Giving donations is one of the ways to get a tax deduction in Malaysia. However, there are several things to keep in mind before you donate your money in order to pay less tax.
In this article, we’ll show you everything you need to know about donation tax deduction so you can be more financially wise while being generous for charitable causes.
But before getting into that, it’s important to understand what a tax deduction is.
What is Tax Deduction?
A tax deduction, or tax exemption, is a reduction of a person’s taxable income if they can meet certain conditions, which ultimately allows them to pay less tax every year.
The conditions may vary from country to country, but generally, the governments design it to reward taxpayers who give back to society.
In Malaysia, the tax deduction is regulated by IRBM (Inland Revenue Board of Malaysia) or also known as LHDN (Lembaga Hasil Dalam Negeri) in Malay.
Details of the regulations are written under the Income Tax Act 1967, and some of the main points in the guidelines are as follows:
- How organizations can be approved to issue receipts for a tax deduction
- What kind of donations and programs are eligible for a tax deduction
- How much tax deduction we are allowed to receive
Tax Deductions for Donations
According to the Income Tax of 1967, one of the activities that make you eligible for a tax deduction in Malaysia is donating to an approved body, organization, or institution.
Currently, there are nine types of contributions with different beneficiaries that can deduct your tax. See the following table to learn more about them:
| No. | Contribution | Terms & Conditions |
| 1 | Gift of money to the Government, State Government or Local Authorities | |
| 2 | Gift of money to approved institutions or organisations | The amount is limited to 10% aggregate income |
| 3 | Gift of money or cost of contribution in kind for any Approved Sports Activity or Sports Body | The amount is limited to 10% aggregate income |
| 4 | Gift of money or cost of contribution in kind for any Approved Project of National Interest Approved by Ministry of Finance. | The amount is limited to 10% aggregate income |
| 5 | Gift of artifacts, manuscripts or paintings. | |
| 6 | Gift of money for provision of Library Facilities or to Libraries. | The amount is limited to RM20,000 |
| 7 | Gift of money or contribution in kind for the provision of facilities in Public Places for the benefit of disabled persons. | |
| 8 | Gift of money or medical equipment to any healthcare facility approved by the Ministry of Health. | The amount is limited to RM20,000 |
| 9 | Gift of paintings to the National Art Gallery or any State Art Gallery. |
What is an Approved Organisation According to IRBM?
Approved organizations are organizations that have met IRBM’s requirements to accept donations from Malaysians or people who live in Malaysia. There is an extensive list of conditions that have to be fulfilled, and some of them are:
- The organization is established in Malaysia,
- The organization has clear objectives that are meant for charity, education, and the welfare of all races and religions in Malaysia.
- At the application stage, the applicant must have been active operationally for at least two years
- The applicant must have undergone two recent audit reports.
- The applicant should have supporting letters from related government departments and ministries and any other registration documents.
While the rules are stringent, there are many organizations that have been approved and active until now.
To make it easy for you to find one, IRBM/LHDN provides a webpage that stores a full list of approved organizations that you can donate to, along with their current statuses and addresses.
It also allows you to search based on location so you are able to easily find the nearest approved organizations.
Is MyFundAction an Approved Organisation?
Yes, MyFundAction is an approved organization under the name of “Tabung Kebajikan dan Pendidikan MyFundAction”, and the status is active until 2025.
The qualification has increased our credibility, which allows us to attract more contributors while also helping reduce their tax burden.
If you’d like to support the cause that MyFundAction has, head over to our campaign page to learn more about our programs.
Who is Eligible for Donation Tax Deduction?
A donation tax deduction is eligible for a person or a company that donates to an approved organization in Malaysia. But before these approved organizations can issue a tax relief receipt, the donor must provide the following data:
- Full Name
- ID Number or Business Registration Number
- Full Address
This is done to prevent any fraud or misuse of tax relief in Malaysia. If you fail to provide such documents, you won’t get the receipt for a tax deduction.
How Much is Donation Tax Deduction in Malaysia?
The answer is it depends on how much you earn in a year and what type of donations you give.
But before diving deeper into the calculation, it’s important to learn the following terms first.
- Aggregate income – the total income you receive from employment, rent, etc.
- Chargeable income – also known as taxable income, is the amount of money that your tax is based on. It is your aggregate income minus the tax exemption and tax deduction you’re eligible for.
Note that donation is one of the tax exemptions you can get as long as it’s given to approved organizations.
Now to give you a better idea of how tax deduction works, we’ll give you an example.
Let’s say you earn RM70,000 in a year in total, then your aggregate income is RM70.000. And In the same year, you donated RM 5000 to an IRBM-approved organization, which makes you eligible for a 10% tax deduction.
That means your taxable income will be:
RM 70,000 – (10% x 70,000) = RM 63,000
Keep in mind that the taxable income above is counted after donation only. It can go lower if you have other tax reliefs.
Conclusion
If you’d like to reduce the amount of tax you have to pay, giving donations is one of the best ways to do it. Not only is it useful for yourself, your financial support will be beneficial to society in general.
Nonetheless, it is important to consider the terms and conditions if you want your donation to help reduce your tax, such as:
- Make sure that you are donating to an organization that is approved by IRBM
- Provide the necessary documents to get the donation receipt
As an approved organization by IRBM, MyFundAction is a great place to give your support to. We have several campaigns that empower and support charitable causes in Malaysia so you can claim your tax deduction rights as a taxpayer.
