Public Ruling No. 1/2003 - Tax Treatment Of Leave Passage

The words used in this Ruling have the following meanings:

"Members of his immediate family" means his wife or wives and his children or her husband and her children.

"Child" means a legitimate child or step-child of an individual or his wife or a child proved to the satisfaction of the Director General to have been adopted by the individual or his wife in accordance with any law. 

"Leave passage cost" means cost of fares.

"Leave passage" means travelling during a period of absence or vacation from duty or employment.

"Local leave passage" means travelling within Malaysia.

"Overseas leave passage" means travelling between Malaysia and any place outside Malaysia.

Leave Passage Benefit Not Assessable as an Employment Income

A benefit in the form of leave passage is not assessable as an employment income under the following conditions: 

(i) leave passages for travel within Malaysia not exceeding three times in any calendar year; or 

(ii) one leave passage for travel between Malaysia and any place outside Malaysia in any calendar year, limited to a maximum value of three thousand ringgit. 

The leave passage benefit, however, is confined only to the employee and members of his immediate family. 

Example 1 

Encik Abdullah is entitled to a yearly leave passage benefit amounting to RM 5,000.00 under the terms of his employment agreement. In January 2003, he travelled to Mauritius and the total leave passage cost claimed by Encik Abdullah was RM 2,500.00. 

Encik Abdullah is exempted from tax on leave passage benefit amounting to RM 2,500.00 in the year 2003 for the year of assessment 2003.

Example 2 

Encik Ng is entitled to a yearly leave passage benefit of RM 5,000.00 from his employer. He made use of that benefit to go on a trip to Pulau Pinang with his wife and two young children during the festive season school holidays in January 2003. The whole family also went on a holiday to Singapore in March 2003. His employer paid him a total local leave passage cost of RM 500.00 and overseas leave passage cost of RM 1,500.00 for the trips. 

Encik Ng is exempted from tax for both the local and overseas leave passage benefit amounting to RM 2,000.00 in the year 2003 for the year of assessment 2003.

Example 3 

Puan Salmah is entitled to a yearly local leave passage benefit of RM 6,000.00 according to the terms of her employment agreement. In the year 2003, Puan Salmah went on three separate holiday trips with her husband and six children to Kuching, Kota Kinabalu and Melaka and she claimed local leave passage cost of RM 5,500.00 from her employer. 

Puan Salmah is exempted from tax for the three local leave passage benefit amounting to RM 5,500.00 in the year 2003 for the year of assessment 2003.

Leave Passage Benefit Assessable as an Employment Income

Example 4 

Using the above Example 1, Encik Abdullah and his wife went on another overseas holiday trip in the year 2003 to Indonesia for which he made a claim for leave passage cost of RM 1,500.00 from his employer. 

Encik Abdullah is assessable to tax on overseas leave passage cost amounting to RM 1,500.00 in the year 2003 for the year of assessment 2003. 

(Note: If there are two or more overseas leave passages in the same year, then the higher cost of the leave passage is exempted limited to a maximum value of RM 3,000.00).

Example 5

Encik Chelliah is entitled to a yearly overseas leave passage benefit of RM4,000.00 from his employer. He made use of that benefit to go on holiday to Australia accompanied by his father in the year 2003. His overseas leave passage cost amounted to RM2,000.00 per person and his employer paid him a total overseas leave passage cost of RM4,000.00 for the trip. 

Encik Chelliah is exempted from tax on overseas leave passage benefit amounting to RM2,000.00 expended on himself in the year 2003 for the year of assessment 2003. He would however be taxed on the remaining leave passage benefit expended on his father.

Example 6 

Puan Rina is entitled to a yearly overseas leave passage benefit of RM 10,000.00 and local leave passage benefit of RM 5,000.00 according to the terms of her employment agreement. In the year 2003, Puan Rina went on an overseas holiday trip with her husband to Italy and made a claim for overseas leave passage cost of RM 7,500.00. She also went on four local holiday trips to Pulau Langkawi, Pulau Tioman, Pulau Pangkor and Pulau Redang with her husband and three children in the year 2003 and made a claim for local leave passage cost of RM 500.00 for each trip. 

Puan Rina is exempted from tax on the overseas leave passage benefit of RM 3,000.00 in the year 2003 for the year of assessment 2003 but would be taxed on the remaining amount of RM 4,500.00. She is also exempted from tax for up to three local leave passage benefit amounting to RM 1,500.00 in the year 2003 for the year of assessment 2003 but would be taxed on the remaining local leave passage benefit. 

(Note: If there are four or more local leave passages in the same year, then the three most expensive passages are exempt).

Leave Passage Expenditure Incurred by the Employer for His Employee

Any expenditure incurred in the provision of a benefit or amenity by the employer to his employee consisting of a leave passage within or outside Malaysia is not deductible in arriving at the adjusted income of his business.

Where leave passage cost given by the employer to the employee includes cost of food, accommodation or other incidental expenses, only the amount relating to fares is treated as leave passage cost.

The cost of food and accommodation is deductible as entertainment expenses in arriving at the adjusted income of the employer's business. The amount deductible is restricted to the amount spent on his employees only.

Example 7

Encik Robin's employer paid him an overseas leave passage cost for travel to Australia under a packaged tour in the year 2003. The air fare for the trip amounted to RM 2,000.00 whereas accommodation amounted to RM 1,000.00. 

Encik Robin's employer is not allowed any deduction on the cost of air fare amounting to RM 2,000.00 but is allowed a deduction for the accommodation cost of RM 1,000.00 for the year of assessment 2003. 

Encik Robin, on the other hand, is exempted from tax on the overseas leave passage cost of RM 2,000.00.

Leave passage benefit where provided to partners or sole proprietors will not qualify for tax exemption. The condition whereby the leave passage benefit is confined to the employee is not fulfilled since the relationship between a partner and the partnership or a sole proprietor to himself is unlike the employer and employee relationship.

In the case of a partnership or a sole proprietorship, the expenditure incurred on leave passage cost to the partner or to the sole proprietor will not qualify for deduction being regarded to be private in nature.

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Edited by: 浪子

Source: http://lampiran1.hasil.gov.my/pdf/pdfam/PR1_2003.pdf