What is the Tax Treatment of Tax Borne By Employers? – LATEST UPDATE : PUBLIC RULING NO. 11/2016

The objective of PUBLIC RULING NO .11/2016 : TAX BORNE BY EMPLOYERS is to explain the computation of –

(a)  perquisite relating to income tax of an employee borne by an employer; and

(b)  tax payable by the employee who is entitled to this perquisite.

• What is Tax Borne by Employers?
  Income tax is a personal monetary liability of an employee. Hence, Income Tax borne by employers is a kind of perquisite to employee. It is the agreement by the employer to pay the income tax of the employee does not relieve the employee from tax liability on the amount of income tax borne by the employer.

• Whats is the tax treatment of Tax Borne by Employers?
  The income tax of an employee borne by his employer for a basis year for a YA is treated as income of that employee in that basis year when the actual amount of tax for that YA can be ascertained, that is in the following basis year.Example:
  

  	YA 2018	YA 2019	YA 2020
  Chargeable Income	100,000	100,000	100,000
  Add : Tax Borne by Employer	–	10,900	13,516
  Total	100,000	110,900	113,516
  Tax Payable (First 100,000)	10,900	10,900	10,900
  Next @ 24%		2,616	3,244
  Total Tax Payable		13,516	14,144

  Based on the table above:
  

  The tax payable for YA 2018, which is RM 10,900 and being borne by the employer, is treated as gross income and taxed in the following YA 2019.

  The tax payable for YA 2019, which is RM 13,516 and being borne by employer, is treated as gross income and taxed in the following YA 2020.
  
  Hence, there is a implication of TAX ON TAX.

   

• What will be the tax treatment if the employee’s tax is partially borne by the employer?
  According to paragraph 13(1)(a), only the portion of tax borne by the employer is a perquisite and treated as gross income from employment of the employee.

  Example:
  Based on the agreement by the employer, the employer agreed to borne 50% of the employee’s income tax liability.

  	YA 2018	YA 2019	YA 2020
  Chargeable Income	100,000	100,000	100,000
  Add : Tax Borne by Employer	–	5450 (10,900/2)	6,104 (12,208/2)
  Total	100,000	105,450	106,104
  Tax Payable (First 100,000)	10,900	10,900	10,900
  Next @ 24%		1,308	1,465
  Total Tax Payable		12,208	12,365

  Based on the table above:

  The tax payable for YA 2018, which is RM 10,900 and being borne by the employer 50%
  The portion of tax borne by employer : RM 5,450 is treated as gross income and taxed in the following YA 2019.

  The tax payable for YA 2019, which is RM 12,208 and being borne by employer 50%
  The portion of tax borne by employer : RM 6,104 is treated as gross income and taxed in the following YA 2020.

  Hence, there is a implication of TAX ON TAX.