Pension & Tax After Death: What Family Members Need to Know

Introduction

When a retiree or employee dies, family members may receive several types of payments: a derivative pension, a death gratuity, or retirement scheme withdrawals. Are these payments taxed? And who is responsible for reporting and settling the deceased's tax?

This article explains the tax treatment of death-related payments and the executor/heir responsibilities for the deceased's tax.

Derivative pension — not taxed

A derivative pension is a monthly pension payment received by a dependent (for example, a wife/husband) after the retiree's death. According to HASiL's Frequently Asked Questions: "Derivative pensions received are not subject to tax. Example: Wife/husband receives a (derivative) pension upon the death of the spouse" (Q34).

Death gratuity — full exemption

Gratuity received by reason of death or injury qualifies for a full exemption (HASiL's Employer and Employee e-Book).

Private retirement scheme (PRS) withdrawal due to death

Early withdrawal from a private retirement scheme (PRS) before age 55 is subject to final tax of 8% — but that provision does not apply to withdrawals due to death (or a contributor leaving Malaysia permanently) (HASiL FAQ, Q38).

The deceased's income up to the date of death

The deceased's income in the calendar year up to the date of death is reported in the deceased's own form (for example, the husband's Form B). A wife is not allowed to fill in the husband's form separately as her own (Form B FAQ, S15/J15).

Executor/heir responsibilities

After death, the estate needs to be administered:

• Estate income arising after the day of death is treated as the executor's income — s.64(1) ACP 1967: "any source forming part of the estate of a deceased individual and any income from that source arising after the day of the death of that individual shall be treated as the source and income of the executor of that individual."
• The estate is assessed (via Form TP) and the deceased's tax liabilities are settled from the estate before distribution to heirs.
• Notification of death is made to HASiL using Form CP57 (Taxpayer Death Notification Form).

this item still awaits official confirmation from HASiL — check again with HASiL before deciding. notes from research

Frequently Asked Questions (FAQ)

Q. Is the derivative pension I receive after my spouse's death taxable? A. No — HASiL states that derivative pensions received are not subject to tax (FAQ Q34). The scope of private schemes (non-government) has not been confirmed — this item still awaits official confirmation from HASiL — check again with HASiL before deciding.

Q. What about death gratuity? A. Gratuity received by reason of death or injury qualifies for a full exemption (Employer-Employee e-Book).

Q. Is a PRS withdrawal due to death subject to 8% final tax? A. No — the 8% final tax provision on early withdrawals does not apply to withdrawals due to death (or a contributor leaving Malaysia permanently) (FAQ Q38).

Q. Who is responsible for the deceased's tax? A. The deceased's income up to the date of death is reported in the deceased's form; estate income after death is treated as the executor's income (s.64(1) ACP) and assessed accordingly. Tax liabilities are settled from the estate before distribution; death is notified via Form CP57.

Q. Can a wife fill in her deceased husband's form? A. No — a wife is not allowed to fill in the husband's form as her own; the husband's income up to the date of death is reported in the husband's Form B.

Glossary

• Form CP57 — Taxpayer Death Notification Form.
• Form TP — estate assessment form.
• Death gratuity — payment by reason of death/injury; qualifies for full exemption.
• Derivative pension — monthly pension payment to a dependent after the retiree's death; not subject to tax.
• PRS — private retirement scheme.
• Executor (wasi) — the person who administers the deceased's estate.
• YA — Year of Assessment.