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26 Tax-Saving Moves

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RM 500 per individual for full medical check-up. ... given previously in the form of a tax rebate was withdrawn with effect from 2007 ... – PowerPoint PPT presentation

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Title: 26 Tax-Saving Moves


1
26 Tax-Saving Moves
  • They are legal and permitted by Inland Revenue
    Board ( IRB )

2
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 the 24 tax bracket ,
    this deduction translates to a tax saving of RM
    720 ( RM 3000_at_24)

3
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.

4
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.
  • The tax saving that he makes is RM 2880 (
    RM12000_at_24)

5
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_at_24)

6
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.

7
6) Make charitable contributions
  • A gift 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 a saving of RM 1512 ( RM
    6300_at_24)

8
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 enjoy tax saving RM 1200 from his
    taxable income ( RM 5000_at_24)

9
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_at_24)

10
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_at_24)

11
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 )

12
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_at_ 24)

13
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_at_ 24)

14
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_at_24)

15
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

16
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 incentive 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_at_24)

17
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.

18
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

19
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

20
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.

21
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.

22
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.

23
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

24
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 six

25
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 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 allowances

26
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.

27
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.

28
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.

29
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 is 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.

30
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.
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