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Company Car Benefit | Should I declare it on my income tax filing in Malaysia?

It's a good question that we want to help you understand. In Malaysia it falls under Benefit in Kind or BIK in short form. Let's have look at how you how you can declare it by giving you a real-life scenario
company car benefit income tax filing malaysia

Question:
Hi, my name is James. I am working for P-Tech Sdn Bhd, a manufacturer of high quality microchips in Malaysia.

On 1 April 2018, I was effectively promoted from a Project Engineer to a Project Manager by my company. In addition to a bigger paycheck, I was also granted a Mazda CX-5 for both business and private use. Petrol is provided and paid for by my company. That is totally awesome!

Lately, I had received an email from the HR director of my company as a friendly reminder for me to declare and pay income tax on my usage of the Mazda CX-5. The email was sent with an attachment that contains the details of Mazda CX-5 and my petrol consumption as follows:

Details:

1. Cost of Mazda CX-5 (When It was Brand New): RM 135,000.

2. P-Tech’s Purchase Cost of Mazda CX-5 (3 Years old): RM 96,000.

3. Petrol Consumption (from 1 Apr 2018) to 31 Dec 2018): RM 6,000.

My question is: ‘Do I need to declare income tax for using the Mazda CX-5? This is because I do not own the car. The car belongs to my company. If I need to file in income tax, how much should I declare to the Inland Revenue Board (IRB) of Malaysia?

Answer:
First, James is required to file in income tax for his use of the Mazda CX-5 under Section 13(1)(b) of the Income Tax Act (ITA) 1967. It is a viewed as ‘employment income’ to James because it is a benefit provided by P-Tech, his company for his continuous employment. In his case, the benefits James needs to file in are:

a. Free Use of Mazda CX-5
b. Free Petrol

The next question is: ‘What is the value amount in Ringgit Malaysia (RM) James needs to declare for the benefits stated above?’

As at 15 March 2013, the Inland Revenue Board (IRB) of Malaysia has published its Public Ruling (PR) 3/2013 – Benefits in Kind (BIK) where it details a handful of formulas to ascertain the value amount of various BIKs offered to employees by their employers. According to PR 3/2013, there are two methods James can use to ascertain the value amount of his free use of Mazda CX-5 and petrol:

a. The Formula Method
b. The Prescribed Method

#1: The Formula Method

The PR 3/2013 assesses the annual value of using a car based on the formula as described below:

Annual Value of Car Benefit:
= (Purchase Cost of Car / Prescribed Average Lifespan of Car) x 80%

Notes:

a. Purchase Cost of Car refers to the actual cost incurred by the employer.

b. Prescribed Average Lifespan of All Cars is fixed at 8 years by PR 3/2013.

c. PR 3/2013 provides an abatement of 20% as it deems the value of a car at the time when it was returned to the employer to be 20% of its cost.

Hence, in James’s case, the annual value of his car use and free petrol would be ascertained as follows:

Annual Value of Car Benefit:
= (Purchase Cost of Car / Prescribed Average Lifespan of Car) x 80%
= (RM 96,000 / 8 Years) x 80%
= RM 9,600

According to the Formula Method, James needs to declare the full amount paid by his employer for his petrol consumption of RM 6,000 over the last 9 months.

From above, James was promoted on 1 April 2018 and had used the benefits of both free use of car and petrol for 9 months. Based on the formula method, the final amount James would need to declare is RM 13,200.

No. Benefits In Kind Employment Income
1 James’s Use of Car (RM 9 600 x 9/12 months) RM 7 200
2 James’s Petrol (1 Apr 2018 – 31 Dec 2018) RM 6 000
Total RM 13 200
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#2: The Prescribed Method

Alternatively, PR 3/2013 allows the values of both James’s use of car and petrol to be ascertained under the prescribed method according to a scheduled under Appendix 2.

The following are the annual prescribed values for motorcars and petrol offered to employees:

Cost of Motocar
(When it is New)
Annual Prescribed Benefit
Of Motocar
Annual Prescribed Benefit
of Petrol
Up to RM 50 000 RM 1 200 RM 600
RM 50 000-RM 75 000 RM 2 400 RM 900
RM 75 001-RM 100 000 RM 3 600 RM 1 200
RM 100 001-RM 150 000 RM 5 000 RM 1 500
RM 150 001-RM 200 000 RM 7 000 RM 1 800
RM 200 001-RM 250 000 RM 9 000 RM 2 100
RM 250 001-RM 300 000 RM 15 000 RM 2 400
RM 350 001-RM 500 000 RM 21 250 RM 2 700
RM 500 001 and above RM 25 000 RM 3 000

Under the Prescribed Method, the annual value of James’s use of Mazda CX-5 is not based on the company’s purchase price of RM 96,000. Rather, it is based on the cost price of Mazda CX-5 when it was new which is RM 135,000. Hence, the
annual prescribed values to James for his use of car and petrol are:

a. Free use of Mazda CX-5: RM 5,000
b. Free Petrol: RM 1,500

But, James used these benefits for a period of 9 months.

No. Benefits In Kind Employment Income
1 James’s Use of Car (RM 5 000 x 9/12 months) RM 3 750
2 James’s Petrol (RM 1 500 x 9/12 months) RM 1 125
Total RM 4 875

Based on the prescribed method, the final amount James would be declaring is RM 4,875.

Conclusion:

James may choose to declare any of the two amounts under Section 13(1)(b):

No. Benefits In Kind Formula Method Prescribed Method
1 Free Use of Mazda CX-5 RM 7 200 RM 3 750
2 Free Petrol RM 6 000 RM 1 125
Total RM 13 200 RM 4 875

I supposed, if James intends to save on his income tax payments, he would opt for the Prescribed Method over the Formula Method as he would be declaring a lesser amount for his BIKs.

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