Income Tax (Deduction for Employment of Senior Citizen, Ex-Convict, Parolee, Supervised Person and Ex-Drug Dependant) Rules 2019 [P.U. (A) 164/2019]
An employer can take a further deduction from the salaries of the following types of employees who is a citizen of Malaysia and residents in Malaysia:
a senior citizen who shall be sixty years and above;
an ex-convict who is a person who had been convicted for any offence by a court and had served his sentence of imprisonment;
a parolee as defined in the Prison Act 1995 [Act 537];
a supervised person who is a prisoner directed by an Officer in Charge to work at such labour under subparagraph 47(1)(b)(iii) of the Prison Act 1995; or
an ex-drug dependant who—
had undergone treatment and rehabilitation under the Drug Dependants (Treatment and Rehabilitation) Act 1983 [Act 283];
had undergone supervision under paragraph 6(1)(b) of the Drug Dependants (Treatment and Rehabilitation) Act 1983 or subsection 38B(1) of the Dangerous Drugs Act 1952 [Act 234]; or
had been placed under supervision under paragraph 8(3)(b) of the Drug Dependants (Treatment and Rehabilitation) Act 1983, and is registered with the National Anti-Drugs Agency (MyAADK system).
Conditions
To be eligible for the additional deduction, the following conditions must be met:
the employee works a full-time job
the monthly salary does not exceed RM4,000,
the employee and the employer are not the same person
the employer is not —
a spouse
a parent (including a step-parent or parent-in-law)
a child (including a step-child or adopted child)
a brother or sister (including step-brother or step-sister), or
a grandparent or a grandchild (including a step-grandparent or a step-child), and
in the case of an ex-drug dependant, the employer is required to provide written confirmation from either the Malaysian Prison Department or the National Anti-Drug Agency
These Rules shall have effect for the years of assessment 2019 until the year of assessment 2020.
The provision of this incentive under the Income Tax (Deduction for Employment of Senior Citizen, Ex-Convict, Parolee, Supervised Person and Ex-Drug Dependant) Rules 2019 is limited to YA 2019 and YA 2020.
Based on the provision of the 2019 Rules, there will not be any incentive to employ such individuals after YA 2020.
Therefore, to overcome the unemployment issues of this group of individuals, the time frame for the 2019 Rules has been extended from YA 2020 to YA 2025.
The extension is provided under the Income Tax (Deduction for Employment of Senior Citizen, Ex-Convict, Parolee, Supervised Person and Ex-Drug Dependant) (Amendment) Rules 2021.
As a result, the eligibility period for the 2019 Rules has been extended from YA 2020 to YA 2025.
The Income Tax (Deduction For Employment of Senior Citizen, Ex-Convict, Parolee, Supervised Person and Ex-Drug Dependant) (Amendment) Rules 2021, gazetted on 9 February 2021 which can be downloaded by clicking the attachment below:
Practical Questions
Q1: Definition of "Remuneration"
Whether “remuneration” under rule 3(1) refers to the gross income of an employee as defined in Section 13(1)(a) of the Income Tax Act 1967, i.e. “any wages, salary, remuneration, leave pay, fee, commissions, bonus, gratuity, perquisite or allowance (whether in money or otherwise) in respect of having or exercising the employment.’
Response from LHDNM:
Yes, the term "remuneration" mentioned in P.U.(A) 164/2019 refers to allowances as stated in Paragraph 13(1)(a) of the Income Tax Act 1967.
Q2: - To employ senior citizens aged 60
In claiming a deduction for remuneration paid to an employee who reaches the age of 60 in the middle of the year in 2019, is the remuneration to be pro-rated to exclude the portion of his remuneration that relates to the period prior to the age of 60?
LHDNM Feedback:
This incentive is given to employers who employ senior citizens aged 60 and above during the basic assessment years 2019 to 2025.
Therefore, if the employee reaches the age of 60 and above during the basic assessment years 2019 to 2025, the employer is eligible to claim this incentive, as applicable, provided that the employee meets other criteria.
No apportionment is required for contributions made before the employee reaches the age of 60.
Example:
Mr. A is 58 years old and has worked for XYZ Sdn Bhd since 2017.
Mr. A reaches the age of 60 on 15.5.2019.
XYZ Sdn Bhd has a financial year ending on 31 December each year.
XYZ Sdn Bhd is eligible to claim the incentive under P.U.(A)164/2019 for the contributions made throughout the assessment year 2019, if it complies with all the prescribed conditions.Q3: - Definition of "RM4,000"
The Rules state that the deduction allowed is subject to “the remuneration paid by the employee does not exceed four thousand ringgit (RM4,000.00)".
Please clarify whether the RM4,000 refers to monthly remuneration.
LHDNM Feedback:
Yes. The term mentioned in subclause 3(2)(b) refers to monthly salary.
Q4: - What if the total remuneration exceeds RM48,000 in a year?
If such an employee is paid RM3,800 per month and a bonus of RM3,8O0 in December, would the full remuneration of RM49 400 [i.e. (RM3 800 * 12) + RM3,800 bonus] qualify for the double deduction?
LHDNM Response:
No. The Ministry of Finance has determined that employee bonuses should be apportioned equally throughout the year because the bonus payment is an incentive for the services provided by employees for a particular year.
Therefore, the double tax deduction under P.U. (A) 47/2021 [P.U.(A) 164/2019] for the following scenario for the 2019 assessment year are as follows:
Therefore, the additional deduction allowed under P.U. (A) 47/2021 [P.U.(A) 164/2019] for the bonus is limited to RM2,400.
Q5: - Eligibility
Where the employer and employee are the same person or relatives, rules 3(2)(c) and 3(2)(d) impose restrictions on the deduction claim.
However, the restriction does not appear to cover the situation of an employer being a "Sendirian Berhad'.
Does that mean that remuneration payable to such an employee should still qualify for deduction under rule 3(1) even if the employee:
is a director but not a shareholder of the company;
is a director and a shareholder of the company; or
is connected to the directors/shareholders of the company?
LHDNM Feedback:
The purpose of imposing subparagraphs 3(2)(c) and 3(2)(d) is as follows:
Subparagraph 3(2)(c) aims to disallow additional deduction claims on remuneration made by sole proprietorships to the business owner; and
Subparagraph 3(2)(d) aims to disallow additional deduction claims on remuneration made by employers to their immediate family members. This is to curb the misuse of this incentive by employers who hire their immediate family members in their businesses. Therefore, if the employer is a company, any payment made to the immediate family members who are shareholders or directors of the company is not eligible for additional deduction claims under this incentive.
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