19/20 Way to slash individual TAXES

19) Buy shares
Invest in dividend-yielding shares if your tax bracket is above 26%.

A new single-tier system was established under the national Budget for dividends received by shareholders.

Companies pay tax of 26% (YA2008) and shareholders receive a net dividend that is exempt from tax and does not need to be filed with the IRB “Shareholders who fall into higher tax brackets [higher than 26%] are essentially [getting a] saving on the difference.

“The single-tier dividends is intended to simplify the tax filing process for individuals,” says Chua Tia Guan, executive director and head of tax and financial planning at Great Vision Wealth Management Sdn Bhd.

“In the past, refunds had been slow. From now on, there is no need to declare or apply for a refund. And as corporate taxes are falling, companies will be able to pass on more profits to their shareholders [in the form of dividends],” he says.

However, not all companies will go under the single-tier system immediately as some of them might have imputation tax credits left, which they can use till 2013.

Shareholders who receive dividends from companies using the imputation system will have to report the amount received and claim a tax refund if his personal tax rate is lower than the company’s tax rate (27% in YA2007, 26% in YA2006).

Shareholders can identify the system used by the company as it is stated in the dividend vouchers.

Tax Deduction
Your tax saving is the difference between your tax bracket and 26% (the corporate tax rate). This is only applicable to dividends given out by companies using the single-tier system.