Gifts, Donation or Contribution

Cash Donation

A taxpayer is entitled to claim deduction expenses on cash donation made in the basis year for each year assessment in ascertaining the total income which is chargeable to tax. Donations must be paid to the Government, State Government, local authorities, or institutions or organizations which are approved by the Director General of Inland Revenue. Each claim must be substantiated by the original receipt. The receipt is an endorsement for the donation has been approved by the LHDNM.

A taxpayer is also entitled to claim deduction in respect of:

1.     Cash donations for the provision of library facilities which are accessible to the public and contributions in-kind to public libraries and libraries of schools and institutions of higher education. The allowable deduction is restricted to a maximum of RM20, 000.

2.     Cash contribution for the cost of treatment of serious diseases for individuals, made through a fund or trust account approved by The LHDNM established for helping the individuals.

Gifts of Artefacts, Manuscripts or Painting

Starting year assessment 1997, a taxpayer could also give donation or gifts in the form, artefacts, manuscripts or paintings to the Government or States Government, an amount equals to the value of the gift is deductible in ascertaining the total income of the donor. The value or the amount of the gift should be determined by the Department of Museum and Antiquities or the National Archives.

Similarly with effect from year assessment 1998, a taxpayer could also give donation or gifts in the form of painting to the Balai Seni Lukis Negara or Balai Seni Lukis Negeri, and an amount equals to the value of the paintings is deductible in ascertaining the total income of the donor. The value or the amount of the painting should be determined by the respective art gallery.

Contribution For The Benefit Of Disabled Persons

A taxpayer is allowed a deduction for gift of money kind in the basis year for the provision of facilities in public places for the benefit of disabled persons. The value of the donation in-kind to be determined by the respective local authority.

 Contribution to Healthcare / Medical Centre

A taxpayer is allowed a deduction for gift of money or medical equipment in the basis year to any healthcare center approved by the Ministry of Health. The value of the donation in kinds is to be determined by the Ministry of Health or based on the cost of the medical equipment. However, the allowance deduction is restricted to a maximum of RM 20, 000.

How to Claim Deduction

Taxpayers who wish to make claim on the expenses in respect of the contributions, gifts or donations should fill up the Income Tax Return Form and the payment receipt or the certified letter by the relevant entity that received such gifts or donation must be obtained and kept for verifications.

Allowable Gifts as Deduction from Aggregate Income

1.     Cash donation  --- Approved Donation Amount

2.     Cash donations / contributions to libraries. --- Maximum RM20000

3.  Cash contribution to the cost of treatment of serious disease for an individual. --- Approved Donation Amount

4.  Gift of artefact, manuscript or painting. --- Amount determined by Department of Museum or Archives

5.     Contributions in cash or in kind towards facilities for the benefit of disabled persons. --- To be determined by local authority

6.     Gift of medical equipment or money to healthcare facility. --- maximum RM20000 (as certified by Ministry of Health)

7.     Gift of painting.  --- Amount determined by national Art Gallery or ant state art gallery.

Repayment of Tax

Tax Refund

A taxpayer is entitled to claim a refund of tax if:

1.     He has paid in excess of his actual tax liability.

2.     He has a credit balance after a reduced assessment.

3.     He tax deducted from dividend income is greater than the total tax liability for the year.

A claim for repayment of tax under category 3 above must be made within 6 years. For example, a claim for repayment of tax deducted from dividends paid in the year 1997 must be submitted latest by the end of the year 2003.

Preventing excess Credit in the Taxpayer’s Account

1.     Taxpayer should monitor the monthly deductions from salary or bi-monthly instalment payment on business income, and compare it with the actual tax liability according to the notice of assessment.

2.     An application to the Collection branch to stop further deductions from salaries must be made immediately upon confirmation of the tax liability so as to avoid excessive deduction from the salary.

3.     A taxpayer must ensure that the employer is notified of the following changes in personal  details:

a.     Marriage

b.     Number of children

c.      Divorce / separation

d.     Death of spouse

e.      Death of child

This information is important in determining the right amount of monthly salary deduction in accordance with the Scheduler Tax Deduction tables.

4.     To notify LHDNM on the amount of zakat paid in a year. 

Tax Appeal

An appeal is an objection against the assessment issued by the LHDNM. An appeal can be made if:

1.     A taxpayer is not satisfied with the manner in which his income has been assessed.

2.     Personal reliefs have not been appropriately given.

3.     The taxpayer forgot to claim certain expenses or relief.

4.     There is an error in the assessment issued by LHDNM.

How to Appeal

A taxpayer who received a notice assessment and disagrees with it:

1.     Must appeal in writing, within 30 days from the date of the notice, to the LHDNM office which issued the notice of assessment. Where the appeal is to be forwarded to the Special Commissioners of Income Tax, prescribed Form Q which can also be downloaded from the LHDNM website and it is available at all LHDNM offices must be filled it.

2.     If for some reasonable grounds the taxpayer has been unable to appeal within the stipulated 30 day-period, he may submit an application for extension of time to appeal, on the prescribed Form N, to be forwarded for the decision of the Special Commissioners of Income Tax.

Tax to be paid notwithstanding any appeal

Taxpayer has to pay his tax liability first irrespective of any appeal.

Settling an Appeal

An appeal may be settled:

1.     By agreement between the taxpayer and the LHDNM; or

2.     By a decision of the Special Commissioners of Income Tax.

If LHDNM does not accede to the appeal, it will be forwarded to the Special Commissioners of Income tax as the taxpayer wishes to pursue the appeal. If a taxpayer is dissatisfied with the Special Commissioners’ decision, he may appeal further to the High Court and subsequently to the Court of Appeal.

Special Commissioners of Income Tax

The Special Commissioners of Income Tax is an independent tribunal which consists of panel members appointed by the Yang Di Pertuan Agong to handle tax appeals.

Income chargeable to tax

Income chargeable to tax

Income chargeable to tax is the income earned from a business or a profession, an employment, or a passive activity.

 

a. Dividend

Dividend is the distribution of porfit by a company to its shareholders. Generally, dividend income is taxable. However, certain types of dividends are exempt from tax.

 

A taxpayer should declare the gross amount of dividend in the Income Tax Return Form. For example, if an individual receives dividend from Syarikat X Sdn. Bhd. in the year 2002 amounting to RM720 after deduction of tax RM280, he should declare RM 1000 and not RM 720. However, he may make a claim for RM280 as tax credit which be used to offset against the tax charged or as a tax repayment.

 

In the event where the offset is more than the tax liability, the excess amount used be refunded.

 

A taxpayer who intend to claim for the tax credit in respect of the tax deducted at source on the dividend received, should submit the original dividend voucher. The dividends should be declared in the Income Tax Return Form Part C and Part E.

 

b. Interest

In general, interest earned from the following sources are subject to tax.

i) Deposits in savings acconts with a bank or finance company

ii) Money lent to a person or an entity.

 

However, certain types of interest are exempt from tax. For a resident individual, interest which is not exempted from tax, is subject to a withholding tax of 5% of the gross interest income, and it is deducted by the bank or the finance company must be remitted to LHDNM. Hence such interest income need not be declared in the Income Tax Return Form.

 

c. Rental

Rents includes sum paid for the use of occupation of any premises or part thereof or for the hire of anything. RENs could either be received in the form of money or money equivalent or in any other form. Usually rental incomes received from the following sources are subject to tax.

i) The letting out of premises (houses, shop houses, land)

ii) The hire of motor vehicle, plant, machinery, furniture etc.

 

Taxpayer may claim deduction on expense which are wholly incurred on the asset concerned in the production of the rental income. Certaon expenses suc as quit rent, assessment rate, repair and maintenance, interest on loan taken to purchase the property, and fee for rent collection may be claimed as deductions against rental income. For the purpose of declaring the rental income and the related expenses against the rental income for a year of assessment, a taxpayer is required to fill the relevant columns in the statement of rental income and expenditure in the Income Tax Return Form.

 

d) Royalties

Royalty is money received by the owner of an asset or rights as consideration in respect of the publication of or for the us

e of the asset or rights. Royalty is money paid as consideration for the publiction of or for the use of or right to use any literary, artistic, scientific works, copyrights, patents, trademarks, recording discs or tapes or any similar rights or property. Royalty is also derived from the alienation of any property, and technical know-how. Income from royalties is taxable. HOwver, certain royalties are exempted from tax.

 

 

General Tax Guide

• Notifying Chargeability To Tax

If an individual is taxable and has never received any income tax return form before, he has a duty to notify chargeability to the nearest LHDNM office and request for an Income Tax Return Form.

If an individual already has an income tax file but has not receive an income tax return form by 31st March, he must immediately request for the said form from the LHDNM office which issued his last income tax return form. A taxpayer could also download an Income Tax  Return Form from the LHDNM website. He must then complete and submit the return to the LHDNM office using the address where his income tax file is situated.

• Change Of Mailing Address

A registered taxpayer must inform LHDNM of any change in the correspondence address within three months from the date of change to avoid any penalty. The income tax file reference number must be qouted in all the correspondence with  LHDNM.

• Income Tax Return Form

On Saturday, in the last week of February every year LHDNM issues the Income Tax Return Form to the taxpayer who is registered with LHDNM, as a service offers to them. However, if a person has not received an income tax return form, a copy of the said form can be obtain from the LHDNM office or can be downloaded from LHDNM website. 

A resident individual should fill up the Income Tax Return Form for a resident, that is the Form B. Whereas a non-resident individual should fill up the other Income Tax Return Form, Form M.

• Verification Of Form

Upon completing an Income Tax Return Form, a taxpayer should ensure that there is no error in the name, address, tax file reference number and identity card number as printed in the received form.

LHDNM must be informed of any correction.

• Form Addressed To A Married Woman

A married woman to whom an Income Tax Return Form is addressed shouldstate her husband's particulars as required in the front page of the form.

• Completing The Income Tax Return Form

An Income Tax Return Form is dicided into a number of parts.For example FormB consists of Part A to Part N.

A taxpayer and his wife are required to:

1. Fill in correctly all the relevant parts of the Income Tax Return Form
2. Where a wife intends to claim for child relief or shre the child relief under a separate assessment, she needs to fill in the appropriate column on her Income Tax Return Form.
3. If there is any doubt or problem contact, the nearest LHDNM office.

• Record Keeping

A taxpayer must keep records and documents for a period of 7 years from the end of the relevant year of assessment for verifiacation of the taxable income and the amount of tax payable. Documents are taken to mean statements of income and expenditures, invoices, vouches, receipts and others for the purpose of verifying the information declared in the return.

• Supporting Documents

A taxpayer is required to keep supporting documents such as statement of accounts (must be signed), rental statements, tax computation, capital allowance computation, salary statement (EA/EC Form), original dividend vouchers, original zakat receipts, etc., for verification by LHDNM.

For all claims made, the taxpayer should fill in the appropriate column and original receipts and other related documents should be kept.

• Declaration

The declaration column in the Income Tax Return Form must be signed by the taxpayer or any person making the return on his behalf. Otherwise the Income Tax Return Form will be considered as incomplete.

• When To Submit The Income Tax Return Form

The completed and signed Income Tax Return Form is to be submityed to LHDNM office before 30 April or by the required date.

• Filing The Income Tax Return Form

A complete Income Tax Return Form should be sent to the address of LHDNM office indicated on the said form. Income Tax Return Form may also be sent via postal service free of charge by using the envelope marked "CUKAI PENDAPATAN". In the case where the Income Tax Return Form downloaded from the LHDNM website, the completed return form should be sent to the LHDNM offices which handles the taxpayer file.

Scope of Tax Chargeability

A taxpayer who is resident in Malaysia, will be taxed on all income arising and earned in Malaysia and income recived in Malaysia from outside Malaysia. An individual whether resident or non-resident in Malaysia is liable to tax on the income derived from Malaysia will only be taxed on income arising or earned in Malaysia only. The scope of an individual's tax chargeablity depends on his residence status.

Income Chargeable to Tax

In general, a taxpayer is required to pay tax on all kinds of earnings, including income from:

1. Business or profession
2. Employment
3. Dividends 
4. Interest
5. Discounts
6. Rents
7. Royalties
8. Premiums
9. Pensions
10. Annuities
11. Others.

Period When Income is Earned?

Anyone who earns income or profits exceeding a certain amount will be required to pay income tax. The tax payable for a tax year (a year of assessment) will be based on the income earned for that year.

For example, for the year 2005 (year of assessment 2005) an individual is required to declare his earnings gained in the calendar year 2005. The declaration of the earnings is made in the year 2006.

Individual Taxpayer

Individual refers to a person or natural person. For the purpose of income tax, individual is defined as a person other than a company or a corporation.

However a Hindu Joint Family is deemed as an individual where the tax treatment is similar to that of an individual. A single person, a husband, a wife, a representative or agent who has been authorized by the respective person to act on behalf of the taxpayer are examples of an individual.

An individual is chargeable to tax if he earns income from any sources in the basis year for a year of assessment.

A married couple where each has his or her own income, are taxpayers who will be assessed separately. Where a wife elects to be assessed together with the husband or vice versa they are still required to submit their respective Income Tax Return Form to Lembaga Hasil Dalam Negeri Malaysia (LHDNM).