Compensation for loss of employment vs gratuity by Crowe Horwath on 13.9.2017
1. Public ruling 1/2012 - compensation for loss of employment. Gratuity - PR 9/2016.
2. Gratuity is attributable to past services. Compensation for loss of employment is attributable to loss of employment.
3. Compensation for loss of employment - in lieu of notice, breach of contract, release from obligation, ex gratia, redundancy/severance payment or restriction of similar employment.
4. Tax treatment -
a) Due to ill health - fully exempted
b) Other reasons - RM10,000 per completed year of service with same employer or companies in same group.
5. Exception - not applicable to a non - service director of a controlled company - s139 Companies Act (50 shareholders but controlled by 5).
6. VSS
a) reemployment by another company in same group - no tax exemption
b) no reemployment - yes.
7. Full exemption for gratuity - Sch 6 para 25
a) ill health
b) retirement after 55 or compulsory age of retirement based on law - 10 years employment with same employer or group
c) compulsory retirement based on contract at 50 but b4 55 - 10 years employment with same employer or group
8. Effective YA2016 - exemption RM1,000 per completed year of service.
9. Gratuity credited into EPF account - taxable in year credited to EPF account
10. Death gratuity - tax exempt
11. Retirement benefit - taxable unless specifically exempted under s150 ITA.
1. Public ruling 1/2012 - compensation for loss of employment. Gratuity - PR 9/2016.
2. Gratuity is attributable to past services. Compensation for loss of employment is attributable to loss of employment.
3. Compensation for loss of employment - in lieu of notice, breach of contract, release from obligation, ex gratia, redundancy/severance payment or restriction of similar employment.
4. Tax treatment -
a) Due to ill health - fully exempted
b) Other reasons - RM10,000 per completed year of service with same employer or companies in same group.
5. Exception - not applicable to a non - service director of a controlled company - s139 Companies Act (50 shareholders but controlled by 5).
6. VSS
a) reemployment by another company in same group - no tax exemption
b) no reemployment - yes.
7. Full exemption for gratuity - Sch 6 para 25
a) ill health
b) retirement after 55 or compulsory age of retirement based on law - 10 years employment with same employer or group
c) compulsory retirement based on contract at 50 but b4 55 - 10 years employment with same employer or group
8. Effective YA2016 - exemption RM1,000 per completed year of service.
9. Gratuity credited into EPF account - taxable in year credited to EPF account
10. Death gratuity - tax exempt
11. Retirement benefit - taxable unless specifically exempted under s150 ITA.
