Personal Income Tax

It is the end of the year. Have you maximize your tax reliefs?
Below is a simple guide regarding the tax rates and tax reliefs for those who are eligible.

Tax residence status of individuals

An individual is regarded as a tax resident if he meets any of the following conditions, i.e. if he is:

• in Malaysia for at least 182 days in a calendar year;
• in Malaysia for a period of fewer than 182 days during the year (“shorter period”) but that period is linked to a period of the physical presence of 182 or more “consecutive” days in the following or preceding year (“longer period”). Temporary absences from Malaysia due to the following reasons are counted as part of the consecutive days, provided that the individual is in Malaysia before and after each temporary absence:

                               - business trips
                               - treatment for ill-health
                               - social visits not exceeding 14 days

• in Malaysia for 90 days or more during the year and, in any 3 of the 4 immediately preceding years, he was in Malaysia for at least 90 days or was resident in Malaysia; or
• resident for the year immediately following that year and for each of the 3 immediately preceding years.

Rates of tax

1. Resident individuals

• A qualified person (defined) who is a knowledge worker residing in Iskandar Malaysia is taxed at the rate of 15% on income from employment with a designated company engaged in a qualified activity in that specified region.
• An approved individual under the Returning Expert Programme who is a resident is taxed at the rate of 15% on income in respect of having or exercising employment with a person in Malaysia for 5 consecutive YAs.

Personal reliefs for resident individuals

Types of relief	YA 2020 (RM)
Self	9,000
Disabled individual - additional relief for self	6,000
Spouse	4,000
Disabled spouse - additional spouse relief	3,500
Child:
· per child (below 18 years old)	2,000
· per child (over 18 years old): receiving full-time instruction of higher education in respect of: - diploma level and above in Malaysia; or - degree level and above outside Malaysia OR serving under articles or indentures in a trade or profession in Malaysia	8,000
· per physically / mentally disabled child	6,000
· physically / mentally disabled child (over 18 years of age) receiving full-time instruction at institution of higher education in respect of: - diploma level and above in Malaysia; or - degree level and above outside Malaysia OR serving under articles or indentures in a trade or profession in Malaysia	14,000
Life insurance premiums (Note 1)	3,000*
EPF contributions (Note 1)	4,000*
Private Retirement Scheme contributions and Deferred annuity scheme premium (until YA 2021)	3,000*
Insurance premiums for education or medical benefits	3,000*
Expenses on medical treatment, special needs or carer expenses for parents (evidenced by medical certification)	5,000*
Parental care relief (until YA 2020): father mother	1,500 1,500
Employee’s contribution to Social Security Organisation (SOCSO)	250*
Medical expenses for self, spouse or child suffering from a serious disease (including fees of up to RM500 incurred by self, spouse or child for complete medical examination) or expenses incurred on fertility treatment (w.e.f YA 2020)	6,000*
Fee expended for any course of study up to tertiary level other than a degree at Masters or Doctorate level, undertaken for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications or any course of study for a degree at Masters or Doctorate level undertaken for the purpose of acquiring any skill or qualification	7,000*
Purchase of supporting equipment for self (if a disabled person) or for disabled spouse, child or parent	6,000*
Lifestyle relief consolidated with the following:       purchase of books, journals, magazines, printed newspaper and other similar publications for the purpose of enhancing knowledge       purchase of personal computer, smartphone or tablet       purchase of sports equipment and gym memberships, and internet subscription	2,500*
Purchase of breastfeeding equipment	1,000*
Fees paid to child care centre and kindergarten (Note 2)	2,000*
Deposit for child into the Skim Simpanan Pendidikan 1Malaysia account established under Perbadanan Tabung Pendidikan Tinggi Nasional Act 1997 (until YA 2020)	8,000*

Maximum relief
Note:
1. For public servants under the pension scheme, combined relief up to RM7,000 is given on Takaful contributions or payment for life insurance premium
2. Previously the relief was limited to RM1,000 in YA 2019

Tax rebates for resident individuals

Types of rebate	RM
Individual’s chargeable income does not exceed RM35,000	400
If husband and wife are separately assessed and each chargeable income does not exceed RM35,000	400 (each)
If husband and wife are jointly assessed and the joint chargeable income does not exceed RM35,000	800
Rebate for Zakat, Fitrah or other Islamic religious dues paid	Actual amount expended
Rebate for departure levy paid for performing umrah and pilgrimage to holy places (w.e.f YA 2019)	The actual amount expended (twice in a lifetime)

The above rebate granted is deducted from tax charged and any excess is not refundable.

Emergency Fund

What is an Emergency Fund?

An emergency fund is a stash of Ringgit that you set aside for when an emergency happened and it turns your world upside down and you need the Ringgit to do what needs to be done. Having an emergency fund gives you the peace of mind to know that should something truly awful happen, such as losing your job, you can worry about how to deal with the emergency itself and not worry about how you’re going to survive financially.

While a person’s emergency fund will vary from situation to situation, most financial experts agree that a fully stocked emergency fund should hold between three to six months of monthly expenses.

Getting started with your emergency fund

The first amount does not matter. What is important is for you to start. On average, an emergency fund of around RM500 to RM1,500 is a good first step to build a solid emergency fund. A smaller goal is much easier to achieve and it allows you to feel accomplished once you reach this first awesome milestone. 

Once you establish the small emergency fund, you can handle life’s small emergencies without going back into debt. This allows you to focus on gaining momentum when it comes to saving your Ringgit stash rather than switching back to focusing on paying off the debt incurred by small emergencies.

How do I determine what number to use for my monthly expenses?

As mentioned, an emergency fund should hold between three to six months of expenses. This to figure out the total emergency fund, one will have to look into how much is your monthly expenses. This figure varies from person to person but the important thing is that the fund can ensure that you could continue to live your life without any income. There are people who would even include luxuries in their emergency fund while others would just keep the basic amount that provides just enough money to pay the bills.

It is your choice how much you would want to keep as an emergency fund but it is important that the amount is not to exceed that you don't feel uncomfortable about it.

Why do you need an emergency fund? 

A lot of people would think that it is unnecessary to prepare for an emergency fund. You might think that your job is really secure and you would have no problem to find a new job in case of lay off. Or you may have thought that using a credit card as an emergency fund is okay as long as you pay it off before the end of the month.  Still, you will still need to pay off the credit card debts. Otherwise, you will have to pay for the interest and that's never good for anyone.

What is an emergency?

Financial emergencies are unexpected major expenses that require you to use an amount of money immediately. These expenses must be related to preserving your financial future, your health or your assets.

A few examples of true financial emergencies where it would make sense to use your emergency fund are as follow:

• Job loss. 
• Unexpected medical expenses to maintain your health. 
• Sudden unexpected car breakdown or accident
• A sudden unexpected problem with a major system in an owned house such as an air conditioner, roof or electrical system. 
• A family member passes away and you need to purchase last minute travel to the funeral. 
• A family member gets hurt and you need to take time off work to provide the necessary care. 

What isn’t an emergency?

Some people would stretch the idea of what an emergency is to access the cash they have put away.

Examples of expenses that would not justify breaking into your emergency fund are as follows:

• Elective healthcare such as plastic surgery. 
• A great deal on a cruise vacation. 
• A last-minute request for you to fly to a destination wedding. 
• You really want to buy a new TV for the Super Bowl but didn’t save enough

Where to put your emergency fund? 

An emergency fund should be kept in a high yield savings account or a money market account. This will let you have almost instant access to the money when you really need it.

It often makes sense to keep your emergency fund at a bank separate from your main bank accounts. By doing this, you won’t be tempted to dip into your emergency fund for everyday expenses.

This article was first published in Radical Ringgit.

Wahed Invest - First Impression Review

The first third robo-advisor in Malaysia was officially launched last week. Wahed Invest, is the first Halal robo-advisor that provide investors a chance to invest with shariah-compliant companies and bonds.

In comparison to MyTheo and Stashaway, I felt that to invest in Wahed Investors my preference as I have always wanted to invest in those largest companies in the USA, such as Apple, Facebook, Microsoft, Google, etc. But to invest directly will be very cost-ineffective. To invest via the only US Dollar-denomination ETF, MyETF Dow Jones US Titans 50, that invest in these same companies, you have to open a US dollar account with one of the local banks and the process is tedious.