26 Tax-Saving Moves

They 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 Savings 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.

3) Ask your employer to increase your EPF

contributions

Contributions to the employees Provident Fund (EPF) by employers are taxexempt 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 take 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.

The tax saving that 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 a tax saving of
RM1440 ( RM 6000@24%)

5) Ask for a company car

A car given by your employer is regarded as a benefit-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 for BIKs , 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
this BIK

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

A gift of money to an approved charitable organization 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 a saving 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 recognized 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 enjoy tax saving RM
1200 from 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 maximize 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 A makes 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 a
saving 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 A makes a saving 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 pay

15) 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 maximize 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
explore

17) 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 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

18) 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

19) Buy shares ( page2)

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 strategizing for your business activities to save hundreds or
thousands ringgit.
Here are six

21) 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 recognizes 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 allowances

22) 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.