Chapter 8 Personal Reliefs

1. Chapter 8Personal Reliefs

2. Format For Computing Income Tax Payable

3. General • Available only to resident individuals. • Available in full or none at all depending whether qualifying conditions are satisfied. • The are some reliefs that are available only under joint assessment such as spouse relief and disabled spouse relief.

4. Example 1 Abdul is resident for the year of assessment 2005. He married Aminah on 1-10-2005. Aminah is a homemaker and has no income for the basis year 2005. Issue: Advise Abdul whether he can claim wife relief. Discussion: Abdul can claim wife relief as both of them are married and living together as at the end of 2005. Additionally, Aminah has no income accruing to her. As to the quantum, Abdul can claim the full wife relief of RM3,000 although he and Aminah were married for only 3 months in the year 2005.

5. Reliefs under Self-Assessment

6. Complete medical examination limited to RM500. • Serious disease includes AIDS, Parkinson’s disease, cancer, luekaemia and etc. SEPARATE • Must be in any institution in Malaysia licensed by Ministry of Education. • Incurred for benefit of himself. • Accounting and management excluded.

7. Medical Expenses for Parents • Maximum of RM5,000 expended by taxpayer for his parents. • Covers both normal medical expenses and expenses to maintain parents in nursing home. • Certified official receipt needed -- endorsement from medical practitioners needed that payment was made by children. • When the wife elects for joint assessment, the husband can obtain a deduction for medical expenses incurred for “his” parents.

8. Example 2 Rahim is a tax resident for year 2004. His parents, Syed Ibrahim and Aishah, stay together with him and his family at Bangsar, Kuala Lumpur. During year 2004, Rahim incurred medical expenses of RM3,000 on his father and RM4,000 on his mother. He also incurred RM10,000 to maintain his father and mother-in-law as a nursing home in Petaling Jaya. Issue: Advise Rahim on the quantum of reliefs available to him in year 2004. Discussion: Rahim can claim a relief for the medical expenses incurred on his parents. The relief is restricted to RM5,000 although actual expenses amounted to RM7,000. Rahim however cannot claim a relief on the nursing home expenses as they were incurred on his in-laws and not parents.

9. Example 3 Jefri is a tax resident for year 2004. During the year, he incurred RM4,300 for treating his eldest son for leukemia. He also incurred RM700 on full medical examinations for his other 3 children. Issue: Advise Jefri on the quantum of reliefs available to him in year 2004. Discussion: Jefri can claim a relief of RM4,300 for the cost of treating his son’s leukemia and RM500 for the full medical examinations.

10. Example 4 Same information as E.g. 3 but the medical expenses for treating his son’s leukemia amounted to RM5,500 while the cost of full medical examinations totaled RM600. Issue: Advise Jefri on the quantum of reliefs available to him in year 2004. Discussion: Jefri can claim a relief of RM5,000 because total reliefs for medical expenses on serious diseases and full medical examination cannot exceed RM5,000.

11. Unmarried Child? Outside Malaysia – Up to RM4,000 Disabled? RM5,000 In Malaysia – Up to RM1,000 Full time instruction? <18 years old Serving Under Articles or indentures? RM1,000 Establishment of higher education in Malaysia Establishment of higher education outside Malaysia School or similar educational institution On or after 17 Oct 1997 – Up to RM1,000 Up to RM4,000 Up to RM1,000 Commenced from 1 Jan 1994 to 16 Oct 1997 – Up to RM2,000

12. Child Relief • Wife living together with husband and assessed separately, may elect to claim for child relief. • If wife claimed child relief in respect of a child, husband cannot claim on the same child. • However, divorced couple can share child relief based upon formula: Child relief x 50%.

13. Example 5 Hassan and Salamiah have 4 children from their 30-year old marriage. Salamiah is a homemaker with no total income. Details of their children for the year 2005 are as follows: (a) Basirah is 9 years old and she is schooling at Sekolah Assunta 1 in Petaling Jaya. (b) Burhan is 18 years old and he is undergoing a matriculation program at Multimedia University in Melaka. (c) Badrul is 19 years old and he is serving under a three year articleship with Azman, Wong, Salleh & Co in order to qualify as a chartered accountant under the Malaysian Institute of Certified Public Accountants. He is paid a salary of RM900 by the audit firm. (d) Atun is 20 years old and in her third year of the chemical engineering program conducted in University Princeton in United States of America. She enrolled in the program in 2002. (e) Arisah is 21 years and in the final year of the accountancy degree program offered by University Malaya. (f) Salmah, aged 22 is married with 2 children. She is presently studying for her Masters in Business Administration offered by University Kebangsaan Malaysia. (g) Samsiah is 30 years old and is handicapped. She is employed as a telephone operator by Telekom Berhad and paid a salary of RM400 per month. Issue: Advise Hassan on the quantum of reliefs available to him in year 2005.

14. Child Relief Remarks Basirah RM1,000 Under 18. Burhan RM1,000 Further education does not include matriculation Badrul - Total income of RM10,800 exceeds maximum relief of RM4,000. Atun RM1,000 Education commenced after 17-10-97. Arisah RM4,000 Further education locally. Salmah - Married Samsiah RM5,000 Handicapped and her total income of RM4,800 is less than the available relief of RM5,000.

15. Insurance premiums, EPF contributions and contribution to approved scheme. • Maximum of RM6,000--in totality. • Insurance premiums covers insurance or deferred annuity contracted for by the individual on individual’s life, life of wife; joint lives of individual and a wife or wives or the joint lives of two or more wives. • Insurance policy can be with insurance company, government, public body or the controlling authority of any nationalized insurance business. • Insurance premium must be paid. • Only individual’s obligatory contribution to EPF and approved schemes qualify for relief.

16. Example 6 Bala is a tax resident for year 2005. He has paid the following insurance premiums during the said year: (a) RM1,500 for a medical insurance policy with American International Assurance Company Limited. (b) RM2,100 for a life (pure life) insurance policy with Great Eastern where the insured is Bala. (c) RM4,800 for an educational insurance with Great Eastern in the name of his daughter. In addition, Bala draws a gross salary of RM7,000 from his employment with Smelting Company Sdn Bhd from which an obligatory contribution of 11 percent is made to the Employee Provident Fund.

17. Type Relief Remarks Medical RM1,500 Education RM1,500 Restricted as total reliefs for medical and education capped at RM3,000 EPF RM6,000 RM9,240 (11% x 12 x 7,000) restricted to RM5,000. Life insurance - Nil because total reliefs for insurance and EPF contributions capped at RM6,000.

18. Reliefs under Joint-Assessment

19. Joint Assessment Wife elects for joint assessment Husband elects for joint assessment • Election made in writing before 1 April. • Husband and wife living together. • Wife has total income to be aggregated. • Wife is either Malaysian resident or Malaysian citizen or both. • If his wife or none of his wives elect for joint assessment. • Election made in writing before 1 April. • Husband and wife living together. • Husband has total income to be aggregated. • Husband is either Malaysian resident or Malaysian citizen or both. Note: Joint assessment is at the “total income” level.

20. JOINT T Note (1) : Amount paid by wife deemed to have been paid by husband.

21. Wife or Relief • Available when wife has no income or when wife elects for joint assessment. • RM3,000 for wife + alimony payments. • Additional RM2,500 if wife is disabled. • Full or nil, no issue of apportionment. • Claimable if: • If husband has a wife; and • Husband and wife are living together--not separated by court order, deed of separation or where separation is likely to be permanent.

22. Married Individual? Y Husband & Wife living together? Y Spouse has total income? Y Spouse elects for joint assessment? Y N Spouse Relief of RM3,000

23. Example 7 Abdul & Aminah from divorce on 1-7-2005. Aminah has no total income for year 2005. Issue: Advise Abdul whether he can claim wife relief in year 2005. Discussion: Abdul can claim wife relief of RM3,000 in year 2005. Thereafter, he is not entitled to wife relief.

24. Example 8 Ibrahim is married to Maimunah, Siti and Ana. He is living together with them during the year 2005. All the wives are homemakers and do not have any income accruing to them. Issue: Advise Ibrahim on the quantum of wife relief he can claim. Discussion: Ibrahim can claim a wife relief of RM3,000 in year 2005.

25. Example 9 Kaer is married to Zainab in the year 2005 and both of them are living together. In the same year, Kaer made alimony payments of RM2,000 to his ex-wife Syarifah. Zainab makes an election for joint assessment in year 2005. Issue: Advise Kaer on the quantum of relief he can claim for alimony payments in year 2005. Discussion: Kaer can claim a wife relief of RM3,000. He cannot claim any relief for the alimony payments made to the ex-wife because as the total deduction for wife relief and alimony payments cannot exceed RM3,000. However, if Kaer was unmarried in 2005, he can only claim RM2,000 (actual) as relief for alimony payments.