One of the many perks of being a Malaysian is how our multicultural nation celebrates multiple festive celebrations each year, with the most recent one being the Chinese New Year.
Also known as the Lunar New Year, this celebration is one of the most important in Chinese culture, dating back some 3,500 years, with many unique traditions associated with it, including the”Yee Sang” ceremony which actually originated from Malaysia.
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Well, another tradition performed during Chinese New Year is the giving of angpows or red packets stuffed with money, customarily given by married adults to children, teenagers and unmarried adults.
It’s also common for Chinese Malaysian employers to give angpows to their staff on top of yearly bonuses during Chinese New Year. As these red packets could accumulate a lot of money, some would be confused as to whether these angpows are taxable income and whether they would see red if they don’t declare these red packets to the Inland Revenue Board (LHDN).
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Well, it’s not as straightforward as one would think. Here’s everything you need to know:
Angpows are considered gifts and there is currently no gift tax in Malaysia
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Speaking to WORLD OF BUZZ, Ahmad Danial, the managing partner of Kuala Lumpur-based law firm ADIL Legal, elaborated that in Malaysia, everything related to income tax is governed under the aptly named legislation the Income Tax Act 1967.
Section 4 of the Act asserted that taxable income in our country includes income from businesses or professions, employment, dividends, rent, royalties, pensions and annuities.
Ahmad Danial added that the Act also specified other classes of income which are taxable. However, angpows are generally safe from taxation, as they are considered “gifts”, which is not defined or mentioned in the Income Tax Act 1967.
The seasoned legal professional further elaborated that, unlike other countries, there are currently no gift taxes in Malaysia, with inheritance tax or estate tax also not imposed in our country.
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Generally, a gift can be defined as “a voluntary transfer of money without any consideration” or “a personal gift or testimonial given gratuitously without expecting anything in return”.
Hence, when a gift such as angpows is given voluntarily on personal grounds and is unconnected to employment, business or anything related to profit, an individual doesn’t need to declare them to LHDN, as they’re not taxable income.
LHDN may require proof that the angpow is a gift
However, Ahmad Danial noted that if the angpow money raises suspicion that a taxpayer is concealing income, LHDN may require the individual to provide documentary evidence that the red packet is indeed a gift and not related to income from employment.
This can get confusing as some employers give angpows to employees usually at the same time when yearly bonuses are awarded, and bonuses are taxable.
He shared,
“Generally, verbal explanations by one party to LHDN are not acceptable as they raise suspicion that the taxpayer is attempting to conceal income. If such a situation arises, you are required to disclose the name of the individual who gave the angpow.
“Furthermore, if the person is your employer, the nature and reasons for the money should be clearly stated and recorded. If not, the employer may need to confirm to LHDN that the angpow money is a gift and not related to any work done for the employer,”
So, what do you guys think of the whole situation? Share your thoughts with us in the comments!
