There is a saying that in life the only thing that is certain is death and taxes. As we enter September, the last few months of the year are just around the corner.
Undoubtedly this signals not just the closing of yet another year but with it the window of opportunity to save on tax payments.
Some of these opportunities will need you to pay out substantial amounts in investments so it’s best to spread them out over several months. For those scrambling to make last minute deductions before 2023 ends, here are a few smart year-end tax moves to consider:
Planning for retirement pays off
Every contributor to the Employee Provident Fund (EPF) is entitled to claim a tax relief of up to RM4,000. But you need to get started on this early, as EPF requires prior notice of your intention to make larger contributions.
Enter Private Retirement Scheme (PRS), a voluntary retirement scheme launched in July 2012. In addition to the RM4,000 tax relief you are entitled to claim for your contributions to EPF, contributing to PRS entitles you to claim up to RM3,000 tax relief. The icing on top of the cake? This PRS tax relief has been extended until 2025.
Hold that bonus
In order to grasp the practicality of this move, one has to first understand that tax on income is charged when it is paid; so arranging with your employer to have your bonus or any outstanding income deferred to the following year will ultimately lower your taxable income for this year.
Get tax deduction for your donations
Donations to charity and aid funds can help you lower your taxable income.
In order to be eligible for this tax exemption, check that the organisation you are donating to is listed in the LHDN website. Be sure to get your tax exemption receipt as proof of donation.
Maximise all lifestyle tax reliefs
The easiest (and most commonly used) way to reduce taxable income is to fully utilise tax reliefs of which you are qualified to claim. The key to this move is to know what qualifies for a tax relief and how much you can claim thus avoiding the mistake of unnecessarily spending more than you can deduct later on.
While not exhaustive, here are a few things you can consider that will be tax deductible under lifestyle expenses for 2023. Lifestyle expenses for use by yourself, your spouse or child are deductible up to RM2,500.
- Books, journals, magazines and publications (not banned reading materials).
- Personal computer, smartphone or tablet (not for business use).
- Sporting equipment (for activities in the Sports Development Act 1997 and gym membership).
- Monthly bill for internet subscription (under own name).
There is also the additional RM2,500 tax relief (on top of lifestyle relief) for purchase of personal computer, smartphone or tablet.
Plus, there is additional RM500 relief for expenses related to the cost of purchasing sports equipment, sports facilities entry/rental fees and registration fees for sports competitions.
Claim tax relief for education
Planning for your children’s education can take a huge chunk off your income. Therefore, it is important that you know the ins and outs of the tax relief for parents who are saving for their kids’ education (or their own) to make use of these reliefs before the year ends.
The tax reliefs available for education are as follows:
- Skim Simpanan Pendidikan Nasional – maximum RM8,000
- Post graduate education (self) – maximum RM7,000
- Education expenses for unmarried child (18 and above)
A-Level, certificate, matriculation or preparatory courses – maximum RM2,000
Tertiary education – maximum RM8,000
If your children are not yet of schooling age (6 years and below), you can still claim for childcare fees to a registered child care centre or kindergarten up to maximum of RM3,000.
The above education reliefs make up a whopping RM28,000 in total! As parents, you will likely qualify for at least one or several categories above so make sure you claim the tax reliefs you are entitled to for the Year of Assessment 2023.
If you own an electric car, more good news! You can claim up to RM2,500 for costs related to EV charging facilities, including installation, rental or hire-purchase of equipment into 2023.
Are you planning to go on holiday this year end? Don’t forget to claim RM1,000 for domestic travelling expenses including payments for accommodation, entrance fees and tour packages.
While there is no way to avoid paying tax, one can certainly make wise decisions that can lead to savings in tax payment. The key is to have knowledge on the many saving options available.
This article was first published in 2014 and has been updated for freshness, accuracy and comprehensiveness.