Benefits-In-Kind (BIK) in Malaysia

1. Scenario:

S1: Leong (The Sales Manager aka the servant) explained that his employer provides him with a Honda Accord where he can do his marketing everyday however he needs to pay tax for the benefit of using of the company car which included the benefit in kind “BIK” in his EA form. Why is the benefit of using the car taxable as after all Leong used the car mainly for carrying out his job role as a Sales Manager of the company and not fetching his family for own use.

2. Definition of employment income :
The definition of employment income in the Income Tax Act, 1967 (ITA) is very wide and comprehensive; covering all forms of remuneration including the value of benefits-in-kind (“BIK”) provided by the employer for the personal use or enjoyment by the employee.

Hereby the answer:

3. Motor cars provided by employers are taxable benefit in kind :
Revisiting Scenario 1 where the benefits LHDN BIK Public Rulings 12122019 on the value of private use of the car and petrol provided is benefit-in-kind and taxable to Leong who is receiving the benefits as the car which is provided to the Leong is regarded to be used privately if:

a. It is used for travelling between the office and the Leong’s home; and

b. It is kept at the Leong’s home where the Accord can be used by Leong or his family too.

4. The calculation of BIK’s value:

a. The Formula Method:

The benefit will be calculated by: Cost of the asset provided divided by the average life span of the asset then deriving the annual value of the benefit. However the BIK can be remove if the BIK:

a. Is provided less than 1 year or/ and;

b. Shared with another employee or/ and;

c. For the purpose of the business of the employer.

b. The Prescribed Method:

The benefit will be calculated based on a prescribed market value of the car when bought inclusive the accessories but excluding financial charges, insurance premiums and road tax. The annual BIK can be refer to Appendix 1:

However the BIK can be remove if the BIK:

a. Is provided less than 1 year or/ and;

b. Shared with another employee or/ and;

c. For the purpose of the business of the employer.

5. The Appendix 2 for Prescribed Average Life Span of Various Assets provided by the Employer to Employees:

Prescribed Average Life Span (Years) 07042022.excel

6. The Appendix 3 for Prescribed Value of BIK commonly provided by the Employer to Employees:

Prescribed Value of Motorcar Vehicle 10042022.excel

7. The Appendix 4 for Prescribed Value of Household Furnishings, Apparatus and Appliances provided by the Employer to Employees:

Prescribed Value of Life Span for Household & Furnishing 10042022.excel

 

Reference:

8. LHDN BIK Public Rulings 12th Dec 2019

Categories

Your business should happen?

A serious note to entrepreneurs in asking oneself; should my business happen? 1. The business’s cause? Questions: a. What are