THERE are two certainties in life that are unavoidable – one is “death” and the other is “taxation”.
As responsible citizens of the country, paying income tax on our income is necessary for our country to grow.
However, due to the complexity and perhaps unpleasant past experience, many of us do not spend time dealing with tax planning.
What we do not know is that if we do tax planning well, we can have more money to save and invest – legally.
Tax planning is about how effectively we utilise the available tax reliefs and rebates to minimise our tax amount legally.
Let us just say that I am a salaried employee earning RM8,000 monthly. With only personal relief and the Employees Provident Fund (EPF) relief, my tax amount is RM4,610 in 2021.
However, if I had planned ahead and saved money into a Private Retirement Scheme (PRS) and by purchasing life and medical insurance, my tax amount will be reduced to RM3,750!
Not only do I save RM860 in tax amount, but I can also utilise this amount to invest in the PRS which can also help boost my retirement fund.
Forward looking
Many of my clients do not maximise the tax reliefs provided to them. Some given reasons are that they do not look at the reliefs before the year-end and only check when they need to submit their tax returns in April (or June for businesses).
By doing so, they missed the tax relief window for that year. Furthermore, some even claimed that they are not aware of such reliefs.
It will be best to plan your tax early in the year. Know your available tax reliefs and plan the purchase or payment for it.
You can refer to the Inland Revenue Board’s (IRB) website for the latest updates on available tax reliefs and rebates.
As an example, if you plan to claim the PRS tax relief, you can start putting in RM250 monthly. This way, you will not miss out on the tax relief while spreading your investment over the year. It will also relieve the pressure on your year-end cash flows.
Let me give you another example. Assuming that at the end of the year, you wish to upgrade your laptop, but you have fully utilised the lifestyle tax relief for the year.
If that is the case, you may want to wait for just a few more days to make the purchase in the following year. This way, you will be able to claim the tax relief for the following year. By doing so, you can reduce your tax to about RM325 if your tax bracket is in the 13% category.
Some of these tax reliefs do not require us to provide proof such as personal relief, parent relief, and child relief.
Most tax reliefs require us to provide proof of payment such as the PRS, lifestyle and others. It is therefore important for us to keep a copy of the relevant documents for at least seven years in anticipation of any tax audit in the future.
Indeed tax audit is one of the most challenging parts of tax filing!
Are you also aware that if we do our tax planning well, it can help us ease the loan application procedures if we need to?
Recently, a friend wanted to take a bank loan to sustain his business which was affected by the COVID-19 pandemic.
After a few rounds of discussions with a few bankers, most of the loan applications were unsuccessful.
One of the reasons given was that there was no final tax filing by him. So, not only did he miss out on potential tax refunds from his final tax computation, but his loan application was jeopardised.
Personal tax submission is an important document for loan applications, especially for sole proprietors. Many people did not take this aspect into consideration, thus in the process ignored the necessity of final tax filing.
Let us all be a responsible citizen and pay our tax on time to avoid the tax penalty. Proper tax avoidance can help us save money, save time and have peace of mind. Furthermore, we are helping our country to grow and helping ourselves to better manage our personal finance. – Sept 9, 2021
Shing Yee Ling, CFP, IFP, is a licensed financial planner with VKA Wealth Planners Sdn Bhd and a Certified Member of the Financial Planning Association of Malaysia (FPAM).
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
