IT’S that time of the year when everyone prepares for their annual individual tax filing as e-tax returns are now available in the Inland Revenue Board’s (IRB) portal. Individuals who only started earning income in 2021 may find it challenging to determine if a tax return must be filed.
This piece will aim to provide an overview to simplify individual tax filing.
An individual’s earning generally includes the income from a business or profession, employment, rent, interest, discounts, royalties, premiums, pensions, annuities, other periodical payments and other gains or profits.
If you only started receiving earnings in 2021, your 2021 tax return filing will depend on whether you have any chargeable income i.e. total taxable earning minus approved donation and minus eligible tax reliefs.
You must file the tax return if there is a chargeable income for 2021, not only to avoid penalty but also because it’s the responsible thing to do.
If you have been filing tax returns in the past and have no chargeable income in 2021, it does not mean you are dispensed from furnishing a tax return. Pursuant to Section 77 of the Income Tax Act 1967, an individual shall furnish the 2021 tax return to the IRB:
CLICK TO ENLARGE
(a) in the case he is carrying on a business, not later than June 30, 2022; or
(b) in any case other than the case in (a), not later than April 30, 2022, where he has:
(i) chargeable income for tax year 2021; or
(ii) no chargeable income for tax year 2021 but has chargeable income, or has furnished a tax return, or has been required under the Act, to furnish a return for year 2020.
An extension is also given where the tax return is filed electronically – the filing of tax return for non-business income and with business income is by May 15, 2022 and July 15, 2022 respectively.
Monthly tax deduction
The submission of the 2021 tax return may not be required if you have elected Monthly Tax Deduction (MTD) as the final tax i.e. MTD remitted to the IRB on employment income by your employer is equal to the total tax liability payable by you for the year.
To qualify, you must fulfil all these criteria:
> Only derive employment income in 2021;
> All employment income including benefits-in-kind and value of living accommodation provided by the employer have been included in the MTD calculation;
> Employed by the same employer in 2021;
> Tax is not borne by the employer; and
> You and your spouse do not elect for joint assessment.
Claiming for personal reliefs must be supported by documents – especially receipts – showing proof of the amount expended. Receipts also generally have to be in the name of the taxpayer who is making the claim for deduction.
A penalty of up to 45% may be imposed if there is no supporting document to substantiate the claim, or if a claim has been made and the taxpayer was not aware of the specific requirements.
Common oversight
Some common oversight that taxpayers make when completing their individual tax returns tend to stem from ignorance or presumptions. In particular:
> Medical expenses incurred for parents
This is claimable if your parents have a medical condition requiring specific treatment diagnosed by a certified medical practitioner. However, medical expenses incurred for dependent parents-in-law don’t qualify for deduction as this relief is for ones’ own parents only.
> Child relief – based on 50% of the relief
The 50% eligibility is only relevant where two or more individuals (i.e. not a husband and wife living together) are each entitled to claim a deduction for payment made in respect to the same child. For example, when a divorce occurs and there are two or more individuals entitled to claim a deduction on the same child.
A married couple under separate assessment cannot each opt for the “50% eligibility” relief. Further, deduction for child relief is not allowed if the child is in receipt of their own income where their total income exceeds the amount of relief eligible.
> Childcare centre and pre-school fees
Where the husband and wife are filing separate assessments, the tax deduction of up to RM3,000 can only be claimed either by the husband or the wife even though they may have more than one child.
> Life, education and medical insurance premiums
The annual premium paid statement is an essential document that lists out insurance plans and types of coverage, as well as the amount of premium paid for the year. The detailed breakdown will help you to determine the type and amount of insurance reliefs claimable (see table).
The common mistake that taxpayers make is to claim 100% of the premium paid under medical insurance relief for the medical/life coverage category. Whereas the premium paid for the education/life coverage category can only be claimed under education insurance relief or life insurance relief of up to RM3,000.
In other words, if the premium paid under this coverage is RM6,000, it cannot be fully claimed up to RM6,000 and it is capped at RM3,000 on either type of relief claimed.
Apart from the above, it is advisable for married couples to check with each other on the claim of personal reliefs in their respective tax returns before submission, to avoid any overlap in eligible claims.
Record keeping
Since Malaysia adopts the self-assessment system, meaning one is responsible for computing their own chargeable income tax payable,in addition to making payments of any balance of tax due, it is also essential to keep sufficient records of your submitted tax return including the supporting documents for deduction/reliefs/rebate and the tax exempted amount for a period of seven years for audit purposes.
The calculation of the seven-years period begins from the end of the year in which the tax return is filed.
Long Yen Ping is head of global mobility services for KPMG in Malaysia and Fong Chooi Lian is executive director – global mobility services for KPMG in Malaysia. The views expressed here are the writers’ own.