TYPES OF EMPLOYMENT

INCOME
SEC. 13(1) a to e
ITA, 1967

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 TYPES OF EMPLOYMENT INCOME

13(1)a 13(1)b 13(1)c 13(1)d

MONETARY OR BENEFITS IN VALUE OF REFUND FROM
NEAR MONETARY KIND (BIK) UNFURNISHED UNAPPROVED FUND
BENEFITS ACCOMODATION
13(1)e
COMPENSATION FOR
LOSS OF OFFICE AND
Wages, Company car, ENTERING INTO
Salary, Bonus, mobile phone, RESTRICTIVE
Allowances, furniture, CONVENANT
Gratuity and interest
etc. subsidy and
etc.
 Types of Employment Income
• 13(1)(a): Any wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity,
perquisite or allowance (whether in money or otherwise) in respect of having or
exercising the employment.
• 13(1)(b): An amount equal to the value of the use or enjoyment by the employee of any
benefit or amenity (not being a benefit or amenity convertible into money) provided for
the employee by or or behalf of his employer.
• 13(1)(c): An amount in respect of the use or enjoyment by the employee of living
accommodation in Malaysia (including living accommodation in premises occupied by
his employer) provided for the employee by or on behalf of the employer rent free or
otherwise.
• 13(1)(d): So much of any amount (other than a pension, annuity or periodical payment
falling under section 4(e)) received by the employee whether before or after his
employment ceases, from a pension or provident fund, scheme or society not approved
for the purpose of this Act.
• 13(1)(e): Any amount received by the employee, whether before or after his employment
ceases, by way of compensation for loss of the employment.
 Sec. 13(1)a
Cash Received

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 Sec. 13(1)a - gross employment
income includes:
• Any wages, salaries, remuneration, leave pay,
fee, commission, bonus, gratuity, perquisite or
allowance (whether in money and otherwise)
in respect of having or exercising the
employment

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 Section 13(1)(a)

Settlement of
Monetary Benefits Convertible
the Employee’s
Benefits To Cash (Perquisite)
Financial
Liabilities
• Wages, Salary, Bonus, • Share Issue,
Commission, Gratuity, Share
Allowances, Inducement • Home Electricity Bill,
Options and
Payments, Gifts, etc. Income Tax Payable,
Testimonials and etc. Reimburses Servant
Salary or Gardener
Salary, and etc.
 Impact of “having or exercising”
Payment need not from the employer, as long as it is received in
the capacity of having an employment – ex. Tips received by a
waiter
Payment need not be from the employer -- Tips paid to waiter.
Payments for services rendered are taxable
Payments for the taxpayer personal success are not taxable –
Award given to a bank clerk for passing the Institute of Bankers
Examination.
Payments which are not in respect of taxpayers services to the
company are not taxable.
Rewards for personal qualities are not taxable.
Payments to meet personal distress such as compensation for
house damage is not taxable.
 Bonus

• Not defined by the Act

• It is a gift over and above what is normally due as
remuneration (Re Eddystone Marine Insurance)
• It is paid in addition to salary (Radcliffes v Holt)
• Objective of bonus – an incentive to the employee for
better service and loyalty to the employer

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 Characteristics of bonus
assessable to tax under S 13(1) a

• Bonus is paid in addition to the salary –

contractual or non-contractual
• The amount can be fixed or contingent subject
to the company’s profits
• Bonus is paid by reference to services
rendered
• Bonus is paid in recurring basis

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 Gratuity or gift??
• Gratuity – money present of amount fixed by
giver in recognition of inferior’s good office
• Normally paid in the course of employment upon
resignation or retirement
• Gift – paid in recognition of the personal
qualities of the employee in his private capacity
and not for service rendered
• Gratuity- taxable
• Gift- non taxable

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 Exemption of gratuity
(Sch 6, para 25, 25A and 25B, 25D)
Full exemption
• Retirement due to ill-health (Para 25(1)a)
• Retirement- compulsory retirement age under written law i.e. age 55 (Para
25(1)b)
– Have served 10 years with the same employer or companies in same group.
– 10 years must be continuous immediately prior to retirement
• Retired at age 50 but before 55 [Para 25(1c)] pursuant to the contract of
employment/or collective agreement
– Have served 10 years with the same employer or companies in same group.
• Government servant- retirement [Para 25A]
• Government servant- termination of contract [Para 25B]
Partial exemption: w.e.f YA2016 (para 25D)
• Exemption of RM1,000 for each completed year of service on gratuity
payment
Death Gratuity or compensation for injuries (para 14)
 Perquisite or Allowance
(in term of money or otherwise)
• Clothing allowance
• Traveling and entertainment allowance
– If the employee incur any expense in performing
his duties, this expense would be allowed as
deduction - receipts as a proof
• gift vouchers for the purpose of maintaining good
connection with staff- prequisite

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 Perquisite or Allowance
(in term of money or otherwise)
• Loan to employee
– Internal fund- not taxable
– External fund- taxable on the amount of interest expense
incurred by the employer
• Inducement payment- capital receipts
• Share option and share incentive scheme- perquisite
under 13(1)a
– The different between option price and market price is
assessable to tax
– The perquisite is taxed in the year the option was exercised

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 Share option
• Perquisite value is the lower of:
– Market value at the time the option was granted; or
– Market value at the time the option was exercised
Less: option price
• Example:
Pn Laila was granted an option to acquire 1 lot of ABC Bhd
shares on 1.3.2015 at RM1.20. The market price at that time
was RM5. Pn Laila exercised the option on 1.5.2016, market
price was RM6.50. compute the prequisite to Pn Laila for
YA2016.
 Others taxable perquisites provided by employer
• School and tuition fees for children
• Insurance premium
• Gift of personal computer- the market value
(YA2008-2010-exempted)
• Professional subscriptions
• Excellent public service award
– Exemption of RM2,000 w.e.f YA 2008
• Financial liabilities such as income tax, utilities bill
(paid by employer, give to or reimburse to
employee)
• Credit card facilities
• Assets provided free of charge or sold at discount
price
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 Allowance and reimbursement

• Allowance – taxable
• Reimbursement of expenses incurred during
the course of employment – is not treated as
income of an employee – not liable to tax
• Reimbursement of expenses incurred not
related to the employment - taxable

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 Exemption of the perquisites
• W.e.f YA 2008
– Petrol card or allowances or travelling allowance and toll
card for official duties up to RM6,000/year
– Parking allowance
– Meal allowance
– Childcare allowance up to RM2400/year (age below 12)
– Phone bill
– Employer’s good purchase at discount below RM1000/year
 Sec. 13(1)b
Benefit in Kind

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 Sec. 13(1)b- gross employment income
includes:
• An amount equal to the value of the use or enjoyment by the
employee of any benefits or amenity (not convertible into money)
provided for the employee by or on behalf of his employer,
excluding –
i. Benefit of medical or dental treatment of benefit for child care;
ii. Benefit consisting of:
• Leave passage for travel within M’sia not exceeding 3 times in any
calendar year; or
• One leave passage for travel between M’sia and any place outside M’sia,
in any calendar year (Max = RM3,000/per person) with effect to YA 1999
iii. Benefit used by the employee solely in connection with the
performance of his duties; and
iv. A benefit fall under S. 13(1)c

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 Benefit in Kind [BIK] (S. 13(1)b )
• Benefit that cannot be convertible into cash
• Include furniture, uniform, mobile phone, car and etc.
• The income value depend on the cost to the employer
providing it.
• IRB issued a guideline a public ruling PR 2/2004 on
8/11/2004 governing the assessability of BIK provided
to employee

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 Leave passage
• W.e.f YA2007, leave passage for travel would include
meals and accommodation costs together with costs
of passage such as air fares, insurance and transit
costs.
• S. 13(1)(b)(ii)- exemption of RM3,000 applies to
each person of employee and his/her family members.
– Case: National Land Finance Co-operative v GR IRB
(1993)
– Case: DG IRB v MCI Society Ltd (2000)
 BIK – MV and related benefit.
Car benefits
When employer provides MV to employee for business and
private use, the benefits to be assessed based on the table
provided by IRB or using a formula.
• Car with fuel
• Car without fuel
• Fuel without car
• Provision of driver - assessed at fixed amount of
RM600/month
• Age of car > 5 years, annual value of the car would be reduce
by half but fuel remain the same.
• Proportionment of annual value of car and fuel if they were
not provided for a full year.

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 CAR- BIK
Cost of new car Annual value of Fuel per
(RM)- exclude car benefit (RM) annum
insurance and roadtax (RM)
Up to RM50,000 1,200 600
50,001 - 75,000 2,400 900
75,001 - 100,000 3,600 1,200
100,001 – 150,000 5,000 1,500
150,001 – 200,000 7,000 1,800
200,001 – 250,000 9,000 2,100
250,001 – 350,000 15,000 2,400
250,001 – 500,000 21,250 2,700
>500,001 25,000 3,000
 Formula for calculating BIK
• Motor vehicle
Cost of the car x 80% = annual value of benefit
Average lifespan of asset (8 years)
– Cost = cost incurred by employer or market value
• household furniture and appliance
Cost of the assets = annual value of benefit
Average lifespan of asset

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 lifespan of asset
• Car 8 years
• Furniture and fittings;
– Curtains and carpet 5
– Furniture, sewing machine 15
– Air-conditioner 8
– Refrigerator 10
– Kitchen equipment 6
• Entertainment
– Piano 20
– Organ 10
– Home theatre 7
– Swimming pool 15
• Miscellaneous 5

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 Instead of using the formula, one can used
the prescribe value table for BIK
• Semi-furnished with furniture in the lounge, dining or
bed room = RM 840/year
• Semi-furnished with furniture in the lounge, dining or
bed room plus air- conditioners, curtains and carpets
= RM 1,680/year
• Fully-furnished = RM3,360 / year

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 Other BIK
• Utilities billed (employer name) paid by employer
• Insurance premium paid by employer on the life of the employee
• Membership in recreation clubs
• Gardener/domestic servant
– Gardener – RM3,600 / year
– Domestic servant – RM4,800 / year
– Guard - RM4,800 / year
• Mobile phone (prior to YA 2008)
– Hardware – RM300 / telephone
– Bill – RM300 / telephone

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 Sec. 13(1)c
Living Accommodation-
for private residential purposes

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 Sec. 13(1)c- gross employment income
includes:
• An amount in respect of the use or enjoyment by
the employee of living accommodation in M’sia
(including living accommodation in premises
occupied by his employer) provided for the
employee by or on behalf of the employer rent free
or otherwise.
• Only the value of the unfurnished living
accommodation will be assessed.
• Furniture will be assessed under 13(1)b

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 Value of the accommodation; for
employee and service director
• Either
(a) defined value of the living accommodation; or
(b) 30% of the employees’ gross income under sec.
13(1)a.
• Define value is the rental value or
• if not determinable, the rateable value or economic
rent.
• Service director is a director who;
– Owns less than 5% of the company's share
– Act in a managerial or technical capacity.

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 Value of the accommodation; for
director of a controlled company
• defined value of the living accommodation;
• The value can be proportionate if
– The accommodation is provided less than 12 months;
and
– It is shared with other employees

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 Shared accommodation Sec. 32(3)c

• Shared with other employees of the same employer;

• The employee is required by the employer to reside
therein;
• The employee is required or expected to use part of the
accommodation for business purposes
– Then the defined value of the accommodation would be
apportioned and compared with 30% of Sec. 13(1)a.
– The lower amount would be taken as gross income under
sec. 13(1)c

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 Accommodation provided less than 12
months
• Comparison for the lower amount of defined value
or 30% of Sec. 13(1)a; then
• The value of living accommodation is appropriately
reduced on a time basis [Sec. 32(3)b]

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 Accommodation provided in
hostel/hotel
• For employee and service director
– 3% of gross income under section 13(1)a
– The value would be reduce on times basis is it is
provided less than 12 months.
• For director of controlled company
– Defined value of the accomidation.
 Sec. 13(1)d
income from unapproved fund

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 Sec. 13(1)d- gross employment
income includes:
• “Any amount received by the employee, before or
after his employment ceases, from a pension or
provident fund, scheme or society not approved for
the purpose this act, where the employer had made
contribution in respect of the employee to the
fund.”
• The full amount would be assessed in the year of
withdrawal.

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 Sec. 13(1)e
income received for loss
of the emploment

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 Sec. 13(1)e- gross employment
income includes:
• “Any amount received by the employee, before or
after his employment ceases, by way of
compensation for loss of the employment,
including any amount in respect of –
– A contract entered by the employee restricting his right
after living the employment to engage in employment of
a similar kind

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 Amount received under Sec 13(1)e
includes;
• Salary or wages in lieu of notice
• Compensation for breach of contract of service
• Payment for the release of the employer’s
obligation under contract of service
• Retrenchment payment
• Restrictive contract.

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 Exemption –for the compensation
received
• Total exemption on the amount received due to ill-
health
• Partial exemption – payment in connection with a
period of employment with the same employer or
with companies in the same group
– RM 10,000 for each completed year of service, if
the compensation is paid after 1/7/2008

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