree, master and doctorate of RM4,000.

15.Physically or mentally disable child

• Child relief for the maintenance of each unmarried child with physical or mentally disable, a sum of RM5,000; and
• a further sum of RM4,000, if the child is receiving further education.

Comment:
a) The child must be an unmarried child. The "child" includes a legitimate child or step-child of his or his wife, or a adopted child by the individual or his wife in accordance with any law.
b) The instruction and education establishment shall be an approved or recognized by the government authority

16. EPF contribution and life insurance premium of up to RM6,000 and an insurance annuity of RM1,000.

Comment:
a) Insurance premiums paid for policies taken on the life of an individual, husband or wife are allowable deductions.
b) Insurance premiums on the life of the child do not qualify.

17. Education and medical insurance premium of up to RM3,000.

Comment:
a) The insurance premiums in respect of education or medical benefits for individual, husband, wife, or child are available for the above tax relief.

C) Tax Rebate
Under S6A of the Act, if the chargeable income of an individual does not more than RM35,000, he or she shall be allowed a tax rebate of RM400 or a rebate of a zakat, or fitrah for the amount paid in the basis year.

D) Summary
The above tax relief is available for individual taxpayer who is a resident in Malaysia. Individual can claims the tax relief in their tax Form BE/B -Part D. In case of doubt, taxpayer should make reference to explanatory notes enclose together with the tax form or to the latest IRD Tax Guide Book (BE05 or B05) or visit IRD website at http://www.hasil.gov.my


Reference
Tan, T.S. (2011) Malaysian Personal Taxation - A Practical Approach,  First Edn, TST Consulting Group, Kuala Lumpur.