Should they file for joint or separate assessments?
EACH year thousands of couples say the magic words “I do”. They marry and live happily ever after.
Then, they receive their income tax Form B. They question themselves — should they file for joint or separate assessments on their incomes?
According to Malaysian tax law, a married couple can either be treated as a single entity or two persons.
That is because Section 45 of the Income Tax Act 1967 provides that all individuals, including married people are treated as separate individuals unless they choose otherwise.
In the past, only the wife was allowed to elct for joint assessment, but since 2001, the husband can do so too.
The election has to be made every year, which is advantageous to taxpayers.
Is separate assessment more beneficial?
The general rule of thumb is to elect for separate assessment if both husband and wife earn high incomes in the year of assessment.
Steven Tan, a university lecturer and his wife, a senior corporate officer both draw high salaries.
This means their combined income will result in an even higher aggregate chargeable income that will be subjected to a higher tax rate bracket. So, they should not elect for joint assessment.
When should married couples elect for joint assessment?
The situation is reversed in the cases of the following couples.
Joint assessment is beneficial to the couple if one of them is a high income earner and the spouse earns low or no income.
Khairuddin works as a bank officer and his wife Kamsiah is a housewife. He should elect for joint assessment as it allows him to claim spouse relief of RM3,000. That will lower the amount of tax he has to pay.
As for the De Cruz family, both husband and wife are working.
De Cruz runs a sundry shop and Michelle works as a sales supervisor in a furniture shop. They should opt for joint assessment because he incurs small losses in business. The outcome is the same as the previous example.
Whether joint or separate assessment is suitable can be easily decided with some simple calculations to determine which method yields a lower tax liability. This is where the 16 reliefs come into play — the more deductions, the better.
Election or non-election for joint assessment affects the limits of the various reliefs.
If assessed individually, each spouse can claim up to the maximum limit of some reliefs available to an individual, but joint assessment means that the couple can only claim up to the limit of an individual.
For example, take the relief for medical expenses on an individual’s own parents where the limit is RM5,000.
In separate assessment, both husband and wife can claim up to RM5,000 each whereas the jointly-assessed couple is eligible to claim up to RM5,000 only.
Who should claim child relief?
This question applies only to couples who are separately assessed.
The spouse with the higher income should claim children relief as it increases their tax savings. Spouses that earn high incomes share the relief. Married couples are entitled to more reliefs than single individuals.
Couples who wish to elect for joint assessment must do so in writing before April 1 of the year following the end of the tax year concerned by completing the relevant section in the return form ie. Part A item No A5: Type of Assessment.
*Husband and wife are treated as separate individuals — separate assessments will be used as the default mode of assessment under the Act;
*Wife is entitled to her own personal relief and other additional relief granted to a taxpayer;
*Husband is not entitled to wife’s relief of RM3,000 and a further relief of RM3,500 for a disabled wife; and
*Either husband or wife may elect to claim child relief, not both.
*Can elect in the name of husband or wife;
*The election must be made year by year;
*Personal relief is limited to an individual’s entitlement only; and
*Where the husband has no total income and the wife is assessed separately, any insurance premium incurred by the husband is deemed to be paid by the wife.
Chermaine Poo, a Chartered Accountant turned actress, TV host and professional emcee, helps individuals achieve financial freedom after leaving the corporate world. Join her on her social media platforms at Facebook.com/ChermainePooOnline and Twitter.com/ChermainePoo.