Gifts from Employers: Taxable or Not?

The basic question: are gifts from employers taxable?

The short answer: it depends on why the gift was given. The main rule in Malaysian income tax is that a gift received in respect of having or exercising employment is treated as a perquisite and is taxable as gross employment income under section 13(1)(a) together with paragraph 4(b) of the Income Tax Act 1967 (ITA 1967) — even if it is labelled a "gift".

Conversely, genuine gifts (pure gifts/testimonials) given purely for personal appreciation are not taxable.

Source: HASiL — Public Ruling No. 5/2019 (PR 5/2019), §5.6 and §5.7; Income Tax Act 1967 (see Official sources section).

"Substance over label": the label does not determine the treatment

HASiL emphasises the "substance over label" principle: what matters is the reason for and connection of the gift to the employment, not the "gift" label on a card or envelope.

• If the gift arises from the employment relationship (e.g. reward for work performance, bonus, festive gift linked to service), it is a perquisite → taxable.
• If the gift is purely for personal appreciation and has no connection to employment (e.g. a wedding gift from an employer on the basis of a personal relationship), it may qualify as a genuine gift → not taxable (subject to official examples).

Source: HASiL — PR 5/2019, §5.6 (substance over label) and §5.7 (genuine gifts).

Official examples from PR 5/2019

Example 4 in §5.6 (perquisite — taxable):

1. A RM5,000 watch given for 20 years of service = perquisite. However, there is an exemption of RM2,000 under paragraph 25C Schedule 6 (long service award); the balance RM3,000 is taxable.
2. Certificate of appreciation (no monetary value) = not taxable.
3. Cash RM10,000 given voluntarily for an employee's success in securing a contract = perquisite, taxable.

Example in §5.7 (genuine gift — not taxable):

• Wedding gifts (cash/jewellery/goods) from an employer or third party.
• Cash for passing a professional examination with distinction.
• Cash/certificate to a bank employee who foiled a robbery.
• Cash/certificate for extraordinary achievements (e.g. swimming across the English Channel, sailing around the world, climbing the highest mountain).

Source: HASiL — PR 5/2019, §5.6 (Example 4) and §5.7.

Gift vouchers and personal computers

• Gift vouchers are listed as a type of perquisite in PR 5/2019 (§6.1(k)).
• Gifts of personal computers (including mobile phones/tablets): market value is a perquisite in the year received (§6.14).

Source: HASiL — PR 5/2019, §6.1(k)/(l) and §6.14.

How are perquisites valued?

Perquisites are valued at market value less any amount paid by the employee (if any). Example: if a goods gift is worth RM1,200 and the employee pays RM200, the taxable amount is RM1,000.

Source: HASiL — PR 5/2019, §6.2.

Impact on employers and employees

• Employers must make monthly tax deductions (MTD) on perquisites according to the Schedule (Rule 3) in the month they are paid; HASiL's agreement is required if salary is insufficient to absorb MTD (§10).
• Employers may claim deductions for perquisite expenses under s.33(1) (§11).
• Employees who receive perquisites from third parties (e.g. customer tips) must declare them: official example — a restaurant waiter receives RM10,000 in tips from customers = taxable perquisite (§5.3, Example 2).

Source: HASiL — PR 5/2019, §10, §11 and §5.3.

Remember

• The "gift" label does not determine treatment — the reason for the gift is what determines it (substance over label).
• A gift arising from employment = perquisite → taxable.
• Genuine gifts for personal appreciation → not taxable.
• Long service award exemption RM2,000 (paragraph 25C Schedule 6) — verify the full amount against the Income Tax (Exemption) Order 2009 [P.U.(A) 152/2009] before citing any other amount.
• Perquisites are valued at market value less the amount paid by the employee.
• MTD applies to perquisites in the month they are paid.

Frequently Asked Questions (FAQ)

Q. I received a Hari Raya hamper from my employer. Is it taxable? A. PR 5/2019 does not state this explicitly; use the §5.6/§5.7 test. If there is no connection to performance and it is purely personal appreciation, it may be a genuine gift. Confirm with HASiL or a tax advisor. This item still awaits official confirmation from HASiL — check again with HASiL before deciding.

Q. My employer gave me RM10,000 cash because I secured a contract. A. This is a taxable perquisite (Example 4c PR 5/2019).

Q. I received a wedding gift from my employer. A. It is included in the genuine gift example in §5.7 → not taxable (subject to circumstances).

Q. What if I have to pay part of the gift's price? A. A perquisite is valued at market value less the amount you paid (§6.2).

Glossary

• Perquisite — taxable benefit/peripheral benefit from employment under s.13(1)(a) ITA.
• Genuine gift (pure gift) — a gift given purely for personal appreciation, not taxable.
• Substance over label — the principle that actual circumstances prevail over labels.
• MTD — Monthly Tax Deduction.
• YA — Year of Assessment.