Tax Season – 11 Critical Deductions You Should Know

http://www.financetwitter.com/2012/04/tax-season-eleven-critical-deductions-you-should-know.html

Investment income – is it taxable?

Thursday March 25, 2010

Investment income – is it taxable?
By PAULINE TAM


IT IS the time of the year when some of us may feel uneasy as the deadline for filing our personal income tax return gets nearer. You may drag your feet when having to complete the return form (Form B or Form BE as the case may be) and procrastinate till the last minute as obviously paying taxes is not as exciting as receiving money from your investments.

After having received money from your investments in say, shares and property, have you considered whether the receipts are taxable?

Dividend income

In general, people are under the impression that dividend income is not required to be reported in the tax return. This is only true provided the dividend income is tax exempt as in the case where the dividend that is received is either a single tier dividend or is paid out of the exempt profits of the dividend-paying company. In the case where you received dividends where income tax has been deducted at source, such dividend income is taxable and consequently has to be declared in your income tax return.

Depending on your level of taxable income, you may actually obtain a tax refund from the Inland Revenue Board (IRB) if your tax bracket is at 24% or below.

Generally, the tax deducted by the company on the taxable dividend is at the rate of 25%. On the other hand, if your tax bracket is at 27%, then you are required to pay the 2% differential to the IRB.

In order to determine whether your dividend income is taxable or otherwise, you can look at the dividend vouchers. However, one common mistake in the reporting of taxable dividend income is where the actual amount received is declared as opposed to the gross dividend income, as stated in the dividend voucher.

Rental income

The other common investment income is rental income. Reporting of rental income would be simple if only the gross rental received without claiming deduction for expenses incurred in deriving the rental income was reported. As a smart investor with diversified investments, every penny saved or earned would be additional funding for your next investment.

Therefore, you should claim all the permissible expenses against the gross rental income. The permissible expenses would include assessment, quit rent, service charges, sinking fund contributions, fire insurance and property loan interest. In the case of a bank loan taken to finance a property which generated rental income, one has to remember that it is only the loan interest that is deductible and not the entire loan repayment amount.

Other rental-related expenses such as property agent’s commission and repairs may be deductible against the rental income. However, you would need to scrutinise such expenses in detail to establish if they are indeed deductible.

In the case of the property agent’s commission, where the property owned is being rented out for the first time, the commission paid for securing the first tenant would not qualify for a tax deduction. Subsequent commission paid to the property agent for securing tenants for the same property (after the first tenancy) would be deductible. Likewise, not all repair expenses incurred on the property could be deducted against the rental income.

If you were to repair a leaking roof and install a canopy at the verandah of the house at the request of the tenant, the expense incurred on the canopy would not be deductible as it would not be regarded as repairs and maintenance expense although the repair of the roof should qualify for a deduction.

Some points to take note of

Bearing in mind the penalty that can be imposed by the IRB in the event of an understatement of income in the tax return, you would have to be careful when determining the types of expenses to claim against your investment income. It is important that you do not make a claim for otherwise eligible expenses if you do not have the supporting documents to justify your claims.

If you have a property jointly owned with your spouse, the rental income will be taxed based on your share in the property. Correspondingly, your spouse would have to report the rental income based on his or her share in the property.

Where you and your spouse have investment income, you may be thinking of whether you should be filing for separate assessments or opting for a combined assessment. For most couples, a combined assessment is not beneficial as the combined income would push the tax rate to a higher bracket.

Further, a separate assessment would allow each person to claim the personal relief of RM8,000 whereas a combined assessment would only allow the person to claim either a wife or husband relief of RM3,000 in addition to the personal relief of RM8,000.

This would mean a loss of relief of RM5,000.

·Pauline Tam is executive director, KPMG Tax Services Sdn Bhd

http://biz.thestar.com.my/news/story.asp?file=/2010/3/25/business/5927473&sec=business

Government to speed up reform of overseas tax

Businesses may have to rethink their overseas expansion plans after the Treasury signalled it would accelerate plans to reform the way that it taxes the profits earned by companies' foreign branches.

 

By Richard Tyler
Published: 4:53PM GMT 08 Mar 2010

Stephen Timms, the financial secretary to the Treasury, told accountants in London last week that the Government would clarify the taxation of overseas profits from branches and legislate in next year's Finance Bill.

Branches are permanent offices in overseas markets but are not structured in the same way as formal subsidiaries. They are used by a wide range of trading businesses as well as banks and insurance companies.

Ian Young, international tax manager at the Institute of Chartered Accountants of England and Wales, welcomed the Treasury's decision to tackle branch taxation more quickly.

"It's very sensible," he said. "We need to have a coherent tax system that they don't keep chopping and changing and modifying, which is what they seem to do at the moment. What businesses like is having some certainty."

The Association of British Insurers agreed. Kerrie Kelly, director general of the ABI, said: "A more modern regime will help global businesses remain headquartered in the UK as well as attract those domiciled abroad."

One impact could be that setting up an overseas presence becomes more expensive, Mr Young warned, as losses generated by an overseas office as it sets up could no longer be offset against UK profits.

"If we say you do something abroad we will not tax you, arguably you will not get relief if you make losses," he said. "It might discourage people as when you set up a business you have lots of expenses and not a lot of profits, or it could encourage you to do it in a different way, perhaps through a local agent."

http://www.telegraph.co.uk/finance/yourbusiness/7399645/Government-to-speed-up-reform-of-overseas-tax.html

How to pay less personal tax

Monday February 22, 2010
How to pay less personal tax
By ANG WEINA

THE 2009 tax-filing season for individuals has arrived. For many of us, April 30 will be just another day (perhaps accompanied by scrambling for our just-in-time filing) to settle our dues with the Inland Revenue Board by submitting the Form e-BE and paying any balance tax.

Before clicking the button to complete the e-filing, take a second look at the figures keyed in. Is the amount of tax calculated the lowest it can be? Here are some tips on saving tax that would not get you in trouble with the law.

1. Know your income: What is taxable and what is not.

Gone are the days when you agonise over the delay in receiving your Form EA from your employer. It is now a law for employers to issue the Form EA to their employees no later than the end of February. The key point to note is not all income in your Form EA is taxable! Scrutinise all the items in Form EA to see if there is any which should be tax-free. For example:

Travelling allowances

If you receive travelling allowance, up to RM2,400 for your travels from home to office is tax-free. What this means is if you receive an allowance of RM12,000 for such travel, you can deduct RM2,400 and only RM9,600 is taxable. Further, travelling allowance of up to RM6,000 for official duties is tax-exempt.

Meal, parking and childcare allowances

Many employees receive these allowances, do you? You would be happy to know that you can enjoy such perks with no worries about paying tax thereon (up to RM2,400 in the case of childcare allowance).

2. Make the most of all tax-free benefits.

Medical benefits

Medical benefits for traditional medicine including ayurvedic, plus maternity benefits are also tax-free.

Interest subsidies

Your employer may have subsidised interest on your housing, car and education loans. In the past, these subsidies would be taxable on you. Now you would be glad to know such interest subsidies are tax-exempt (so long as the total loans do not exceed RM300,000).

Broadband and telephone benefits

Who can leave home without the iPhone, Blackberry or PDAs nowadays? Getting such a device from your employer plus reimbursement for broadband and telephone bills are tax-free. So take advantage and enjoy the latest gadgets and services.

3. Know your limits.

Just as in drinking and driving, stay within the limits to avoid any trouble or triggering tax.

If you have enjoyed any staff benefits like discounts on your company’s goods or services and kept within the RM1,000 a year limit, you should enjoy tax exemption thereon.

Did you receive a small token from your employer on your achievements in service excellence, innovation or productivity which brought on a smile? Don’t blame your employer if they kept the awards below RM2,000 as no tax should be levied on you. Neither is the award for your long service with the company (for more than 10 years) forgotten. As long as your employer kept the value of all awards to you within the RM2,000 limit, the smile should remain on you.

4. Look for more tax-free income.

Bank interest income

You will note a subtle difference in your bank statement nowadays as it no longer shows the amount of tax withheld. Bank interest income is now tax-exempt.

Dividends

Dividends need not be entirely taxable. Have a good look at the dividend voucher. If it states that the dividend is “tax-exempt”, then it is not taxable anymore.

5. Gain more deductions.

Purchase of sports equipment

If the slimming fad has caught on with you, keep the receipts of your purchases of any sports equipment. A claim of up to RM300 is a small incentive to shape those curves and muscles in a big way!

Have receipts or evidence to support more deductions

Medical expenses for your parents certified by a medical practitioner (restricted to RM5,000);

Medical expenses for serious diseases for self, spouse or child (up to RM5,000), including a complete medical examination for self, spouse or child limited to RM500;

Basic supporting equipment for disabled self, spouse, child or parents (ceiling of RM5,000);

Disabled person (self) (RM6,000);

Disabled husband/wife (RM3,500);

Education fee (self) up to tertiary level for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications for a masters or doctorate level, undertaken for the purpose of acquiring any skill or qualification (limited to RM5,000);

Purchase of books/journals/magazines/similar publications for self, spouse or child (up to RM1,000);

Net deposit in National Education Savings Scheme (ceiling of RM3,000);

Purchase of personal computer for individual (maximum deduction of RM3,000 allowed once every three years);

Premiums on life insurance plus EPF and other approved fund contributions (subject to RM6,000 restriction);

Premiums for education or medical insurance (restricted to RM3,000);

Relief of up to RM10,000 on the housing loan interest paid (conditions apply);

Payment of alimony to former wife (maximum total deduction for wife and alimony payment is RM3,000);

Zakat other than monthly zakat deduction from salary; and

Fees/levy paid by a holder of an employment pass, visit pass (temporary employment) or work pass.

The rule of the “game” of keeping your tax liability to the minimum when preparing your tax return Form e-BE is to do it right within the law. For a start, make the website of the Inland Revenue Board, www.hasil.gov.my, one of your favourites from now until April 30 to access its easy to read guides. Happy e-filing!

● Ang Weina is executive director and global employer services leader with the tax practice of Deloitte Malaysia.


http://biz.thestar.com.my/news/story.asp?file=/2010/2/22/business/5708847&sec=business

http://www.asiaone.com/News/AsiaOne%2BNews/Asian%2BOpinions/Story/A1Story20090506-139612.html

Bracing for sea-change in taxation

Bracing for sea-change in taxation

Tags: Chew Theam Hock | CIMB | Deloitte Malaysia | Dewan Rakyat | goods and services tax | GST | GST Bill 2009 | Income Tax Act 1967 | Khoo Chin Guan | KPMG Tax Services Sdn Bhd | Lee Heng Guie | OSK Research | Tan Eng Yew | Tan Theng Hooi

Written by Ellina Badri & Isabelle Francis
Wednesday, 16 December 2009 22:46

KUALA LUMPUR: Professional consultancies have cautioned about "grey areas" in the implementation of the government's proposed 4% goods and services tax (GST), while other corresponding measures, such as lowering of income tax, may need to be taken.

They also said companies must prepare for the new tax regime early to estimate its potential impact on their businesses and how they could manage it.

Deloitte Malaysia country managing partner Tan Theng Hooi said GST would help the government address the drop in tax revenue in line with lower revenue from petroleum as well as broadening the tax base.

"However, there must be sufficient time given for businesses and the general public to get ready for the system rollout," Tan told The Edge Financial Daily today.

"The level of acceptance by businesses and the public on the implementation of the GST will be higher if there is a corresponding decrease in the income tax rates."

The government tabled the GST Bill 2009 for the first reading in the Dewan Rakyat today, projecting implementation in mid-2011. Though not specified in the bill, the government has said the rate would be fixed at 4%.

Based on the bill, the tax would be charged and levied on any supply of goods or services made in Malaysia, including anything treated as a supply under the act, and any importation of goods into Malaysia.

Businesses that are taxable include any trade, commerce, profession, vocation, or any other similar activity, whether or not it is for a pecuniary profit.

Businesses to be taxed under the GST were liable to register at the end of any month, and those who failed to register would be liable to a fine not exceeding RM50,000 or to an imprisonment for a term not exceeding three years, or both.

Tan said while there would be price increases in some items, there could also be lower prices for others, where savings from taxes on intermediate inputs would be passed by producers to the consumers.

He said under the GST, the tax would be collected at value-added points from production to the final point of sales, as opposed to the current system where the sales tax was only collected at the point of import, or when the local manufacturer sold the goods for the first time, while the service tax was only imposed on taxable services.

"The tax imposes additional compliance costs for businesses. These come in the form of additional work to account for the tax, tracking of input taxes paid, undertaking reconciliations and filings of GST returns.

"There is also a need to review and change the IT systems to accommodate the implementation of the GST," Tan said.

In a statement, KPMG Tax Services Sdn Bhd executive director Khoo Chin Guan said businesses would need to be pro-active in ensuring their transition to the new system was smooth and successful.

"The GST rate is lower than the existing service tax rate (5%) and significantly lower than the existing sales tax rate (10%). However, the impact on the revenue collection of the government of the drop in rates should be offset by the wider footprint of GST as well as its collection along the supply chain as opposed to only at the manufacturing or importation stage," Khoo said.

Chew Theam Hock, also an ED at KPMG, said the GST Bill followed the approach of tax rates adopted by a number of other countries, although overseas experience had shown there could be grounds for dispute where the provision of combined services fell in a "grey area", whether it was zero-rated, exempt, standard rated or a combination of those rates.

He said with the revenue floor at RM500,000, a number of small businesses would be outside the scope of the GST, although those businesses could voluntarily register for it to claim input tax credits, and they could also be compelled to be licensed by their business customers who wanted to ensure input credits along the supply chain were fully reclaimed.

KPMG's other ED Tan Eng Yew said businesses had to start reviewing their operations at a strategic and functional level so decisions could be made, while additional obligations imposed by law could be dealt with in order for the business to be GST-compliant.

"Although there is expected to be an 18 month-window before the GST becomes chargeable, businesses must address the additional challenges imposed by GST now.

"For example, where businesses make both taxable and non-taxable supplies (also known as mixed supplies), this is an opportune time to identify potential GST costs and how the supply chain should be structured in the light of the GST Bill," he said.

Khoo added that with the GST viewed internationally as a self-policing tax system, given the claim for input tax credits required registration and compliance through the submission of GST returns, the registration and compliance requirements could in turn lead to increased compliance with obligations under the Income Tax Act 1967.

As for the impact of the GST on consumers, CIMB chief economist Lee Heng Guie had in a recent note said the proposed rate of 4%, which was lower than the current SST of between 5% and 10%, was deemed appropriate to avoid dampening consumer spending and its impact on inflation.

"There will never be a good time to implement a new tax reform. When the economic environment is more conducive with stable revenue growth, we can have a virtually neutral and relatively low-rate GST introduction. More critically, there must be a strong political will to implement the unpopular consumption-based tax," he said.

He said it could result in higher private consumption expenditure initially, as households brought forward consumption expenditure prior to the tax's implementation, although this would be followed by a significant unwinding immediately following its rollout.

He added the resulting increase in inflation would likely be small in the medium term, causing a one-time price "blip".

"Businesses can expect GST implications for each transaction they make, regardless of the profits or losses. However, a better management of GST processes can improve cashflow of businesses, which in turn can translate to cost savings," he said.

He also said a comprehensive tax reform must be accompanied by lower personal and corporate income taxes, a stronger household safety net and other targeted assistance programmes for the need groups.

"Stated simply, create a simpler, fairer and more efficient tax system to facilitate greater private sector initiatives as well as drive higher economic growth and foreign investments," he said.

Meanwhile, OSK Research wrote recently that while some essential items and services were GST-exempt and despite the rate being lower than those in other Asia, it believed the tax would dampen consumer purchasing power to a certain extent.

It said based on its simple calculations from the Household Expenditure Survey 2005 data, the most affected group of consumers comprised the hardcore poor with monthly income of below RM430, poor households with monthly income below RM720 and the vulnerable poor with monthly income below RM1,500 in Peninsular Malaysia.

It added these groups could see a significant increase in their cost of living should the government impose the tax in the usage of utilities, basic communication consumption and clothing and footwear, given the possibility of inefficient delivery of new subsidy schemes for those groups.

Today's tabling of the tax bill showed that its exemptions included paddy, vegetables, rice, sugar, flour, cooking oil and meats.

"Apart from consumers, businessmen and retailers may also encounter some difficulties in the short-term, considering that these groups will act as tax collectors of the new tax on behalf of the government.

"Needless to say, the businesses would need to revamp their accounting systems accordingly and submit the collection to the related government agencies on time," OSK also said. It added those still using traditional accounting or payment systems would be forced to upgrade and attend training.

"Nonetheless, retailers of luxury goods, such as luxury cars and jewellery, or privileged services would probably be hardest hit in the short-term as the 4% GST would result in a price increase for the end-user," it said.

http://www.theedgemalaysia.com/business-news/155865-bracing-for-sea-change-in-taxation.html

To Upgrade the Quality of Your Portfolio

To upgrade the quality of your portfolio

For those who already hold a portfolio of stocks that may have been selected without reference to value, a culling approach to upgrade the quality of your portfolio by replacing overpriced stocks with those offering better value, would be suggested.

Although it is probable that you hold some stocks that should be sold immediately, in making that determination you must be sure of what you are doing and not act with undue haste.

Solicit advice and input from others you respect, but keep your own counsel and do not be influenced by those whose knowledge is unlikely to be superior to your own.

Let’s also consider some basic selling issues:
Tax
Let’s say you buy a stock for $5 and it rises to $15 when its value is $11. If you sell it for $15 and the $10 profit was subject to 40 percent tax, you would be left with $11. If you consider that $11 would be a good price at which to buy the stock, there is not much point in selling at the same net price.
Management
Great businesses with sound corporate management are quite rare. If you are invested in such a company, selling and attempting to find a replacement with similar management qualities is likely to be difficult. Buffett says he is wary of the risk in switching allegiance to people less well known to him.
Fear of not being able to buy back at a better price.