Chapter 5:Employment Income (I)

-Derivation (perolehan)

& Exemption (pengecualian)

Learning outcomes:

By the end of this topic, you should be able to:

1) Define employment for the purpose of taxation in Malaysia2) Explain the concept of employer, employee and the

relationship between employer and employee3) Differentiate between employment and profession;4) Analyse the forms of taxable employment income derived in

Malaysia;5) Identify employment income received from overseas

1- Introduction

• Employment income is an important source of revenue to the government.

• It is assessable under s 4(b) of the income tax 1967.• S 4 (b) – Gain or profit from employment • S 4 (b) – Contract of services (Kontrak perkhidmatan)

1.1- Employment (Pekerjaan)

Employment is defined in s2 of the act to mean:• Employment in which the relationship of master and servant

subsists (memperolehi nafkah) • Any appointment or office whether public or not and whether

or not the master servant relationship subsists for which remuneration is payable (menerima gaji)

1.2- Employee (Pekerja)

Employee in relation to an employment means:• Where the relationship of master and servant subsists, the

servant

1.3- Employer (Majikan)

Employer in relation to an employment means:• Where the relationship of master and servant subsists

(memperolehi nafkah), the master

Employment

Master and Servant appointment or holding of an office Examples:Factory, worker, accountant,

etc.

Examples:Director, executor, treasurer, trustees

3- Case laws principle [FE]It is not easy to lay down the criteria for the distinction between employment income and business income. The following principles derived from case laws would certainty serve as a guide in ascertaining employment source:

a. there exist a master-servant relationship (tuan dan pekerja);

b. the master’s right to control the method of doing works; (majikan ada kawalan bagaimana cara utk buat kerja);

c. the master’s right of suspension or dismissal (majikan ada kuasa utk mengantung atau memberhertikan);

d. the employment is normally a full time job undertaken by the employee himself without substitution of staff (he does not hire helpers) (kerja sepenuh masa, tak boleh lantik org lain buat kerja);

3- Case laws principle [FE]

e. no financial risk;f. employment enjoys benefits such as EPF, leave pay,

compensation for loss of employment, and form part of the organisation structure;

g. Employees uses tools provided by the employer to carry out the duties; (guna peralatan yg disediakan majikan)

h. The employee’s duties would part would form part of the business activities. (kerja adalah sebahagian aktiviti perniagaan)

4 – Importance of distinguishing employment income from business income

• S4(b) – employment income• S4(a) – business income

a. Deduction rules b. Capital allowancesc. Schedular tax deduction systemd. Employees Provident Fund (EPF) contributionse. Medical benefits, sick pay and leave payf. Compensation for loss of employment and gratuityg. Exemption of employment income

Advantages

Employment income [S4(b)] Business income [S4(a)]

1- EPF contribution by employer 1- Flexible deduction of expenses

2- Medical benefits, sick pay and leave pay assured.

2- Capital allowances are available

3- Tax exemption on gratuity compensation for loss of employment

3- Can utilise unabsorbed loss of the taxpayer

4- Non Resident employees will be exempted from tax if the employment period not more than 60 days.

-

5- Risk job termination 5- Risk of business failure resulting in bankruptcy

5.0 Derivation of employment income (perolehan pendapatan penggajian)

Employment income would only be taxed in Malaysia under following conditions:

a) the employment income is deemed to be derived from Malaysia [S 13(2) , S 13(3)] (pendapatan penggajian dianggap diperoleh di Malaysia)

b) the employment income is received in M’sia from outside M’sia by a resident individual. This refers to foreign source employment income. [pendapatan luar negara di terima di M’sia)eg: working in Qatar with Qatar company, then salary received in Malaysia (not in bank, shipping, air transport & insurance companies)

5.1 The legislation (perundangan)

Once an employment income is established to be deemed derived from M’sia, (dikira diperolehi di Malaysia) such employment income would be taxed notwithstanding (meskipun) that:

i) the employer is NOT in M’sia (majikan tidak berada di M’sia);ii) the employee is a non-resident (pekerja bukan resident);iii) the payment of salary is made outside Malaysia (pembayaran gaji diperolehi dari sumber luar Malaysia);iv) the employment income is not received in M’sia. (Pendapatan pengajian tidak diterima di Malaysia)

Employment income – Derivation, Exemption

Normal

Deemed derivation

Employment Income

Speciala) Employee is a citizenb) Public service/statutory

authority

i) Employment isExercised outsideM’sia S13(3)(a)

ii) Leave attributableto the exercises ofEmployment outsideM’sian S13(3)(b)

Employer residentin M’sia

Employee aboard aShip/aircraft

S13(2)(e)

Director S13(2)(d)

Employees’ activities- exercised employment

in M’sia S 13(2)(a)

Perform outsideM’sian duties incidental

to be exercised of employment in M’sia S13(2)(c)

Leave attributablethe exercise ofEmployment in

M’sia S13(2)(b)

5.2 Meaning of “deemed” (anggap)

• The use of the phrase “deemed derived” (DIKIRA DIPEROLEHI) is to ensure certainty of the tax on employment income in certain situations as well as to deter employees from entering into transactions that will result in a loss of revenue to the government.

• It will expand the scope of taxability.• The primary function of it is to bring into something which

would otherwise be excluded.• Note: no want can escape from tax

6.0 Scope of S13(2)(a)• When an employee is discharging the duties required by his

employer in M’sia, he is said to be exercising employment in Malaysia. (bila pekerja diarahkan melaksanakan tugas oleh majikan di M’sia, bermakna pekerja melaksanakan tugas di M’sia).

• The place of discharging the duties in M’sia would render such employment income to be deemed derived from M’sia. (tempat di mana melaksanakan tugas di M’sia, pendapatan penggajian dianggap diperolehi dari M’sia).

• The source of employment (location of employer) is not relevant for determining the issue of derivation.

• If employee is working in M’sia, he would be said to have ‘exercised employment in M’sia’.

• Eg: work at UniKL KL, then assigned at UniKL branch at Kazakhstan, UniKL is M’sian company and your salary paid from UniKL KL, so income receive in Kazakhstan, deemed derived in M’sia and taxable.

6.1 Meaning of ‘exercising employment’

• To exercise an employment is to discharge the employment duties; (melakukan pekerjaan adalah melaksanakantugas)

• These functions do not require to be discharged wholly in M’sia before it could be said that the employment is exercised in M’sian; (Kerja tidak semestinya keseluruhan di buat di Malaysia)

• An employee discharging part of his employment duties in M’sia would nonetheless be deemed exercised employment in M’sia. (sebahagian tugasnya di M’sia dikira melaksanakan pekerjaan keseluruhan di M’sia)

• The income related thereto will be taxed in M’sia.

Distinguish between Employment or Professional

Principles Employment Profession

Control existence of employer Yes No

Employee replacement No Yes

Income or benefit received 1- Fixed salary rate2- Benefit sick pay, EPF contribution and medical benefits

1- Wages as agreed upon tasks assigned

Work place and working hours Provided/states Not provided/ not states

Share financial success Yes No

Appointment contract Contract of Services Contract for Services

Principles Employment Profession

Capital allowances No claim Can claim

Losses carried forward Cannot c/f Can c/f

Assessment of income Receipt basis(basis year)

Accrual basis(declare upon receive contract)

60 days rule(Employment of non resident)*

Exemption available N/A

Compensation on termination Taxable Not Taxable

Deduction Fewer deduction More deductions

Simple example Full time lecturer Part time lecturer

Distinguish between Employment or Professional

Eg 5.1• Abdul Ghani, after obtaining the ACCA qualification, decides

to commence an audit practice, under the name Ghani & Associates.

• Abdul Ghani is said to exercise a profession and his income is assessable under S4(a) – business income.

Eg 5.2• Abdul Ghani, then decided to join PWC as a senior audit

manager.• He is said to exercise an employment and his income is

accessible under S4(b) – employment income

Eg 5.3• Jack is an accountant by profession.• Doing part time as news reporter at TV5.• Under the terms of contract, he is required to report for duties at

10 pm to 12 am and to report news prepared by TV5.• He was paid RM1,500 for the two hours work. • TV5 provides him the necessary equipment including clothing to

carry out his work.

Answer • there exists a master and servant relationship;• Jack is subject to the instruction of TV5, thus control of

employer exists;• The necessary tool such as news report, clothing and other

equipment were prepared by the employer; and• There is no financial risk undertaken by Jack.

7.0 Scope of S13(2)(b)• Exercised employment in Malaysia, any employment income

paid in respect of the leave period is deemed to be derived from Malaysia (Masa bekerja ada cuti berbayar dikira pendapatan diperolehi di Malaysia)

• It would have been attributable to the exercise of such employment in M’sia. (Cuti wujud sbb ada kerja)

• The income attributable to leave pay would be deemed derived in M’sia.

7.1 Meaning of attributable to • Causal connection existed, it is sufficient to deem the income

from leave pay to be derived from M’sia.

Eg. 5.5• Karam Singh was employed as a Professor, teaching criminal

law, in International Islamic University.• He worked in M’sia for the period 1.1.2012 – 31.10.2012 and

was paid RM150,000.• He returned to India for a holiday from 1.11.2012 –

31.12.2012.• The leave pay for the 2 months amounted to RM30,000.

All the employment income is assessable to tax by virtue of section:

S13(2)(a) 10 months exercised employment in M’siaS13(2)(b) 2 months leave pay ‘attributable’ to the

exercised of employment in M’sia

8.0 Scope of S13(2)(c)

• An individual who exercises employment in M’sia may be required to perform duties outside M’sia. (individu yang bertugas di Malaysia mungkin dikehendaki bertugas diluar Malaysia)

• If the nature of his overseas duties has some connection to the M’sian employment, the overseas duties considered be deemed to be derived from M’sia as it would be “incidental” (berkaitan) to the M’sian employment.

8.2 Extensiveness of S13(2)(b) and 13(2)(c)

• Leave pay according to attributable to and incidental to.

Eg. 5.6• Romeo is employed by a M’sian company under a 5 years

contract. • His duties include visits, not exceeding 30 days in any one

year, to supervise the company’s operations in neighbouring countries.

• He receives part of his salary (RM2,000 per month) outside M’sia.

• In addition, an annual bonus of RM15,000 is paid directly into his account in Hong Kong.

Question: State with reasons, whether the salary and bonus received outside M’sia would be subject to M’sian

tax.

Answer to Eg. 5.6

• Romeo’s employment is exercised in M’sia [S13(2)(a)].• The employment income would be M’sian derived

irrespective the place of payment.• The annual bonus of RM15,000 would be taxed in M’sia.• The visits to neighbouring countries are considered as

incidental to his duties exercised in M’sia.• Therefore, by virtue of S13(2)(c), of the Act, gross income

received for such duties RM2,000 are deemed to be derived in M’sia.

Eg. 5.7• Mutusamy is a Sales Manager for Eye See Eye Bhd, M’sian

company.• Under his employment, he is required to promote sales for 7

months in M’sia.• One month in each country, Singapore, Japan, Indonesia,

Thailand.• Leave pay would be allowed in Spain ONE month.

Answer to Eg. 5.7• His employment income would be deemed derived from

M’sia and taxed as follows:Section13(2)(a) 7 months13(2)(b) 1 month – leave pay in Spain13(2)(c) 4 months – incidental to (Singapore, Japan, Indonesia, Thailand.

Eg. 5.8• John, a British citizen commenced employment as a technical officer

with an oil company in M’sia in 2011.• In the same year he was sent to Brunei for 3 weeks in March to

check on the company installation there.• Other than this 3 weeks absence, he was in Malaysia for the whole

of 2011. • He was paid RM5,000 for the 3 weeks while he was in Brunei.

Question: Is he liable on tax on the RM5,000 received while in Brunei.

Answer to example 5.8• John was exercising employment in Malaysia by virtue of working in

the oil company in M’sia [S13(2)(a)].• The three weeks duties in Brunei would be treated as “incidental”

to the exercise of employment in M’sia.• An such, the RM5,000 would be liable to Malaysian income tax

[S13(2)(c)].

Employment income exercised in Malaysia, S13(2)(a) established

Leave pay attributable toS13(2)(b)

9.0 Employee’s activities

Perform outside M’sia duties incidentalTo exercise of employment in M’sia,

S13(2)(c)

10.0 Scope of S13(2)(d)• Remuneration received by a “director of a resident company”

shall be deemed derived from Malaysia notwithstanding that he does not discharging his duties in Malaysia.[pengarah utk syarikat M’sia tak mengira di mana melaksanakan kerja dikenakan tax S13(2)(d)]

• Place to perform duties is not relevant here.• Which company paid director fees.• Specific provision governing director of a company.• In the event S13(2)(d) – not applicable, the general provision

S13(2)(a) shall apply.• The tax authorities is entitled to fall back on the general

provision of S13(2)(a) if it fails to bring its case within the specific provision of S13(2)(d) – cant escape tax.

Eg. 5.9• Richard Thornton was appointed as a Director in Power Tax

(Malaysia) Bhd [tax resident in Malaysia to administer the UK representative office.

• He spent the whole year in UK and was paid RM200,000 per annum as director’s fees in United Kingdom.

Answer to Eg 5.9• Richard Thornton will be assessed to tax in Malaysia on the

remuneration received even though he did not discharge his duties in M’sia.

• The director fees would be deemed M’sian derived as it was paid by a Malaysian resident company.

Eg. 5.10• Richard Thornton served as a director for Moonlite Ltd

(Singapore resident company) to “take charge of the Malaysian branch operations”

• The director’s fees was paid in Singapore.

Answer to Eg 5.10• A Malaysia branch of Singapore company would treated as a

non-resident in M’sia.• The director’s fee was paid by a non-resident and thus S13(2)

(d) is inapplicable.• However, the director’s fee would be liable to Malaysian tax

since “Richard Thornton was exercising employment in M’sia. [S13(2)(a)]”

11.0 Scope of S13(2)(e)• Employees of resident sea or air transport operator in M’sia

are deemed to derive their gross income from M’sia.• Eg: of sea and operator are MISC, MAS & Air Asia.• Similar with S13(2)(d) – not consider place performance

duties.• Employees may have worked on ship/aircraft that is outside

M’sia but yet be taxed in M’sia.

11.1 Exemption for employees exercising on a Malaysian ship• Income from employee work on “the ship or the boat”

registered under the Merchant Shipping Ordinance 1952, but excludes a [ferry, tugboat, supply vessel, crew boat, lighter (perahu pemunggah barang), dredger (kapal korek), fishing boat or other similar vessel] is exempted from income tax (para 34, Sch 6).

• The ship must be used in a business and owned by a tax resident. This takes effect from YA 2007.

Eg. 5.11• Captain Cooke (an Australian citizen) is the captain of a vessel owned by

M’sian Langkawi Shipping Sdn Bhd (a M’sian tax resident) shutting between Philippines and Australia.

• He is a non-resident for M’sian tax purposes and he is paid in Sydney, Australia.

• Advise him on his M’sian tax liability and suggest tax-planning scheme to mitigate his tax, if any.

Answer to Eg 5.11• The employment income derived by Captain Cooke on board a ship shall

be deemed derived from M’sia since the employer, Malaysian Langkawi Shipping Sdn Bhd, is a tax resident in M’sia [S13(2)(e)].

• The employment income would be taxed at a flat rate of 26% (YA 2011) without any tax relief.

• In the event Captain Cooke could ensure the vessel used to ply between Philippines and Australia is a ship registered under the Merchant Shipping Ordinance 1952, then his income exemption for tax under S34 Sch 6.

12.0 Employment in Public Service/statutory authority [S13(3)]

• If an employment, who is M’sian citizen exercises employment in the public service or statutory authority, his/her income would be deemed to be derived from M’sia, even though the employment is exercised outside M’sia or leave pay s attributable to the exercise of employment outside Malaysia.

Subsection Section Description Prerequisite

Work done in Malaysia by Employee

Employer is a resident

Company in Malaysia

13(2)(a) Employment done in Malaysia

13 (2) (b) Vacation relates to employment in Malaysia

13 (2)(c) Work outside Malaysia but in line with work in Malaysia

13 (2)(d) Director of resident company in Malaysia

13(2)(e) Employment by resident in Malaysia for shipping and airlines companies

Summary of Section 13(2), Income Tax Act 1967

13.2- Para 20,21 Schedule 6 – Exemption of Employment income forNON RESIDENCE

Paragraph 21 and 22 of Schedule 6 provides:“ 21 subject to para 22, the income of an individual from an employment

exercise by him in Malaysia”

(a) For a period or period which together do not exceed 60 days in the basis year of YA; or

xxxxxxxxxxx

A 60 days

A

1 Jan 31 Dec

xxxxxxx

A+B 60 days1 Jan 31 Dec

xxxxxxxA B

25 days 25 days

A+B = 25+25 = 50 days 60 days

45 days

Para 20,21 Schedule 6 – Exemption of Employment income

(b) For a continuous period (not exceeding 60 days) which overlaps the basis year for two successive YAs

(c) For a continuous period (not exceeding 60 days) which overlaps the basis years for two successive YAs and for a period or periods which together with that continuous period do not exceed 60 days

xxxxxxxxxxxxxxx

A 60 days

A

1 Jan 31 Dec

Year 1

31 Dec

Year 2

xxxxxxxx

A+B+C 60 days

B1 Jan 31 Dec

Year 1 31 Dec Year 2

xxxxxx xxxxxxA C

= 55 days

= 15 days = 20 days= 20 days

A+B+C = 15+20+20 = 55 days 60 days

13.3 Prerequisite for income tax exemption

• In order to apply for income tax exemption, the employee :

a) He is a non-resident; and [ensure not stay in M’sia equal to or more than 182 days]

b) He has exercised employment for period/periods not exceeding 60 days.

13.4-Whether a director is entitled to para 21, Sch 6 exemption- the answer no.

• A director is appointed by the shareholder during AGM for one financial year.

• He required to exercise employment for a year.• The performance of director’s duties need not be in Malaysia

and need not coincide with physical presence in Malaysia.• Even if the director is in Malaysia for less than 60 days – “no

exemption available to him”

Example 5.12

• Hashimoto, a citizen of Japan residing in Singapore, is a director of Ceramics Sdn Bhd which is a company resident in Malaysia.

• He received director’s fees of RM11,500 per annum from the company.

• He spends a total of 30 days in a year in Malaysia attending meetings of the board of directors.

State with the reasons, whether the director’s fees are subject to tax in Malaysia.

Answer to Example 5.12

• By virtue of S 13 (2) (d) of the Act, such fees paid to a director of a Malaysian resident company are deemed to be derived from Malaysia.

• The numbers of days not relevance.

• The assess ability of director’s fee as the 60 days exemption (para 21, sch 6) is not available to director.

Example 5.13• James Bond first arrived in Malaysia in 2013, serving as a tax consultant

to Fire House Tax Services.• The following are the analysis of his stay in Malaysia

Days1.1.2013 – 2.1.2013 2 (Holiday in Malaysia)3.1.2013 – 31.1.2013 29 (Employment)1.2.2013– 31.5.2013 120 (Holiday in Malaysia)1.6.2013 – 29.6.2013 29 (Employment)

180

• He left Malaysia on 29.6.2013Q : State with the reasons, whether the James Bond are subject to tax in

Malaysia. - James Bond is a non-resident [stay in Malaysia less than 182 days]- The periods for exercising the employment is less than 60 days in total (58 days in this case) = 29 +29 = 58- The employment income for basis year will be exempted from income tax.

Example 5.14

• Refer to example 5.13• If James Bond left 1.7.2013

Days1.1.2013 – 2.1.2013 2 (Holiday in Malaysia)3.1.2013 – 31.1.2013 29 (Employment)1.2.2013 – 31.5.2013 120 (Holiday in Malaysia)1.6.2013 – 29.6.2013 29 (Employment)30.6.2013– 1.7.2013 2 (Holiday in Malaysia)

182

Identify whether the James Bond are subject to tax in Malaysia. - Yes, he would be a taxable – no exemption.

[although just exercising employment 58 days]- By virtue S 7(1) (a) at least 182 days, he is a RESIDENT- Para 21 not available for him

14-Tax planning

• In order to have exemption period of 60 days for each year, an employee should BREAK the link (between 31 December and 1 January of the following year).

• He should be outside Malaysia during 31.12 and 1.1

Example 5.15

• Berus Lee (Taiwan resident) exercised employment in Malaysia as following periods:

Days12.12.2012 – 31.12.2012 20 (Employment)1.1.2013 01 (Holiday in Malaysia)

2.1.2013 – 20.2.2013 50 (Employment)

Q: Identify whether the Berus Lee are subject to tax in Malaysia. - The employment income for the 70 days (more than 60 days) will be TAXED because the continuous period overlaps the basis for two consecutive YAs; - Berus Lee will tax as non resident.- 1.1.2011 considered leave pay [S13(2)(c)] because it is public holiday and he is in Malaysia.- not fulfill Paragraph 21(b), Sch. 6.

Example 5.16• Berus Lee (Taiwan resident) exercised employment in Malaysia as

following periods:Days

12.12.2012 – 31.12.2012 20 (Employment)31.12.2012 – evening (when to Singapore)1.1.2013 01 (Holiday in Singapore)

2.1.2013 – 20.2.2013 50 (Employment)

Q: Identify whether the Berus Lee are subject to tax in Malaysia. Fulfilled

2012 20 days exempted para 21(a), Sch 62013 50 days exempted para 21(a), Sch 6

Need to break 2012 and 2013.

Example 5.18

Mr. Ramirez was signed by the employer in Mexico to work for an associates company in Malaysia for the following periods, and was remunerated as follows:

RM No of days in M’sia 1.10.2012 – 15.11.2012 45,000 465.12.2012 – 28.12.2012 30,000 2422.1.2013 – 20.3.2013 80,000 58

State with the reason, the above amounts are assessable to tax in M’sia.

If any amount is taxable, explain how Mr. Raminez should be tax.

Answer to example 5.18

Mr. Ramirez’s period of stay in M’sia was as follows:

Basis year No of days2012 70 (46+24)2013 58

For 2012, he “would not be eligible for an exemption from income tax” under para 21 of sch 6 of the act and he worked in M’sia for a total of 70 days. [NEED TO PAY TAX – Tax as non-resident]

In the basis year 2013, he worked in M’sia not more than 60 days. Therefore, he would be exempt from income tax earned for that period under para 21 Sch 6.

Mr. Ramirez will be assessed to income tax as a non-resident at the rate of 26% for YA 2012.

16.0 Double Taxation Relief

• The 60 days exemption rule may be extended under certain double taxation agreement, depending on the nationality of expatriates and subject to the satisfaction of certain conditions;

• For example Japanese resident employee who is working in Malaysia may want to seek treaty protection under article 15 of the Double Taxation Agreement between Malaysia and Japan (1999 Agreement);

16.0 Double Taxation Relief

• The article provides that a Japanese resident would be EXEMPTED from M’sia tax on employment income exercised in M’sia, if all the following conditions are met:a) He is present in Malaysia for a period/periods not exceeding 183 days during the calendar year.[Without Double Taxation Relief the rest non residence – pay higher tax ; whose stay between 70 and less than 182 days]b) The remuneration is paid by, or on behalf of an employer who is not resident of M’siac) The remuneration is not borne by a permanent establishment or fixed base which his employer has in Malaysia

16.0 Double Taxation Relief• To date, Malaysia has signed 61 double taxation agreement

(DTA)• The treaty protection much more generous than the act• It has been established in DGIR vs Euromedical Industries Ltd

(1983) that the provisions of DTAs will override the Income Tax Act.

• Which Wan Suleiman Federal Judge commented“ When in the event of any inconsistency between the provision of the act on the one hand and a Double Taxation Relief Agreement on the other, the agreement must prevail over the act”

Example

Mr. Tamura was signed by the employer in Japan to work for an associates company in Malaysia for the following periods, and was remunerated as follows:

RM No of days in M’sia 1.10.2012 – 15.11.2012 45,000 465.12.2012– 28.12.2012 30,000 2422.1.2013 – 20.3.2013 80,000 58

State with the reason, the above amounts are assessable to tax in M’sia.

If any amount is taxable, explain how Mr. Tamura should be tax.

Answer

Mr. Tamura’s period of stay in M’sia was as follows:

Basis year No of days2012 70 (46+24) **

2013 58 – para 21(a), Sch 6 & **

For 2012 and 2013 Mr. Tamura worked in Malaysia not exceeding 183 days.

So YA 2011 & 2012 income is EXEMPTED from Malaysia tax under treaty protection of Article 15 of the Double Taxation Agreement between M’sia and Japan (1999 Agreement)

** Double Taxation Agreement

17.0- Foreign income

• Section 13(2) and 13(3) of the Act define scope of M’sian derived employment income.

• With effect from YA 2004 the distinction between Malaysian derived or foreign source employment income is crucial.

• Foreign source employment income derived from sources outside Malaysia and received in Malaysia is exempted from Tax under “Paragraph 28, Schedule 6”

Example 5.19 (Page 93)

• Ali worked in the UK as an employee of Chemical Ltd.• With his income from the employment, he bought a car and sent it

over to Malaysia in 2012• Ali was not in Malaysia for the year 2011• But was in Malaysia from March to June 2012

Determine whether he is liable to tax on income represented by the car?

• In this case the value of car would be considered as foreign income source employment income received in Malaysia from outside Malaysia within the meaning of S3 of the Act.

• In Standard Life Assurance Co vs. Allan, the court established the principle that what is received need not be in forma specifica but that things equivalent to money or which can be turned into money will do.

• The income WILL NOT BE TAXABLE as foreign source income in YA 2012.

• It exempted by virtue of newly amended para 28 of sch 6.

Employment income – Derivation, Exemption

1- Dual employment contract

TAX PLANNING

i) Different employersii) Segregation of duties

2- 60 days exemption 3 – DTA Exemption

i) Non-resident employeeii) Exercised employment not

exceeding 60 days

i) Present in Malaysia ≤ 183 days

ii) Employer = non residentiii) Employee’s remuneration is

not borne by a permanent establishment of employer in M’sia.