How to determine the value of living accommodation?

Definitions

“Defined value”, in relation to living accommodation provided for an employee by his employer, means:

• Where the accommodation is not affected by any written law providing for the restriction or control of rents and the person so providing the accommodation holds the accommodation on lease the rent which is or would have been paid if the accommodation is or had been unfurnished and the lessor and lessee were independent persons dealing at arm’s length;
• In any other case, the “rateable value” or, in the absence of rateable value, the “economic rent”.

The “rateable value” is:

• The annual value as determined for rating purposes by the local rating authority such as City Hall, the Municipal Council and other similar authorities for the purpose of imposition of assessment rates.

The “economic rent” is:

• The rent at which premises might reasonably be expected to be let if:
  • The lessor covenanted to pay the cost of fire insurance, public rates and work of repair and maintenance; and
  • Any written law providing for the restriction or control of rents were disregarded.

The “controlled company” is :

• A company having not more than fifty members and controlled, in the manner described by section 139 of the ITA, by not more than five persons.

“Service director”, in relation to a company, means:

• A director who is employed in the service of the company in a managerial or technical capacity, and is not, either on his own or with any associate or associates, the beneficial owner of (or able directly or through the medium of other companies or by any other indirect means to control) more than 5% of the ordinary share capital of the company.

Three Categories for the computation of living accommodation

The computation of the value of living accommodation provided for employees by employers can be divided into 3 categories as follows:

1. Living accommodation provided for the employee (other than officers of Government or Statutory Bodies) or service director by the employer;
2. Living accommodation provided for the director (not service director) of a controlled company by the employer; and
3. Living accommodation provided for the employee/service director/officer of the Government/Statutory Bodies.

Deductions allowed

For all three categories, deductions can be made for:

• Time

If the living accommodation is provided for less than 12 months the benefit should be reduced appropriately, e.g. if the accommodation is provided for 6 months and the yearly value of the accommodation is RM 10,000 then the benefit to the employee is valued at RM 5,000.

Note: the benefit is valued from the time the accommodation is provided, NOT from the time the employee occupies the accommodation.

• Expenses paid by the employee

  • Rent paid on property (if furniture is provided by the employer then rent paid by the employee on the furniture can also be deducted).
  • Any public rates or insurance premiums .
  • Expenses on repair or maintenance of premises.

First Category: Living accommodation provided for employee (other than officer of Government/Statutory Bodies) or service director by the employer

The value of the accommodation benefit is calculated as follows:

• Defined value of the living accommodation; or
• 30% of the gross income from employment (including wages, allowances, perquisites but not benefits-in-kind and share options perquisite)
• Whichever is lower.

Additional deductions allowed

• Sharing 

If the accommodation is shared with other employees the value is split, e.g. if two employees stay at the same accommodation the value of the benefit will be split 50/50.

• Business Use

If the accommodation is used for business purposes then the value can be reduced appropriately – either by calculating the amount of space used for the business or by calculating the amount of time the accommodation was used for business purposes.

• Compulsory Residence

The value of the benefit can be reduced if the employee is required to reside in the particular premises.

Second Category: Living accommodation provided for directors of controlled companies by the employer

The value of the accommodation benefit is calculated as follows:

• The defined value of the living accommodation.

Additional deduction allowed

Sharing: If the accommodation is shared with other employees the value is split, e.g. if two employees stay at the same accommodation the value of the benefit will be split 50/50.

Where the living accommodation provided for any employee or director except a director (not a service director) of a controlled company, is:

• In a hotel, hostel or similar premises; or
• Any premises in a plantation or in a forest; or
• Any premises which although in a rateable area are not subject to rates, the value of the accommodation benefit is calculated as follows:
• An amount equal to 3% of the gross income from employment (including wages, allowances, perquisites but not benefits-in-kind and share options perquisite)

Read more about:

• The difference between perquisites and benefits-in-kind
• Valuing benefits-in-kind

Looking for a payroll system? Book a demo.