26Tax-SavingMovesThey are legal and permitted by Inland Revenue
Board ( IRB )1) Save for your Childs 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 the24% tax bracket , this deduction
translates to atax 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.3) Ask your
employer to increase your EPF contributions Contributions to the
employees Provident Fund (EPF) by employers are tax-exempt for the
employees. To reduce your taxable income , ask your employer to
reduce your EPF monthly salary but increase your EPF contributions
by the same amount. 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.At the end of the year , he receives an additional RM
12000 in his pension fund but his taxable income is reduced by the
same amount. Thetax savingthat he makes is RM 2880( RM12000@24%)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. Change
this to a reimbursement based on receipt and you are not taxed on
the amount received. 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 ,
Mr A makes atax saving of RM1440( RM 6000@24%)5) Ask for a company
car A car given by your employer is regarded as abenefit-in kind(
BIK )and taxable. However , 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. According to the
Public ruling forBIKs , the tax payer must pay RM 3600 in taxes
every year, for a car worth RM 75000 If the employer pays for fuel
, the tax payer is taxed an additional RM 1200 for thisBIK Tax
deduction :Whether you benefit from a company car depends on the
value of the car and your current tax bracket. Do the calculations
to ascertain your tax deduction.6) Make charitable contributions
Agift of money to an approved charitable organisation entitles you
to a tax deduction for the amount given. From 2008 onward , this
amount cannot exceed 7% of your aggregate income. However
Charitable donations that were made in 2007 are not subject to this
limit. Tax deduction:Up to 7% of your aggregate taxable income can
be reduced with this deduction. For Mr A : With his taxable income
of RM 90000 , Mr A can make a donation of RM 6300 .This deduction
results in asaving of RM 1512( RM 6300@24%)7) Take Up postgraduate
studies A relief of RM 5000 per year for any course of study at the
Masters or doctorate level , the government announced in 2007
Budget the widening of the scope to all postgraduate studies. The
course does not have to be done full time , 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 masters degree . Mr A
can enjoytax saving RM 1200from his taxable income ( RM 5000@24%)8)
Read , Read , Read Starting from YA 2007 , taxpayers can claim a
personal tax deduction to RM 1000 for purchase of books, journals ,
magazines and other publications. To maximise this generous
deduction , consider giving books as gifts. Tax Deduction: RM 1000
per individual For Mr A : With book purchases of RM 1000 Mr A saves
RM 240 ( RM 1000@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 , Mr Amakes a
saving of RM 71( RM 300@24%)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. This Limit is shared
with your contributions to the EPF, 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 , 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 asaving of RM 720( RM 3000@ 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 , Mr
Amakes asaving of RM 1200( RM5000@ 24%)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, spouse
or child for serious disease. If you have also spent money on full
medical in the same year, your claim will be reduce the RM5000
available for serious disease. A separate tax reduction of up to
RM5000 a year is given for necessary basic supporting equipment for
disabilities suffered by yourself ,spouse, children or parent Tax
Deduction :RM 500 per individual for full medical check-up.RM5000
for serious diseases or basic supporting equipment For Mr A : He
claimed for a full medical check-up .The deduction give him of RM
120 ( RM 500@24%)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. Tax deduction:The Amount of zakat that
you pay15) Buy a Computer A deduction of up to RM 3000 can be
claimed once every three years for the purchase of computers ,
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. For Mr A :
Getting a computer for RM3000 gives him a saving of RM 720 ( RM
3000@24%)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.Tax Savvy Investments You may be looking at some
investment this year. There are savings to be made from certain
investments , from a tax point of view. However , some moves may be
advantageous if you fall into a higher tax bracket. Besides looking
for tax-exempt investment , here are four investment moves to
explore17) Buy property valued below or at RM250000 Stamp duty must
be paid on all property transactions that involve a change of legal
ownership. Last years budget ( 2008 ) announced a50% stamp duty
exemptionfor 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 201018) Buy Similar property
Similar property can be grouped together for income tax purposes.
The IRB has indentified categories such as residential , commercial
and vacant land. If you own two property in the same category , you
can reduce the taxable profit made from one property with the loss,
if any incurred from the other. Property investors are also exempt
from real property gains tax for all disposals on on or after 1st
April 2007. However , 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.19) Buy shares( page1 ) Invest in dividend-yielding shares if
your tax bracket is above 26%. A new single-tier system was
established under the national Budget for dividends received by
shareholders. 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. The single-tier dividends is intended to simplify
the tax filing process for individuals, says Chua Tia Guan,
executive director and head of tax and financial planning at Great
Vision Wealth Management Sdn Bhd. In the past, refunds had been
slow. From now on, there is no need to declare or apply for a
refund. And as corporate taxes are falling, companies will be able
to pass on more profits to their shareholders [in the form of
dividends], he says. However, not all companies will go under the
single-tier system immediately as some of them might have
imputation tax credits left, which they can use till 2013.
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 companys
tax rate (27% in YA2007, 26% in YA2006). Shareholders can identify
the system used by the company as it is stated in the dividend
vouchers. Tax Deduction :Your tax saving is the difference between
your tax bracket and 26% (the corporate tax rate). This is only
applicable to dividends given out by companies using the
single-tier system.20) Invest in REITs You can go into real estate
investment trusts ( REITS )if your tax bracket above 15%. There are
11 REITs listed on the Main Board. 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% , 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%Moves for Business Owners
The first rule that small-business owners should implement with
regards to their taxes is to take it seriously. Spend some time
strategising for your business activities to save hundreds or
thousands ringgit. Here are six21) Maintain books and records from
Day 1 Keep separate bank accounts for personal and business
transactions and establish a basic accounting system. The inland
Revenue Board recognises business income on an accrual basis . This
means that as long as a transaction is completed, either a sale of
goods or a provision of service , its value is immediately treated
as business income and is taxable. However , unpaid transaction can
be reduced your taxable income. Any expenses made fro the business
can be deducted from the business income. The General rule is that
expenses can be deducted if it is wholly and exclusively incurred
in earning your business income. 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 allowances22) Time the purchase
and use of your fixed assets Capital allowances are permitted for
certain business assets such as equipment , machinery , vehicles
computers and software. The amount of allowances permitted each
year depends on the category that asset falls into .( refer to
Public Ruling No 2/2001 for the deductible rate of your assets. The
first capital allowance is given for the accounting year in which
the asset was purchased and used by the business. If you are
contemplating a purchase , try to do it before the end of the
accounting year, instead of just after , to claim the capital
allowance against your business income. If you are buying the asset
with a hire-purchase loan, allowance can only be claimed as and
when repayments are made to the lender.23) Buys a company car If
you are a sole trader or a partner in a business, any car or
vehicle that is used for business purposes can bring about tax
deductions. The business income is reduced by the cars financing
cost if you buy the car on hire-purchase. You are also deduct a
certain amount for capital allowances every year, Before
implementing this tax-saving technique, business owners must
identify a percentage of the cars use that is for private
activities. As there is no definite ruling on how to determine this
proportion for private use, business owners must apply a fair and
reasonable figure that can withstand scrutiny. Estimating private
mileage is an exercise that must be undertaken in accordance to the
facts on your actual usage. And remember to record all running
expenses to make these deductions, says Thornton.24) Hire your
spouse or family member An effective tax-saving strategy is to hire
a spouse or family member. For example, a husband who is a business
owner can hire his wife. The wifes salary is tax deductible but you
must be able to show that she is doing something to earn it, In
this situation, you would have to contribute to your wifes
Employees Provident Fund (EPF) savings and that amount entitles her
to tax relief. Another option is to make your spouse or family
member a partner in your business. This allows you to divide the
income made by the business between the both of you. As a
partnership has no tax liability, both partners are liable for tax
for the respective portion of business income that each earns. By
opting for separate tax assessments, a husband and wife who are
partners in a business can each claim individual tax relief.25)
Implement a process to chase after unpaid debts Unfortunately,
small business owners can complete a sale or service but might not
receive payment, in full or in part. At the end of an accounting
year, a debt, which is estimated to be wholly or partly
irrecoverable, can be deducted from your business income and this
lowers your tax bill. Tax authorities tend to look closely at
bad-debt write-offs and provisions (for debts that are expected to
be partly recoverable). So put in some effort to recover the debt
before deeming it irrecoverable and you must evaluate each debt
separately. 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. For example, you
must show why it it not cost effective to take legal action against
a customer. However, if you eventually recover bad debts that have
been written off or partially written off, you must include this
amount in your taxable income for the year that you received
payment.26) 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 includes electricity, telephone bills, quit
rent and service charges of apartments. The best way to claim for
these deductions is to dedicate a room or place as the working
environment. A dedicated area helps to identify expenses that are
specifically for business purposes and can be claimed in full.
Items that are used by the business as well as personal use, such
as electricity, must be apportioned. One way to do so is on the
basis of floor area. If the business owner pays rent for the
working area, this expense can be deducted from the business
income. This applies to rent that is paid to a spouse who owns the
home but is not involved in the business. However, 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. If this is an appropriate strategy for the business
owner, A tenancy agreement that specifies rental for a specific
part of the house at the prevailing market rate.