26 Tax-Saving Moves

They are legal and permitted by Inland Revenue Board ( IRB )

1) Save for your Child’s Education
Since 2007 , any amount that is deposited into a savings account for your child under national Education Savinds Scheme ( Skim Simpanan Pendidikan Nasional ) allows you to claim tax deductions. Thers is a limit of RM 3000 for this deduction but spouse who file separate tax returns can each claim this amount . Tax Deduction : RM 3000 per individual For Mr A : As he falls in the 24% tax bracket , this deduction translates to a tax saving of RM 720 ( RM 3000@24%)

2 ) File Separate tax returns
A separate assessment allow each spouse to claim personal tax relief of RM 8000 while a joint tax return allows one spouse to claim a wife or husband relief of RM 3000 Tax Deduction : Each spouse earning Taxable income can claim personal tax relief of RM 8000 by filling separate tax returns.

Tax Deduction : The deductible amount from your taxable income is dependent on the arrangement between you and your employer. For Mr A : Mr A agrees to takle monthly pay cut of RM 1000 for an equivalent increase in his EPF contributions by his employer. To reduce your taxable income .3) Ask your employer to increase your EPF contributions Contributions to the employees Provident Fund (EPF) by employers are taxexempt for the employees.At the end of the year . ask your employer to reduce your EPF monthly salary but increase your EPF contributions by the same amount. The tax saving that he makes is RM 2880 ( RM12000@24%) . he receives an additional RM 12000 in his pension fund but his taxable income is reduced by the same amount.

Mr A makes a tax saving of RM1440 ( RM 6000@24%) . Tax Deduction : The deductible amount from your taxable income is dependent on the arrangement between you and your employer For Mr A : By Changing a yearly fixed allowance of RM 6000 to a reimbursement of the same amount and supported by receipts . Change this to a “ reimbursement “ based on receipt and you are not taxed on the amount received.4) Change your cash remuneration to cash reimbursement Fixed allowances given by your employer each month for entertainment and housing or parking fees are taxable at your tax bracket.

Do the calculations to ascertain your tax deduction. According to the Public ruling for BIKs . a company car is advantageous for taxpayers because the preset tax scale for cars is much lower than the actual cost of buying and maintaining a car.5) Ask for a company car A car given by your employer is regarded as a benefit-in kind ( BIK ) and taxable. . However . the tax payer must pay RM 3600 in taxes every year. the tax payer is taxed an additional RM 1200 for this BIK Tax deduction : Whether you benefit from a company car depends on the value of the car and your current tax bracket. for a car worth RM 75000 If the employer pays for fuel .

Tax deduction : Up to 7% of your aggregate taxable income can be reduced with this deduction. However Charitable donations that were made in 2007 are not subject to this limit. Mr A can make a donation of RM 6300 .6) Make charitable contributions A gift of money to an approved charitable organisation entitles you to a tax deduction for the amount given. this amount cannot exceed 7% of your aggregate income. For Mr A : With his taxable income of RM 90000 . From 2008 onward .This deduction results in a saving of RM 1512 ( RM 6300@24%) .

Mr A can enjoy tax saving RM 1200 from his taxable income ( RM 5000@24%) . but “ must be in an institution or professional body in Malaysia recognised by the government or approved by Minister of Finance Tax Deduction : RM 5000 per individual For Mr A : As he completes his master’s degree . The course does not have to be done full time . the government announced in 2007 Budget the widening of the scope to all postgraduate studies.7) Take Up postgraduate studies A relief of RM 5000 per year for any course of study at the Master’s or doctorate level .

8) Read . Read . journals . Tax Deduction : RM 1000 per individual For Mr A : With book purchases of RM 1000 Mr A saves RM 240 ( RM 1000@24%) . Read Starting from YA 2007 . magazines and other publications. To maximise this generous deduction . taxpayers can claim a personal tax deduction to RM 1000 for purchase of books. consider giving books as gifts.

Mr A makes a saving of RM 71 ( RM 300@24%) .9) Get Sporty You will get a deduction of RM 300 for each year of assessment for the purchase of sports and exercise equipment for any sports activities defined under the Sport Development Act 1997 “ Tax Deduction : RM 300 per individual For Mr A : By buying RM 300 worth of sports equipment .

This Limit is shared with your contributions to the EPF.10) Buy Life Insurance The maximum tax relief is RM 6000 a year for premiums paid to an insurance company for life Insurance or deferred annuity plans. other employer schemes and contributions under any written law relating to widows or orphan pensions Tax deduction : RM 6000 per individual ( shared with your EPF contributions ) .

11) Take out a Medical or Education policy You can claim deductions of up to RM 3000 a year for education and medical insurance ( combined limit for both ) This includes medical coverage that is part of life insurance policy( the limit for life insurance is in move 10 ) A policy of this kind can be written for you . Mr A makes a saving of RM 720 ( RM 3000@ 24%) . your spouse or your child. Tax deduction : RM 3000 per individual For Mr A :After acquiring an education policy for his children .

Mr A makes a saving of RM 1200 ( RM5000@ 24%) .12) Pay your parents’ medical bills You are able to claim up to RM 5000 for payments towards your parents’ medical bills. Tax deduction : RM 5000 per individual For Mr A : By paying his parents’ medical bills .

children or parent Tax Deduction : RM 500 per individual for full medical check-up.The deduction give him of RM 120 ( RM 500@24%) . If you have also spent money on full medical in the same year.spouse. your claim will be reduce the RM5000 available for serious disease. spouse or child for serious disease. RM5000 for serious diseases or basic supporting equipment For Mr A : He claimed for a full medical check-up . A separate tax reduction of up to RM5000 a year is given for necessary basic supporting equipment for disabilities suffered by yourself .13) Medical Claim a deduction of up to RM 500 per tax year for a full medical examination and RM 5000 for medical expenses for yourself.

Tax deduction : The Amount of zakat that you pay .14) Pay Zakat If you are a muslim .paying any amount in zakat . fitrah or other obligation Islamic dues will entitle you to a tax rebate.

For Mr A : Getting a computer for RM3000 gives him a saving of RM 720 ( RM 3000@24%) . printers and bundled software . The similar i9ncentive given previously in the form of a tax rebate was withdrawn with effect from 2007 Tax deduction : RM 3000 once every three years.15) Buy a Computer A deduction of up to RM 3000 can be claimed once every three years for the purchase of computers .

16) Hire a Tax Consultant Consider hiring a tax consultant to explore ways your remuneration package can be structured to maximise your tax savings. . Those who are earning at least RM5000 every month should be able to justify the cost of hiring a tax adviser with their tax savings Tax saving : this is dependent on your personal circumstances and the deal that you negotiate with your employer.

Besides looking for tax-exempt investment . some moves may be advantageous if you fall into a higher tax bracket . from a tax point of view. here are four investment moves to explore . However .Tax – Savvy Investments You may be looking at some investment this year. There are savings to be made from certain investments .

Last year’s budget ( 2008 ) announced a 50% stamp duty exemption for the purchase of houses that do not exceed RM250000 The maximum tax savings that can be found here is RM2000 ( for a house worth RM250000 ) This exemption is only given for one house per individual and applies to sale and purchase agreement signed between September 2007 and December 2010 .17) Buy property valued below or at RM250000 Stamp duty must be paid on all property transactions that involve a change of legal ownership.

commercial and vacant land.18) Buy Similar property Similar property can be grouped together for income tax purposes. taxpayers who are trading property – buying and selling in order to generate income – are liable to income tax. “ This exemption is meant for taxpayers who invest in property for a passive income” Tax deduction : Taxable income received from renting out a property in a particular grouping such as residential can be reduced if a loss was incurred by another property in the same group. if any incurred from the other. you can reduce the taxable profit made from one property with the loss. If you own two property in the same category . . However . Property investors are also exempt from real property gains tax for all disposals on on or after 1st April 2007. The IRB has indentified categories such as residential .

From now on. “The single-tier dividends is intended to simplify the tax filing process for individuals. there is no need to declare or apply for a refund. refunds had been slow. A new single-tier system was established under the national Budget for dividends received by shareholders. “In the past.” he says . Companies pay tax of 26% (YA2008) and shareholders receive a net dividend that is exempt from tax and does not need to be filed with the IRB “Shareholders who fall into higher tax brackets [higher than 26%] are essentially [getting a] saving on the difference. And as corporate taxes are falling.” says Chua Tia Guan.19) Buy shares ( page1 ) Invest in dividend-yielding shares if your tax bracket is above 26%. companies will be able to pass on more profits to their shareholders [in the form of dividends]. executive director and head of tax and financial planning at Great Vision Wealth Management Sdn Bhd.

Tax Deduction Your tax saving is the difference between your tax bracket and 26% (the corporate tax rate). not all companies will go under the single-tier system immediately as some of them might have imputation tax credits left. Shareholders who receive dividends from companies using the imputation system will have to report the amount received and claim a tax refund if his personal tax rate is lower than the company’s tax rate (27% in YA2007. 26% in YA2006).19) Buy shares ( page2) However. which they can use till 2013. . This is only applicable to dividends given out by companies using the single-tier system. Shareholders can identify the system used by the company as it is stated in the dividend vouchers.

the taxpayers are not required to declare the amount in their tax return. Tax deduction: Your tax saving is the difference between your personal tax bracket and 15% .20) Invest in REITs You can go into real estate investment trusts ( REITS )if your tax bracket above 15%. The tax on dividends given out by these property-related investments are taxed at 15% as compared to tax on dividend at 26% ( under the new single – tier dividend system ) Only tax brackets exceeding 15% would enjoy some tax savings by investing in REITs Since the distributions received by individual taxpayers have been subject to that 15% . There are 11 REITs listed on the Main Board.

Here are six . Spend some time strategising for your business activities to save hundreds or thousands ringgit.Moves for Business Owners The first rule that small-business owners should implement with regards to their taxes is to take it seriously.

So Keep the receipts for all supplies that you buy for your business However there is no deduction for capital expenditure although some assets will qualify for tax relief by way of capital allowances . However . This means that as long as a transaction is completed. either a sale of goods or a provision of service . The inland Revenue Board recognises business income on an accrual basis . unpaid transaction can be reduced your taxable income. The General rule is that expenses can be deducted if it is wholly and exclusively incurred in earning your business income.21) Maintain books and records from Day 1 Keep separate bank accounts for personal and business transactions and establish a basic accounting system. its value is immediately treated as business income and is taxable. Any expenses made fro the business can be deducted from the business income.

try to do it before the end of the accounting year. The amount of allowances permitted each year depends on the category that asset falls into . allowance can only be claimed as and when repayments are made to the lender. instead of just after . vehicles computers and software. . If you are contemplating a purchase . to claim the capital allowance against your business income. If you are buying the asset with a hire-purchase loan.( refer to Public Ruling No 2/2001 for the deductible rate of your assets. machinery . The first capital allowance is given for the accounting year in which the asset was purchased and used by the business.22) Time the purchase and use of your fixed assets Capital allowances are permitted for certain business assets such as equipment .

And remember to record all running expenses to make these deductions.” says Thornton. business owners must identify a percentage of the car’s use that is for private activities. “Estimating private mileage is an exercise that must be undertaken in accordance to the facts on your actual usage. You are also deduct a certain amount for capital allowances every year. Before implementing this tax-saving technique.23. Buys a company car If you are a sole trader or a partner in a business. . As there is no definite ruling on how to determine this proportion for private use. any car or vehicle that is used for business purposes can bring about tax deductions. “The business income is reduced by the car’s financing cost if you buy the car on hire-purchase. business owners must apply a fair and reasonable figure that can withstand scrutiny.

“For example. As a partnership has no tax liability. “By opting for separate tax assessments.24. both partners are liable for tax for the respective portion of business income that each earns. The wife’s salary is tax deductible but you must be able to show that she is doing something to earn it. a husband and wife who are partners in a business can each claim individual tax relief. . Hire your spouse or family member An effective tax-saving strategy is to hire a spouse or family member. you would have to contribute to your wife’s Employees Provident Fund (EPF) savings and that amount entitles her to tax relief. This allows you to divide the income made by the business between the both of you. In this situation. Another option is to make your spouse or family member a partner in your business. a husband who is a business owner can hire his wife.

you must include this amount in your taxable income for the year that you received payment. a debt. For example. So put in some effort to recover the debt before deeming it irrecoverable and you must evaluate each debt separately. if you eventually recover bad debts that have been written off or partially written off. At the end of an accounting year. you must show why it it not cost effective to take legal action against a customer. Implement a process to ‘chase after’ unpaid debts Unfortunately. in full or in part. which is estimated to be wholly or partly irrecoverable. The process that you put in place to recover your unpaid debts should be documented and any conclusion that you make should be supported with documentation as well.25. “Tax authorities tend to look closely at bad-debt write-offs and provisions (for debts that are expected to be partly recoverable). small business owners can complete a sale or service but might not receive payment. can be deducted from your business income and this lowers your tax bill. However. .

Dedicate a space in your home office Working in your own house can result in tax deductions for the costs related to your “home office”. This applies to rent that is paid to a spouse who owns the home but is not involved in the business. quit rent and service charges of apartments. If the business owner pays rent for the working area. Items that are used by the business as well as personal use. such as electricity. . If this is an appropriate strategy for the business owner.26. The best way to claim for these deductions is to dedicate a room or place as the working environment. this expense can be deducted from the business income. One way to do so is on the basis of floor area. telephone bills. must be apportioned. This includes electricity. this is strategy is only effective if the spouse who is not involved in the business is taxed at a low tax rate as rental received must be declared as taxable income. “A dedicated area helps to identify expenses that are specifically for business purposes and can be claimed in full. A tenancy agreement that specifies rental for a specific part of the house at the prevailing market rate. However.

Sign up to vote on this title
UsefulNot useful