PUBLIC RULING NO. 11/2016 : TAX BORNE BY EMPLOYERS
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.
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