Tax season is back again and you have to pay and plan your taxes – it's an opportunity to check your overall yearly expenses and minimise the tax payment.
Exactly what you should check for this time? We spoke to a leading marine company adviser Miss Rosemawati Binti Nor Mohamed and checked the best tips to lower your tax. She have advised 6 smart moves which can reduce your tax burden. She also leads friendHRM HR software project and have great knowledge about tax saving options.
Check out Rosemawati's 6 smartest tax saving ways which allows a Malaysian citizen to maximise the savings on tax.
1. Reimburse (claims) more than Remunerate
For salaries employees in Malaysia, fixed allowances from employer like mobile subsidies, parking fees, etc are part of taxable employment income.
Best way to save taxes here is by requesting your employer to make changes to your salary package and convert these fixed allowances from remuneration to reimbursement (claims) in your salary and salary slip. Payroll department can handle this change and friendHRM is the best payroll software for executing Malaysian Payroll.
“Reimbursement is like transferring expenses from employee to employer, so it's not considered as a taxable expense. Moreover, employees does not get privately benefited from reimbursement in the same way as they get benefited from allowances,” Rosemawati explained.
And for Malaysian Employers, reimbursement will be considered as a business expense and would get deducted from taxable income.
“With the policy of Goods and Services Tax (GST), many Malaysian Employers prefer reimbursement more compared to allowances, as it allows company to claim for the tax incurred under reimbursement which makes it a win-win situation for both parties, employers and employers,” said Rosemawati.
2. Filing Separate Tax Assesment
For married couples commanding high salary during the year, taxes can be reduced if the assessments are filed separately.
This is a great benefit for super high earning couples. Last year tax rate for income ranging RM6,00,000 to RM 1 million went up from 25% to 26% and for income above RM1 million, the tax rate want up to 28% from 25%.
When both husband and wife earn high, separate tax assessment is the best way to reduce the tax burden.
Filing separate tax assessment is beneficial for Middle-income earners as well. Last year in revised Budget 2016, Mr. Prime Minister made an announcement about tax relief worth RM2,000 to individual taxpayers with the monthly income of upto RM8,000, Rosemawati explained.
3. Take benefit of Spouse Relief
With the couples where husband or wife is a salaried employee and the income for one of them is less than RM35,000 yearly is not, Joint assessment is beneficial.
Let's take an example, Fadzil is a salaried employee of a certain Malaysian company and his wife has income less than RM35,000.
Under such scenario a joint assessment for Fadzil will be ideal, as Fadzil can claim spouse relief of upto RM3,000. HR Software are available in the market which can help the employee to calculate the tax and generally payroll part of hr software provide these calculations and tips.
4. Business Loss Mitigation
One more tip for married couples is here..!! If you have incurred a financial loss in business, you can file a joint assessment and mitigate the losses incurred.
Lets take an example, Fadzil runs a restaurant, and his wife Sharmila earns salary by working in a Malaysian company. Here if Fadzil is making losses in business, they can opt for joint assessment under his wife Sharmila's name and maximise the business loss deductions along with tax reliefs.
This will definitely the tax amount Fadzil will have to pay.
5. Earn Non-Taxable Income
There are many financial products available which are not taxes and income incurred through them is also not taxed. One good example for such products is Private Retirement Scheme (PRS), a voluntary long-term investment scheme which is specially designed to help individuals gathering good amount of savings for their post retirement period.
Private Retirement Scheme (PRS) income us not taxable. Moreover you can claim tax benefit of upto RM3,000 per year when you invest with Private Retirement Scheme (PRS). Here also HR Software for Malaysian Payroll like friendHRM HR Software are quite useful for the employees. A smart HR and Payroll Software will always be worthy.
6. Increasing EPF contributions
Last year, Malaysian Prime Minister Datuk Seri Najib Tun Razak announced a 3% reduction in employees’ contribution rate for the Employee’s Provident Fund (EPF). This provides an option to EPF Members for choosing between 8% or 11% of their salary for contributing towards EPF savings each month.
Going with 8% will provide you higher amount of disposable income;however, with higher disposable income, you will end up paying higher tax.
Best way to save on taxes using EPS is to opt for 11% contribution.
Understanding the tax saving options and selecting best one for you will ensure always spend smartly and get the full use of tax benefits made available by government in Malaysia. Currently there are HR and Payroll Software like friendHRM Free HR and Payroll Software available in Malaysia which can help the employees in taking maximum benefits of tax saving opportunities available in Malaysia.