By Sherry Koh | Jul 19, 2010
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Senior Executive Director of
PricewaterhouseCoopers Malaysia,
Khoo Chuan Keat |
Senior Executive Director of PricewaterhouseCoopers Malaysia Khoo Chuan Keat has extensive experience in the fields of taxation and audit, having spent more than 36 years in the profession including eight years in the United Kingdom.
He is also a leader of the Tax and Business Consulting Services division in PricewaterhouseCoopers Malaysia and his experience encompasses a wide range of business, taxation and regulatory matters. Khoo is an Associate of the Institute of Chartered Accountants in England and Wales, Associate of the Chartered Institute of Taxation, United Kingdom and Associate of the Institute of Chartered Secretaries and Administrators, United Kingdom. He is also an Associate of the Chartered Tax Institute of Malaysia and a member of both the Malaysian Institute of Accountants and The Malaysian Institute of Certified Public Accountants.
Khoo will be speaking about ‘Creating a more conducive tax environment for sustainable retirement and Islamic financial products for retirement planning’ at the Retirement Transformation Conference 2010.
Are there any types of tax relief or incentives for retired Malaysians at the moment?
The type of tax reliefs enjoyed by retirees and citizen seniors are the typically the same as any other resident individual. There are no specific reliefs for retired Malaysians with the exception of sums received by way of gratuity upon reaching retirement after having worked with the same employer for 10 years and income derived from pensions and retirement gratuities which are exempted from income tax.
As for incentives, senior citizens who depend substantially on retirement savings as a source of income to sustain a reasonable standard of living, have some albeit limited options for retirement income planning. Instead of leaving retirement savings in EPF (Employees Retirement Fund) which will earn the individual, dividends of not less than 2.5 per cent per annum until the age of 75, retired individuals may wish to withdraw the savings to invest in Government issued bonds or debt securities.
Government-issued bonds or debt securities are considered relatively safe investments as they are backed by the Malaysian Government. There are tax incentives available for the investment of certain bonds/debt securities primarily for senior citizens or retirees.
For example, Merdeka Saving Bonds. Compared to the interest offered by commercial banks on fixed deposits, the Merdeka Bonds offer higher returns (5% with a maturity period of 3 years) to senior citizens (age 56 years and above) who depend on interest from savings as a source of income. Additionally, the returns or interest derived from the bonds are exempt from income tax.
Apart from Merdeka Bonds, retired individuals can also consider investing in debentures or Islamic securities (other than convertible loan stocks) approved by the Securities Commission, Bon Simpanan Malaysia issued by Bank Simpanan Malaysia and savings certificates issued by the Government as interest or discount derived from these investments are exempt from income tax.
Are there any tax incentives for the development of retirement homes and villages?
Currently, there are no specific incentives for retirement homes or villages except for corporate tax relief in the form of industrial building allowances given for qualifying expenditure incurred on the construction or purchase of a building used as nursing homes licensed under the relevant legislations as well as old folks’ care centres approved by the Social Welfare Department.
It is critical for the Government to realise the importance of caring for the retired, and the aged in general by providing the impetus and lead for retirement homes. For instance, lower land premiums could be charged for such developments or industrial building allowances could be extended for qualifying expenditure incurred for the construction and maintenance of private retirement homes or villages with prescribed conditions and service standards.
Another option would be to partially exempt the profits derived from the development of retirement villages/homes so that the tax savings can be factored into the cost of such homes.
What about incentives for house buyers for retirement villages and homes? What types of incentives would encourage Malaysians to invest in such properties?
Currently, a maximum tax relief of RM10,000 per annum is given for three consecutive years on housing loan interest for the acquisition of one unit residential property where the Sale and Purchase agreement is signed between 10 March 2009 and 31 December 2010.
There are no special incentives given to individuals acquiring residential properties within retirement villages or communities. To attract Malaysians to invest in such properties for themselves or their aged parents, perhaps the Government could consider granting specific tax deductions for the financing costs to enable individuals to purchase these homes.
Nursing care homes – should there be tax incentives and subsidies to help Malaysians pay for it?
With medical and general health care costs on the rise, people in dire situations sometimes find themselves being forced to exhaust their savings or sell / remortgage their homes to pay for nursing home care. It would help if tax reliefs are given for nursing home expenses or fees paid by individuals who live in nursing homes or individuals who maintain dependents in nursing homes. The Singapore Government currently subsidises the nursing homes based on the patient’s total family financial status through a tiered subsidy framework.
Additionally, Malaysian insurance companies could consider offering nursing home insurance policies like in the US, which assist in paying out the costs of long-term care in a nursing home. Currently, Malaysians enjoy tax relief of up to a maximum sum of RM6,000 for premiums paid on life insurance and EPF contributions. This relief in today’s context is grossly inadequate if the Government wishes to encourage the rakyat to save more for their retirement and physical well-being. Otherwise our ageing population will become a major social problem for the Government in years to come.
These days, retirees can’t totally depend on their children for financial support, as their children themselves sometimes can hardly get by on their own. What should be done today so that when Malaysians reach the retirement age, they are not caught in a dire situation?
Often we do not plan enough for our retirement until it is upon us. Poor retirement planning will adversely impact the quality of life in our golden years. A mindset change is required is that people should start planning early in order to accumulate sufficient savings to avoid having to depend on their children for financial support and sustainable retirement.
From a financial standpoint, how much is needed for retirement would depend on many factors and circumstances such as type of lifestyle, state of health, family needs, any outstanding mortgages or debts, and other retirement income needs. Once you have determined and factored in the costs of these needs, you need a strategy to protect the value of your assets or investments against the risk of inflation, higher cost of living, rising medical costs and longer life expectancy and at the same time create sufficient income to allow you to live out your retirement years without the stress and challenges that retirees face today.
What types of tax schemes or incentives should be designed for Malaysians who are currently working and are planning to stay in retirement homes or just plan for the future in general?
For Malaysians who are currently working, tax breaks should be considered for contributions made to private pension, retirement or annuity schemes which could provide alternative retirement saving options to employees. These schemes can provide a source of additional savings or regular income for their retirement living or used to finance their long-term care in retirement or nursing homes. Currently, the existing reliefs only apply to contributions made to approved funds like the EPF. One way of creating a higher degree of consciousness on the need to plan ahead for retirement is to increase personal reliefs on purchase of retirement products.
What about tax schemes or incentives for those who are currently retired and possibly looking for a retirement home?
For those who are currently retired and may not have saved enough during their work lives to afford a retirement home, the Government may wish to consider providing affordable housing programmes or low income housing for these retirees.
What are our neighbouring countries doing in respect of incentives, rebates or relief for retirement homes, nursing care home and/or old folks home?
Unlike Western countries, due to traditional norms in Asian cultures which focus on family values and filial piety, elderly individuals generally have a negative attitude or perception towards entering a long term care facility like a nursing home. Hence, there are minimal incentives or reliefs available to support retirement homes or nursing homes. Generally, the incentives or reliefs provided are focused on the care or support provided by family members.
For example in Singapore, to promote filial piety and provide recognition to individuals who support their parents or grandparents, individuals are entitled to claim tax reliefs of up to SGD7,000 for every parent or grandparent they support in their household or SGD4,500 if they live in separate households. Apart from providing some measure of relief to those supporting elderly dependents, such incentives also help to strengthen and maintain intergenerational ties. Surveys conducted by The State of Families in Singapore show that most Singaporeans hold positive attitudes towards providing care and support to elderly family members.
Singapore has one of the fastest ageing populations in Asia, primarily the result of longer life expectancy. Between now and year 2030, Singapore will witness an unprecedented profound age shift in its population, and this coming surge of seniors will have a tremendous impact on all aspects of their society. Fortunately Singapore is equipped with programmes which seek to enhance their senior population’s quality of life, staying mentally and emotionally healthy, and more important, remaining financially independent.
Interestingly, Singapore is encouraging a new concept in developing “paired units” of apartments. The Government has taken the lead in this development by determining the types of features required. This concept envisages the aged parents living in the same premises with their children but having separate units.
From a taxation perspective, what are the key challenges when it comes to addressing the affordability and/or feasibility of retirement homes, nursing care or old folks home?
I think the key challenges lies in whether Government policies will effectively address the economic (social security and pension schemes to support long term care expenses in nursing homes), physical (incentives to develop, operate and maintain quality retirement homes/nursing homes) and social aspects (incentives on community programmes) on the provision of affordable retirement homes and nursing homes to the elderly.
Having attractive tax incentives is one thing but it is often extremely onerous to avail these incentives. Many a times, we have very good tax breaks but often, poor implementation and protracted approval processes tend to stifle the achievement of the desired objectives.
About Retirement Transformation Conference 2010
Retirement Transformation Conference – the first of its kind in Malaysia – will be held on August 3, 2010 at the Sime Darby Convention Center from 8.30am to 6pm.
The conference aims to share, identify, raise awareness and deepen understanding of retirement issues as well as create a platform for key stakeholders to learn from international best practices. This could facilitate the review and development of a national retirement blueprint in line with the Government Transformation Programme and leading to redefining retirement for Malaysia.
Special rate for StarProperty.my readers
RM425, with gifts worth RM600. The gifts are 4 complimentary half-day seminars encompassing:
• Retirement Planning Workshop
• Estate Planning Workshop
• Basic Personal Financial Planning Workshop
• Investment Planning Workshop
For more information, visit www.kmdc.com.my, e-mail start@kmdc.com.my or call Patrick at 03-7712 3212.
» Click here to sign up
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