Amazing Income Tax Tips You Need to Know
The deadline for the ever-dreaded income tax filing period is fast approaching, so for those who haven’t done it yet, it’s time to hustle! The amount of tax you pay is based on your chargeable income, which is the amount derived from subtracting tax exemptions and tax reliefs from your taxable income. But did you know that your chargeable income can be further reduced by several factors besides the expenses you’ve incurred?
The Reason You Buy Property
Why do you buy property? Is it to gain a source of passive income via rentals, or to flip it for profit? Something as innocuous as your intention behind your purchases can actually either save you a nifty sum in taxes or cost you more. Real Property Gains Tax (RPGT) is a tax imposed on you if you dispose of a property within the first five years of its acquisition. However, you’re eligible for tax relief if you’ve incurred an allowable loss on the disposed property at the point of disposable – for example, if you sold your property at a lower price than your acquisition price.
Property purchases for passive income can be grouped together into either residential, commercial, or vacant land categories for income tax purposes. Any losses incurred can be used to reduce the taxable profits on other properties within the same category.
How You Obtain Your Car
Do you have the benefit of being able to use a company car? You’ll have to foot the tax for it, sure, but on the other hand, you get to use the car without the hassle of purchasing and maintaining it. The tax scale for cars is much lower than the cost of maintenance and installments for a car; for instance, the preset tax for a car worth RM75,000 is RM3,600. That’s RM300 a month – much lower than the monthly installments for a car of the same value.
A company car, along with other non-monetary perks such as lodging, electronics, and gym memberships, are considered benefits in kind (BIK) for which you will be taxed. The value of BIKs are calculated in one of two ways for taxation purposes: either by determining the annual value of the BIK by dividing the value of the asset with the asset’s lifespan, or by assigning a preset value from the list provided by the Inland Revenue Board, categorised by types of assets.
The Amount of EPF Contributions You Make
There was a heated debate in early 2016 over the allowed reduction of EPF contributions by employees, from 11% to 8%, since it increased the amount of disposable income at hand but also increased an individual’s chargeable income (less tax relief from EPF contributions). As of March 2016 until December 2017, employees below 60 years old can reduce their EPF contributions to 8% as stipulated in Parts A and B of the Employees Provident Fund Order (Amendments to the Third Schedule) 2016, EPF Act 1991. Conversely, you can also discuss with your employer to increase your EPF contributions in order to reduce your chargeable income. Simply fill up the KWSP 17A (AHL) Form and you’re good to go.
A quick rework of your finances, whether directly monetary or otherwise, can have quite the effect on your income tax calculations. Even if you’re too late to take full advantage of this information this year, no worries – there’s always next year!