Chapter 3

EMPLOYMENT
INCOME
 Introduction
Employment Income = income
that is derived or earned from
exercising an employment.
Employment income is assessable
to income tax under Section 4(b)
of ITA 1967 (as amended)
 Meaning of employment
 Defined in section 2 ITA:
a. “When there is a relationship of a master
and a servant;
b. “When there is an appointment of office,
whether public or not and whether or not
that relationship between master and
servant subsists, as a result of which
remuneration is payable” eg: factory
worker, accountant, director, lecturer.
 Meaning of employment -continued
 Employee : the servant who is being employed
by the employer;
 Employer : the master who is employing the
employee or paying any remuneration to the
employee who has the employment.
 Types of Employment
Income [S13(1) of ITA]
 Divided into 5 subsections:
1. Sec 13(1)(a)
2. Sec 13(1)(b)
3. Sec 13(1)(c)
4. Sec 13(1)(d)
5. Sec 13(1)(e)
 Sec 13(1)(a)
“Any wages, salary, remuneration,
leave pay, fee, commission,
bonus, gratuity, perquisites or
allowances in respect of having or
exercising the employment”
Covers cash & perquisites.
Not constitute a reward/gift for
personal qualities/ payment to
meet personal distress.
 Gratuity - S13(1)(a)
 Gratuity – also called ex-gratia payment/
golden-hand-shake.
 A sum of money given to employee in
recognition of past year services upon
resignation/retirement.
 Taxable in full unless exemption is granted.
 Full exemption :
i. Due to ill health, OR
ii. Retired when reach the age 50, bfore 55 yrs
AND 10 yrs service (continuous) with the same
employer.
iii. Government servant – retirement
iv. Government servant - termination
 Gratuity – S13(1)(a)
 WEF 2016, exemption of RM1000 for every
completed year. – page 137 new book

 Before 2016,Treatment of gratuity ( Age less than 55) :

 If total period of employment > (exceed) 4 years – gratuity
amt is divided (or spread back) equally over 5 years.
 If total period of employment < 4 yrs – gratuity amt is
divided over the actual number of years and months.

(See page 140 for example in the textbook)

 Annie Chua resigned on 1.6.2017. Ah was paid a gratutity of
RM80,000 on 1.8.2017 for 10 years .
 The amount of gratuity to be assessed would be:
RM
Gratuity 80,000
- Exemption (rm1000x 10) (10,000)
70,000

 If the gratuity took place in YA 2016, THE AMOUNT OF

GRATUITY WOULD BE SPREAD BACK OVER 5, WHICH
IS RM16,000.
Share option- S13(1)(a) –pg 99
 If the employee acquire shares, he will be taxable on
the income under section 13(1)(a).

 The income is calculated by taking the excess of

market price over the option price at the time the
option was granted (issue) and not at the time the
option was exercised (sell/buy).

 Section 32(1A) provides the manner to compute the

perquisite value. It is the lower of:
a. Market value at the time the option was granted
(exercisable)
b. Market value at the time the option was exercised

(Example page 99
Perquisites / allowances (Page:111)
 Excellence service – Tax exemption of RM2,000 for each employee
is given for long service award, past achievement award, service
excellence/innovation/productivity award.
 Pecuniary liabilities – is situation when personal liabilities of the
employee are settled by employer/claimed as reimbursement, eg.
Personal tax, car maintenance on employee’s car : Taxable
 Credit card facility – taxable for private usage , annual fee
 Scholarship – Exempted but salary paid during study leave is taxable
 Asset provided FOC/sold at discounted price : Eg car and houses, the
taxable amt is market value less amt paid by employee.
 Section 13(1)(b)
 Covers benefits that are not convertible
into money or does not have an exact
monetary value.
 Commonly known as “benefit in kind”
provided by an employer to an employee
e.g furniture, car, house.
 The income assessable would depend on
the cost to the employer providing it.
 Motor vehicles and related
benefit –Sec 13(1)(b)
 Where an employer provides MV to the
employee for both business and private use, the
benefits assessed will be based on the value of
the car and fuel provided in accordance with the
table.(Table 2.2.1 pg 114)
 If the age of the car > 5 yrs, annual value would
be reduced by half. Fuel value unchanged.
 IRB allows proportionment of the annual value if
the car benefits is not provided for a full year.
(Example Page 115)
 Driver – S13(1)(b)
 The employer may provide a driver to the
employee.
 The salary would be borne by the employer
and the employee would be assessed a
fixed amount of RM600 per month.
 The actual salary of the driver is not
relevant in ascertaining the taxable benefit
of an employee.
 Gardener / Domestic Servant/
Guard- S13(1)(b)
 In the event gardener/domestic servant are
provided, the employee would be assessed:
 Gardener–RM300 monthly/RM3,600 yearly.
 Domestic servant/Guard–
RM400monthly/RM4,800 yearly.
 Time apportionment is allowed if the usage less
than a year.
 If the amt paid for gardener/domestic servant is
claimed on reimbursed basis ( i.e the employee
hires and pays the servant and claims the costs
from his employer), it would be assessable under
Section 13(1)(a).
Household furniture & appliances –
S13(1)(b)
• Prescribed value method:
i. Semi-furnished with furniture in the lounge, dining
room or bedrooms – RM70 per month.
ii. Semi-furnished with furniture as in (i) above plus, one
or more of the following: curtains, air conditioners, and
carpets – RM 140 per month
iii. Fully-furnished with benefits as in (i) and (ii) above
plus, one or more of kitchen equipment, crockery,
utensils and appliances – RM280 p.m
• Formula method : Other household appliances
= Cost of the asset providing benefit / average lifespan
of asset
 Leave Passage- S13(1)(b)
 The benefit of leave passage enjoyed by an
employee & members of immediate family
in a calendar yr is tax exempt subject to
limits of:
- 3 leave passage for travel within M’sia.
- 1 leave passage for travel outside M’sia.
The amount is limited to RM3,000 per
person.
 Leave passage for travel is restricted to
costs of passage such as air fares,
insurance and transit costs but not hotel
accomodation. (Page 121-122)
 Tax exempt benefits
 Goods & services offered at a lower price
or at discount- goods for everyday
consumption sold by employer.
 Free transport, eg. factory bus for factory
workers.
 Food and drinks provided or subsidised by
employer.
 Medical, dental treatment and child care
benefit.
 Relocation package
 Summary of Section 13(1)(b)
Section 13(1)(b)
Car xx
Fuel xx
Furniture xx
Driver/ Gardener xx
Utilities bills xx
Domestic servant /Guard xx
Membership fees xx
GROSS INCOME S13(1)b xxx
 Section 13(1)c
 Covers free or subsidized living accommodation
(unfurnished) provided by employer.
• The value of living accommodation for
employee or service director :
1. Defined value of living accommodation
2. 30% of the employee’s gross income under
S13(1)(a),Whichever is lower.
 Service director – a director who owns less than
5% shares in the com. & act in a
managerial/technical capacity.
 Defined value –rental value/ rateable
value/economic rent.
 Section 13(1)c
 Accommodation provided to a director of
controlled co.- the comparison with the 30% of
the sec.13(1)(a) is not applicable.
- Director is assessed on the full defined value.
 Living accommodation for employee/service
director/director can be apportioned under 2
circumstances:
1) If the accommodation is provided < 12 months
2) If it is shared with other employee/ use for co.’s
interest.
 Section 13(1)c
 If accommodation is shared under this
condition:
– is shared with other employees of the same
employer
– the employee is required/expected by the
employer to use part of accommodation for
advancing the employer’s interest; eg:
entertaining clients
 Thus, the defined value is apportioned &
compared with S13(1)a – w/ever is lower
 Hotel – Sec 13(1)c
 If hotel / hostel / house located in a
plantation/ forest situated rateable area was
provided to employee or service director –
the value is to be taken as 3% of his gross
income under S13(1)(a).
 The value can be apportioned if it is < 12
months but no adjustment for shared
accommodation.
 For directors of controlled com. – the full
defined value is to be taken and not the
value of 3% of S13(1)(a).
 Section 13(1)(d)
 S13(1)(d) income include:
a. Contribution made by employer to the
unapproved pension or provident fund,
scheme or society; and
b. Any income earned (interest, bonus, etc)
by such unapproved fund and credited to
the employee.
 Section 13(1)(e)
 Any amt received b4 or after employment
ceases, by way of compensation for loss of
employment.
 The scope of S13(1)(d):
i. Salary or wages in lieu of notice
ii. Compensation for breach of contract
iii. Payment for the release of the employer’s
obligation under contract of service
iv. Ex-gratia eg: retrenchment pmt, severance pay
v. Restrictive covenant.
 Exemption of Compensation
 Exemption will be given to employee or
service director only. Director is not
entitled.
 Full exemption- due to ill health
 Partial exemption – RM10,000 for each
completed year of service with the same
employer or companies in the same group
(w.e.f. 1 July 2008 onwards)
 Allowable expenses – Sec 33
 In arriving at the Adjusted/Statutory income from
employment, there are revenue expenses that are
deductible against Gross employment income.
 These expenses should be “wholly and
exclusively” incurred in the performance of the
employee’s duties.
 Eg: Traveling, Entertainment & Subscription to
professional bodies.
 Entertainment exp. restricted to allowance
amount (if provided).
 Other expenses - rental for furniture/living
accommodation, insurance premium, repairs &
maintenance of premises & public rates.
 Format of Employment Income
 Computation of Gross, Adjusted or Statutory
Income from Employment
YA 200x
Section 13(1)(a): RM RM
Salary (gross) xx
Bonus xx
Gratuity (less exemption) xx
Allowances xx
Leave Pay xx
Perquisites xx xx
Section 13(1)(b) RM RM

Furniture(RM70, RM140, RM280) xx

Car, fuel (refer to guidelines) xx
Driver (max. 7200 p.a.) xx
Servant (max. 4800 p.a.) xx
Gardener (max. 3600 p.a.) xx
Leave Passage (less exemption) xx
Medical, dental (exempt) Nil
Childcare benefits (exempt) Nil xx
Section 13(1)(c): Living RM RM
Accommodation
Defined value or
30% of section 13(1)(a) xx
Take the lower…
If hotel 3% of Section 13(1)(a) xx xx

Section 13(1)(d):
Withdrawal of money from
unapproved fund:
Employer’s portion xx
Interest, bonus xx xx
Section 13(1)(e): RM
Compensation for loss of employment (less
exemption) xx
Gross Income from Employment xxx
Less: Section 33 and Section 38 Expenses
Travelling xx
Entertainment xx
Rental xx
Subscriptions to professional bodies xx
Adjusted/Statutory Income from
employment xxx