Benefits-in-kind (BIKs) are benefits provided to the employee by or on behalf of the employer that cannot be converted into money. When taxable, BIKs must be added to the payroll so they can be included in the PCB calculation. So how to determine the value to be added to the payroll?
There are 2 methods specified by LHDN to determine the value of BIKs:
1. The Formula Method
Under this method, each BIK provided to the employee is ascertained by using the formula below:
Annual value of BIK = Cost to the employer of the asset / prescribed average lifespan of the asset
Here, cost means the actual cost incurred by the employer, and the prescribed lifespan of the asset can be found in Appendix 1 below.
The value based on the formula method can be abated if the BIK is:
- provided for less than a year; or/and
- shared with another employee; or/and
- used for purpose of the business of the employer.
2. The Prescribed Value Method
As a concession, the prescribed value method can be used as an alternative to determine the value of BIKs.
The prescribed values of the benefits commonly provided to the employee are as specified in Appendix 2 below.
The value based on the prescribed value method can be abated if the BIK is:
- provided for less than a year; or/and
- shared with another employee.
Whichever method is used in determining the value of the benefit provided, the basis of computing the benefit (whether the formula method or the prescribed value method) must be consistently applied throughout the period of the provision of the benefit.
In PayrollPanda, the annual value of the benefit should be divided by 12 to obtain the monthly value, which should be entered as a Monthly Recurring Payroll Item in the employee's Employment Details tab using the appropriate Benefit-in-Kind payroll item.
- Company car
Where a motorcar is provided to the employee for their private use, that is a taxable benefit to the employee and the value of the BIK should be calculated and included in the payroll for PCB calculation purposes.
A motorcar which is provided to the employee is regarded as being used privately if it is used for travelling between the office and the employee's home and it is kept at the employee's home where the motorcar can be used by the employee or his family at any time.
If using the formula method to calculate the value of the car BIK an abatement of 20% is given and the formula becomes:
Annual value of BIK = Cost of the car to the employer / 8 years (prescribed lifespan for motorcars) x 80%
Where the formula method is used, the value of the benefit can be reduced if the employee is required to pay a sum of money to the employer for the benefit provided.
Alternatively the prescribed value method may be used. Under that method, the value of the benefit will be based on the cost of the motorcar when new (see appendix 2 below).
Where the prescribed value method is used and the motorcar provided is more than 5 years old, the annual value of the benefit can be reduced to half of the prescribed value.
If free petrol is also provided with the motorcar, the value of the petrol BIK must be determined using the same method as that used to value the car BIK.
Where a driver is provided, the value of that benefit is fixed at RM600 per month. In the case where a driver is not specifically provided to any employee but he comes from a pool of drivers provided by the employer solely for business purposes, no benefit will be taxable on the employee.
For more information and examples, please read Public Ruling 11/2019.
|Asset||Prescribed average lifespan|
|Curtains and carpets||5|
|Furniture, sewing machine||15|
|Kitchen equipment (e.g crockery, rice cooker,electric kettle, toaster, coffee maker, gas cooker, oven)||6|
|TV, video recorder, CD/ DVD player, stereo set||7|
|Swimming pool (detachable), sauna||15|
THE PRESCRIBED VALUE OF MOTORCAR AND ITS RELATED BENEFITS
|Cost Of Motorcar (New) / RM||Annual Prescribed Benefit Of Motorcar / RM||Annual Prescribed Benefit Of Petrol / RM|
|Up to 50,000||1,200||600|
|500,001 and above||25,000||3,000|
PRESCRIBED VALUE OF HOUSEHOLD FURNISHINGS, APPARATUS AND APPLIANCES
|CATEGORY||TYPE OF BENEFIT||ANNUAL PRESCRIBED VALUE OF BIK PROVIDED / RM|
|1||Semi-furnished with furniture in the lounge, dining room or bedroom.||840|
|2||Semi-furnished with furniture as in Column 1 and one or two of the following: air-conditioners curtains and alike carpets||1,680|
|3||Fully furnished with benefits as in Columns 1 and 2 as above plus one or more of kitchen equipment, crockery, utensils and appliances||3,360|
|4||Service charges and other bills such as water and electricity.||Service charges and bills paid by the employer.|
PRESCRIBED VALUE OF OTHER BENEFITS
|ITEM||TYPE OF BENEFIT||VALUE OF BIK PER YEAR|
|1||Telephone (including mobile phone)||(i) Hardware - fully exempt (ii) Bills - fully exempt|
|2||Gardener||RM3,600 per gardener|
|3||Household servant||RM4,800 per servant|
|4||Recreational club individual membership – subscription
paid or reimbursed by employer
|Tax treatment on the benefit received on the employee as follows-
Entrance fee for club membership - taxed under paragraph 13(1)(a) of the ITA 1967
Monthly/annual membership subscription fees for club membership - taxed under paragraph 13(1)(a) of the ITA 1967
Term membership - is taxed on the amount of payment made under paragraph 13(1)(a) of the ITA 1967
|Recreational club corporate membership – subscription paid by employer||Tax treatment on the benefit received on the employee as follows-
Entrance fee - not taxable
Monthly/annual membership subscription fees for club membership - taxed on the prescribed value under paragraph 13(1)(b) of the ITA 1967
Read more about tax-exempt benefits-in-kind.
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