How To Save 50% Of Your Tax Payment?

It is that time of year we have to file our taxes. I heard most employees file it quickly to get their refunds quicker. Is that the same for you too?

I hope you have taken advantage of all your tax relief, especially if you earn more than RM7,000 a month. But is there a way to save 50% of your tax payment?

I did a one-on-one with one of my Double Your Networth student, and she asked me, “How do I take advantage of my tax relief?” And I am grateful she ask me this question.

Because sometimes I take for granted that everyone around me knows what to do. Especially since she earns RM25,000 a month, I know how paying taxes through her nose feels.

I won’t go through all 15 categories, but  I prepared a simple tool I normally use to plan to see the difference between ‘taking advantage of the tax relief’ vs ‘not taking advantage of it’. Once you download it here, you can see how much money you will save & more importantly, and you can see your Effective Tax Rate (ETR)

ETR is very important as I was misguided when I thought my ETR was 24% when my income was RM200,000 a year. But in reality, when you deduct all the tax relief, my ETR was probably at 10% of my total income.    

Here is a quick summary of what Personal Tax Relief you can take advantage of (and the typical misses) depending on which category you are in for YA 2022. Only by knowing these details, will you be able to save 50% of your tax payment.

Single Or Married Without Kids

1. Self – RM9,000
2. EPF – RM4,000 (if you are under the EPF scheme and not the pension scheme)
3. Life Insurance – RM3,000
4. Medical Insurance – RM3,000 (read here on what mistakes to avoid, I wrote a blog on this last year)
5. Private Retirement Scheme – RM3,000
6. Lifestyle – RM2,500 (purchase of books, laptop, tablets and smartphones and internet subscription)
7. Additional lifestyle – RM2,500 (purchase of laptop, tablets and smartphones)
8. Domestic Travelling – RM1,000
9. Sports Equipment and Fees for rental – RM500
10. Medical Fees for Parents – RM8,000 (do ensure you are the only 1 claiming & not claimed concurrently by your other siblings)
11. Socso – RM250
12. Vaccination – RM1,000 (Up to RM1,000 for yourself)

Married With Kids Under 18 years old

1. All the above
2. SSPN – RM8,000 (most parents don’t take advantage of this for their kids)
3. Ordinary Child Relief – RM2,000 per child (either parent can claim and not a claim by both parents)
4. Lifestyle – RM2,500 (You can buy laptops, tablets and books for your spouse and kids as well. Since they can’t track, you can even buy laptops, tablets, and books for your nieces or nephew)
5. Additional lifestyle – RM2,500 (if you have more than 1 child, you can claim additional on this purchase of laptop, tablets and smartphones)
6. Child Education Insurance – RM3,000 (read here on what mistakes to avoid, I wrote a blog on this last year)
   
   

Here Is How You Can Save 50% Of Your Tax Or Effective Tax Rate (ETR)

Mr Nair (not his real name) is working for a famous foreign Bank for 5 years. He and his wife have 2 kids. He manages to buy one property for investment purposes and is getting rental income.

The main strategy to save 50% of your Effective Tax Rate is to maximize all your tax relief (if possible) OR spend/save consciously in areas with tax relief.

For Mr Nair, all he needed to do was to:

1. Maximize his SSPN by saving for his 2 kids – RM8,000 (RM4,000 each)
2. Maximize his PRS by saving RM3,000 to any of the approved Private Retirement Unit Trust
3. Take his family for a year-end holiday of RM1,000 (through approved operators and selected premises here – Item 8)
4. Buy a basic smartphone for his son – RM598
   
   

You will notice in Figure 1, his tax bracket dropped from 13% to 8% because his taxable income dropped below the RM50,000 level.

Hence he could save RM1,136 on something he needed to do anyway (to save for himself and his kids).

In case you are tight on cash, one of the method I used was to transfer some of my existing investments / spare cash / emergency funds to my kids’ SSPN or my PRS. The idea is like “Move from your left pocket to your right pocket.”

Is this something that benefits you? Yes, I know this is a bit late, but this doesn’t stop you from planning for this year (YA 2023), right? Hope you have a clearer idea on how to save 50% of your tax payment.

*DISCLAIMER: All tax references have been taken from PWC’s website. All my sharing on how to save 50% of your tax payment is for educational purposes and is my personal opinion. It should not be confused with tax advice. Do consult a licensed tax consultant for proper tax planning.

About the Author

Ka Hoe is a Licensed Financial Planner having a “Financial Adviser Representative” (FAR) with Bank Negara and “Capital Market Service Representative License (CMSRL) – Financial Planner” with Securities Commission. He is also the Founder of J Advisory, a Personal Finance Academy that helps struggling Malaysians elevate their financial well-being with proven tools, systems and strategies.