Tax Treatment of Benefits-in kind and Perquisites
Employment income includes perquisites and benefits-in-kind. The Inland Revenue Board (IRB) has issued Public Rulings to explain what constitutes perquisites and benefits-in-kind and their differences.
For tax purposes, it is important to distinguish whether a benefit otherwise than in money provided to the employee by or on behalf of his employer is a perquisite or a benefit-in-kind. A perquisite can be in cash or in kind. If it is received in kind, the item must have money’s worth and is convertible into money, i.e. it can be sold, assigned, transferred or convertible into cash. Perquisites in kind comprise of assets such as watches, computers, share options or other items provided to the employee free of charge or at discounted prices. Perquisites also include the pecuniary liabilities of employees paid by the employers such as the employee’s income tax, electricity and telephone bills, child tuition or school fees, domestic help, gardener, driver and club membership.
Benefits-in-kind are benefits not convertible into money, even though they have monetary value. The amounts are equal to the value of the personal usage or enjoyment by the employee of assets and other benefits or amenities provided by the employer.
What are the non-taxable benefits-in-kind / perquisites?
All benefits or amenities provided for the employee by his employer or third parties in respect of having or exercising the employment are taxable except for the following:
• Medical, dental or child care benefit
• Leave passages within Malaysia of not more than 3 times in a calendar year
• Overseas leave passage once in a calendar year limited to a maximum of RM3,000.00
• Benefits used by the employee solely for the purposes of performing his duties under the employment
• Food and drinks provided free of charge
• Goods and services (not convertible into money) of the employer at a total value of RM200.00 or less
• Free transportation between pick-up points or home and the place of work
• Insurance premiums which are obligatory for foreign workers as a replacement of SOCSO contributions
• Group insurance premium to cover workers in the event of an accident
• Service awards up to a maximum of RM1,000
• Pure gifts or testimonials for personal appreciation or for specific personal reasons
Tax Treatment of Perquisites & Benefits-in-kind
Perquisites are taxable under Section 13 (1) (a) of the Income Tax Act 1967 whereas benefits-in-kind are taxable as income under Section 13 (1) (b). The distinction is important as perquisites are subject to scheduler tax deductions (STD) whereas benefits-in-kind are not. The correct categorizing of the benefits is also important as the value of living accommodation enjoyed by an employee under Section 13 (1) (c) is determined based on the actual rent paid by the employer or 30% of the employee’s gross income under Section 13 (1) (a), whichever is the lower.
Employers must ensure that all benefits-in-kind and perquisites are reported in the Form E & EA and the correct amount of STD is deducted. Any non-compliance discovered in a payroll audit by the IRB will result in penalties being imposed. Employees must also ensure that all benefits-in-kind and perquisites enjoyed by them have been duly declared in their tax return. Failure to do so will also result in penalties being imposed.
By Lee Voon Siong
Lee Voon Siong is the Executive Director of RKT Tax Consultants Sdn. Bhd. which is an independent member firm of RSM International, an affiliation of independent consulting and accounting firms with the 7th largest worldwide network. He can be contacted at firstname.lastname@example.org.
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