This article is reproduced with permission from Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor) 15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel : 03 - 469 5560 Fax : 03 - 294 5561 This article is copyright and no part of it may be reproduced in any form without the prior consent of Normandy Advisory Services

It is that time of the year for putting in your income tax return. If you are a resident in Malaysia earning an income at the rate of RM 5,000 per anum (RM 7,000 if you are married) you may be considered chargeable. Have you filed your tax return or is the form still lying at the bottom of your drawer? Didnít receive a Form? Unfortunately, that does not exempt you from income tax either - it is your responsibility to declare your income. Completing all the seven pages of your Form B (BE if you have no business income and M if you are a non-resident) looks like a daunting task. You may dread the chore of digging up your old receipts and invoices and filling up the little boxes. However, you can rest assured that the consequences for not doing it will be far more dreadful! The penalty can be very hefty. Where do you start? If it is your first time it is really not as difficult as it looks. It helps of course if you take the trouble to read the whole document. It is relatively easy to understand. If you donít have any complicated issues the return can be completed in no time. Table 1 serves as a very general guide to understanding the form. From the table all you need is to narrow down on to the sections that relate specifically to you. Table 1 Form B simplified     Donations +     Business Income +   Capital allowances +     Employment Income +   Double Taxation Relief +     Dividend Income + deduct Other reliefs + equals Taxable Income Rental Income +   Wife & Child relief +     Other Income +   Insurance & Provident fund contributions +       Others +         Total Income - Total Deductions = Taxable Income The general rule is, all income derived from Malaysia during the year of assessment that is not capital in nature would be subject to tax. Any income earned outside of Malaysia is not subject to Malaysian income tax. Income is assessed on a preceding year basis. If you are self employed businessman or carrying on a profession, you declare your business income. Although the Income tax act does not define a business or income and gains from these sources, case laws and commercial practice would seem to imply that any activity or range of activities carried out to generate profits or gains may be considered a business, profession or vocation. So long as there are profits or gains arising from these activities, these gains or profits are subject to tax. Those who are under employment will declare their employment income. Employment income includes not only your salary but any bonuses, commission, overtime, allowances and any other cash remuneration which you have received in the preceding year. If in addition to your salary, your company provides for your accommodation, gives you a company car with a driver and pays for your sports club subscription, these benefits are taxable. The Revenue has provided guidelines for the valuation of these benefits which has to be added on to your taxable income. Dividends received are taxable in nature. Dividends paid by Malaysian companies are deducted at source unless it is a tax exempt company. Dividend income received is brought into the recipients income computation at the gross amount. Credit is then given for the tax deducted at source against the tax payable. Rental income is only applicable if you have property which generate income. For example, if you own two houses which are tenanted and generating rental income, then the rental income is taxable. And, if after two years, you decide to sell one of your houses at a profit, that gain is also subject to property gains tax. However, the profit derived from buying and selling some of the shares in your investment portfolio are capital gains (unless you are in the business of buying and selling shares) and are not subject to any tax as they are not considered as income in nature. It is important that you make a distinction between income and capital gain as capital gains are not taxable with the exception of property gains tax. A general yardstick to apply is, if it is not of a recurring nature, it is usually capital in nature and hence not subject to tax. Just as it is important to declare all your taxable income, you should make every effort to reduce the amount of tax by ensuring that you claim all the relief that you are entitled to. Whilst you are immediately liable to pay tax for any income that you earn, the reliefs that you are entitled to are not automatically deducted from your chargeable income. You have to claim them by submitting the necessary documentary proof. It is therefore to your advantage to find out exactly which type of relief or tax deduction is available to you. What is a relief or a deduction? There are basically two main categories of deductions:- - business deductions and; - personal reliefs Business deductions can be loosely interpreted to mean any outgoings and expenses incurred wholly and exclusively for the purpose of production of gross income from a business. The expenditure claimed as a business deduction should not be of a capital nature. One exception being capital allowances on fixed assets. Generally if it is "once off" or non recurring in nature it is a capital expenditure. If it is expended for the purpose of generating gross income, it is usually deductible. However, just as there are specific allowable deductions there are also certain prohibited deductions which cannot be used to offset your assessable income. If you run a business then expenses such as traveling, trade and professional subscriptions are allowable as business deductions.