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Benefit in Kind | Living Accommodation, how to declare in Malaysia

Is your living accommodation being paid by your employer? Or maybe you’re one of owners and want to know if you are eligible to receive such Benefit in Kind from your company? If so, we have made 3 [calculated] tax examples so you will know what to declare on your income tax filing as a director or non-director.
apartment building living accommodation

So what is a Benefit in Kind?

Benefit in Kind (BIK) are eligible products that are bought or received on top of your paycheck. Benefits in kind (BIK) include several things such as; private treatment, company car, gym membership, interest-free loan, travel expenses, and living accommodation.

Several tax rules are governing how those benefits are valued for tax purposes and income tax declaration. And in certain cases, one should also be aware of the exemptions granted. In this article, we give you 3 different scenarios from non-directors to directors that can help you understand the calculations of income tax if you are receiving living accommodation as a benefit in kind provided by your company.

Is your company providing you a company car benefit as well? Read also: Company Car Benefit | Should I declare it on my income tax filing?.

Question:

Bina Smart Sdn Bhd is a fast-growing construction firm based in Subang Jaya. In 2019, the firm has secured a construction project at Nusajaya, Johor. Hence, the firm has sent three key staffs namely, Brian, Daniel, and Nicholas to Nusajaya to manage and oversee the overall progression of this project.

Brian earns a fixed salary of RM 6,000 a month as the firm’s Executive Engineer.

Daniel is the Operations Director and owns 5% shareholdings of Bina Smart Sdn Bhd. He draws in a fixed salary of RM 8,000 a month.

Nicholas, a co-founder, is appointed as an Executive Director of the firm. He has 30% shareholdings of Bina Smart Sdn Bhd. He earns a fixed salary of RM 12,000 a month.

In relation to this project, Bina Smart Sdn Bhd has rented an unfurnished semi-detached bungalow at Horizon Hills, Johor for RM 10,000 per month. It was occupied by Brian, Daniel, and Nicholas for a period of six months which is the duration of this project.

As such, the question is: ‘How should Brian, Daniel, and Nicholas calculate their gross employment income for income tax assessment purposes for 2019?’

Do you own a non-profitable partnership business? Read also: 3 steps to declare income tax

Answer:

Benefit in kind is not over complicated but there is a difference based on position, shareholdings, and salary drawn from the company. It is very important to understand the rules involved with the income tax declaration for benefit in kind. Employers or employees who are not familiar with such rules can end up getting a monetary punishment under the Income Tax Act (ITA).

For a start, Brian, Daniel, and Nicholas are required to declare their fixed salary (are required to declare their fixed salary when making the income tax declaration) and living accommodation benefit (benefit in kind) under Section 13(1)(a) and Section 13(1)(c) of the Income Tax Act (ITA) 1967. The calculation, however, differs regarding their respective employment status with Bina Smart Sdn Bhd. I will illustrate how their employment status and fixed salary impact the gross employment amount they need to declare on their income tax declaration to impact the amount they need to declare in gross employment income to the Inland Revenue Board (IRB) for 2019.

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1. Brian – Executive Engineer

Brian makes RM 6,000 in monthly salary as an employee of Bina Smart Sdn Bhd and has no shareholdings in the firm. His RM 6,000 per month in income will be taxed under Section 13(1)(a) of ITA 1967, thus, working out to be RM 72,000 in annual fixed salary.

Based on Section 13(1)(c), the value of living accommodation benefit (benefit in kind) works out to be the lower amount of the defined value of living accommodation and 30% of gross employment income under Section 13(1)(a). The defined value shall be the rental of the semi-detached house netted off the value of its furnishing. For Brian, the defined value is to be apportioned by ⅓ as he shared the house with Daniel and Nicholas.

Therefore,

No. Section 13(1)(c) Value
1 Annual Defined Value of Living Accommodation:
– Annual Defined Value: RM 10,000 x 12 x ⅓ = RM 40,000
RM 40,000
2 30% of Gross Employment Income under Section 13(1)(a)
– RM 6,000 x 12 months x 30% (no apportionment of ⅓ for this computation)
RM 21,600
Lower of the Two Calculations RM 21,600
Final Income to be Declared under Section 13(1)(c):
– RM 21,600 x 6/12 months
RM 10,800

Therefore, Brian’s final computation of gross employment income is:

Section Sources of Income Gross Employment Income
13(1)(a) Fixed RM 72,000
13(1)(c) Living Accommodation Benefit RM 10,800
Total RM 82,800

2. Daniel – Operations Director

Daniel is classified as a ‘service director’ of Bina Smart Sdn Bhd. This is because his shareholdings do not exceed 5% of the company and he remains active as a part of its management team. Hence, the computation for gross employment income declaration is similar to Brian’s as illustrated above.

First, the calculation for income to be declared under Section 13(1)(c) is:

No. Section 13(1)(c) Value
1 Annual Defined Value of Living Accommodation:
– Annual Defined Value: RM 10,000 x 12 x ⅓ = RM 40,000
RM 40,000
2 30% of Gross Employment Income under Section 13(1)(a)
– RM 8,000 x 12 months x 30% (no apportionment of ⅓ for this computation)
RM 28,800
Lower of the Two Calculations RM 28,800
Final Income to be Declared under Section 13(1)(c):
– RM 28,800 x 6/12 months
RM 14,400

 

 

Second, Daniel’s final computation of gross employment income is:

Section Sources of Income Gross Employment Income
13(1)(a) Fixed Salary:
– RM 8,000 x 12 months
RM 96,000
13(1)(c) Living Accommodation Benefit RM 14,400
Total RM 110,400

3. Nicholas – Executive Director

Nicholas is a controlled director of Bina Smart Sdn Bhd as he has more than 5% shareholdings in the company. Hence, he will be assessed on the full amount of defined value of the living accommodation provided, which is different from his colleagues namely Brian and Daniel. Therefore, Nicholas’s final computation of his gross employment income is:

Section Sources of Income Gross Employment Income
13(1)(a) Fixed Salary:
– RM 10,000 x 12 months
RM 120,000
13(1)(c) Living Accommodation Benefit
– RM 10,000 x 6 months x ⅓
RM 20,000
Total RM 140,000

Read also: Do I Need to Declare Personal Income Tax if My Employer Paid it?.

Conclusion:

In short, the calculation of living accommodation benefit (benefit in kind) of an employee given by an employer shall be based on his position, shareholdings, and salary drawn from the company. This is to be apportioned based on his duration of stay and whether or not, if the living accommodation unit is to be shared with other colleagues.

Most likely, your situation would be uniquely different and hence, requiring the assistance of a qualified tax professional. If that is you, you may use Joolah.my, a platform that quickly refers you to the very best tax, audit and accounting experts in Malaysia.