Personal Financial Planning

Workshop & Tutorial 4

TAX PLANNING

Main Text Chapter 4:

Discussion Question : 1
Case Study

Additional question
 Discussion Question 1
▪ Reducing the tax consequences/liability that may arise because of a transaction.
o These generally involve recharacterizing non-deductible expenses as deductible expenses or
result in income being taxed at a lower rate.
▪ Shifting the timing of taxable events
o Involve tax acceleration or deferrals by shifting the timing of income and/or tax deductions
▪ Shifting income
o Transferring income from one individual to another to lower the marginal tax rate applicable
▪ Not doing joint assessment if both spouses are earning high income and have not fully utilized
their tax reliefs.
▪ Optimizing tax reliefs to ensure that both spouses are placed in the lowest tax bracket for their
salary, if practical.
▪ Any other relevant answer
Other strategies
▪ Shifting income
o Transferring income from one individual to another to lower the marginal tax rate applicable
o Example:
▪ Husband transferring a rented property to his wife who is not working.
▪ Transferring certain assets to trust fund to lower personal tax.
▪ Any other relevant answer.
▪ Not doing joint assessment if both spouses are earning high income and have not fully utilized their tax
reliefs.
▪ Optimizing tax reliefs to ensure that both spouses are placed in the lowest tax bracket for their salary, if
practical.
▪ Any other relevant answer
Case Study Part 1

Calculate John Tan’s benefit in kind for the car and fuel using the:
(a) Prescribed value method
(b) Formula Method

Which method should John Tan select?

 Prescribed Method Formula Method [Based on purchase cost price] Formula Method
[Based on new car price] (With Mileage) (Free Petrol – No Mileage Records)
Example 11 (Section 6.2.10): Example 6 (Section 6.1.4)
Example 21 (Section 8.2.12)
Car Based on Prescribed Table 80% x Cost of car x 1/8 XXXX 80% x Cost of car x 1/8
▪ If the motorcar provided is more than 5 Less : Business Use (XXX)
years old, the annual value of the BIK in -------------- No deduction for business use
respect of that motorcar can be reduced Personal Use XXX
to half (1/2) of the prescribed value.
However, the value of the BIK in respect
of petrol remains unchanged.

▪ Note: This abatement is not applicable if

the value the BIK in respect of the
motorcar is determined under the formula
method.
Fuel Based on Prescribed Table Example 11 (Section 6.2.10): ▪ For actual cost of fuel less than
BIK will be: RM6,000 (Use actual/total amount)
No abatement (i) If there are mileage records (i.e. KM) then the BIK for fuel
would be ▪ For actual cost more than RM6,000.
= (Actual value of petrol x Personal mileage/Total Use the lower of:
Mileage)** or ▪ Prescribed value
= Actual value of petrol – (Business mileage/Total ▪ Actual cost of fuel minus
Mileage) X Actual Cost of petrol**
RM6,000 (if the actual cost is
(ii) Can also deduct any amounts paid by employee to the
employer in respect of this fuel benefit. more than RM6,000

http://phl.hasil.gov.my/pdf/pdfam/PR_11_2019.pdf
 Case Study
Part 1 (a) BIK Car- Prescribed method
Based on the prescribed value method table:

The prescribed value for the car valued at RM135,000

= RM5,000

Additional tax rules on fuel: The lower of:

▪ Fuel prescribed value = RM 1,500 (No abatement)

Thus, the total BIK based on the prescribed method = 5,000 + 1,500 = RM6,500
 Part (b) BIK- Formula Method (With Mileage)

Based on the calculation above, it is better for to use the Prescribed Method as it will result in a lower BIK for Car
and Fuel. As such, in this case it would be more beneficial for John Tan to use the Prescribed Method which would
result in a lower aggregate and chargeable income, ceteris paribus.
Case Study Part 2
Public Ruling 5/19
Income Tax Act 1967
Tax Rates for Malaysian resident individuals

Source : Lembaga Hasil Dalam Negeri Website

 Case Study Part 3
What would be John Tan’s tax savings if he agrees to take the salary package with the
company car for Y/A 2019?
Case Study Part 4
 Case Study Part 5
Tax Areas/Concepts
▪ Restructuring of salary package
▪ Non-exempt income
▪ Gifts/Donations
▪ Tax Relief
 Consider doing a combination of these

Suggested answers
• John could transfer the house to Rachel and in so doing transfer the rental income to her. This will lower the household
tax payable.
• In future, Rachel should pay for the medical bills for her mother (receipt under her name) to be entitled to the tax relief for
medical expenses for the parent.
• They should consider investing in Private Retirement Schemes or approved annuity/retirement schemes where each of
them could be entitled to RM3,000 relief up to the Y/A 2020. Rachel could consider buying some life insurance to get a
maximum tax relief of RM3,000.
• They should use separate rather than joint assessment (Provide reasons and justification)
• John should consider putting some of the cash donations (up to 7% of Rachel’s income) under Rachel’s name.
• Any other relevant answer

Note:
For the exam and assignment, you should give examples from different areas of tax- not just tax reliefs.
Short Answer Question 2 Part (a)
There are differences in tax treatments between tax residents and non-residents.
▪ Tax reliefs are available for individual residents and these individuals are tax
based on the marginal tax rates based on a graduated tax schedule.
▪ However, only tax residents will be entitled to tax reliefs..
▪ Residents are taxed on bands of chargeable income rates but Non –residents
are taxed on a flat rate
 Tax Rates for Non-Residents

Type of income Y/A 2010–14 Y/A 2015 Y/A 2016–19 Y/A 2020- 2023 As a non-resident an individual will not be taxable if he/she:
• Is employed in Malaysia for less than 60 days
· Business, trade or profession • Is hired to work on board a Malaysian ship
· Employment 26% 25% 28% 30% • Is receiving pension from Malaysian employment and is 55
years old and above.
· Rental • Receiving interest from banks (refer list)
• Receiving tax exempt dividends
· Interest income
15% 15% 15% 15%
· Public entertainer
· Royalty Income If taxable, you are required to fill in M Form.

· Technical/Management fees 10% 10% 10% 10%

· Rental of movable property Source : Lembaga Hasil Dalam Negeri Website
 Determination of tax residency
The tax residency rules are laid out in Section 7(1)(a) to 7(1)(d) of the Malaysian Income Tax Act 1967.
Generally, an individual is a resident if one of the four criteria below is satisfied:
a) He/she was in Malaysia for not less than 182 days in the relevant basis year.
b) He/she is in Malaysia for a period of less than 182 days (“shorter period”) in the basis year and that period
is linked to another continuous period which is not less than 182 days (“longer period’) immediately before
or after the relevant basis year. The temporary absence can be for business trips, conference/seminars
etc, medical reasons and/or social visits.
c) He/she is in Malaysia for not less than 90 days (need not be consecutive) in the basis year and is resident
or has been in Malaysia for 90 days or more in 3 out of 4 preceding years.
d) He/she was not in Malaysia in the relevant basis year but he/she is deemed to be a resident in Malaysia
in the relevant basis year if he/she is resident in Malaysia in the following basis year and also resident in
each of the 3 basis years immediately preceding the relevant basis year.
 Short Answer Question 2 Part (b)
From To Number of days Year of assessment and Total days in Malaysia Tax residency

3 Jan 2015 31 Mar 2015 88 Y/A 2015 = 122 days Non -resident – Section 7(1)(a)

5 Jul 2015 7 Aug 2015 34

2 Jan 2016 2 May 2016 122 Y/A 2016 = 122 days Non -resident – Section 7(1)(a).
However, Y/A 2016 is linked to Y/A 2017. If the
period of temporary absence is acceptable to IRB
then Maddox will be deemed a tax resident under
Section 7(1)(b).

1 Mar 2017 5 Apr 2017 36 Temporary absence for reasons such as business
trips, treatment for ill-health and social visits less
6 Jun 2017 9 Sep 2017 96 Y/A 2017 = 193 days
than 14 days are counted as part of consecutive
days.
1 Nov 2017 31 Dec 2017 61
Assuming that the period of temporary absence is
acceptable to IRB. He will be deemed to be a tax
resident under Section 7(a)(1).