Taxes in Malaysia are generally controlled by the Inland Revenue Board (IRB), or commonly known as Lembaga Hasil Dalam Negeri (LHDN), and is governed by the Income Tax Act 1967.
Once you have entered adulthood and started earning a source of income, the burden of taxes will start piling up on you. With the burden of having to pay up taxes for a lifetime, death may be assumed to release you of all these financial burdens. Unfortunately, the burden will only be transferred to your next-of-kin, which are either your spouse, children or family members.
LHDN is legally required to collect tax from a deceased person through the next-of-kin of the deceased person.
This is mentioned in Section 74(1) of the Income Tax Act 1967, which states that:
“Where an individual dies in the basis year for a year of assessment, his executors shall be assessable and chargeable to tax for that year of assessment, for the following year of assessment and, whenever necessary, for any previous year of assessment in respect of the chargeable income of that individual for any such year of assessment; and, where they are so assessable and chargeable, they shall be assessable and chargeable to tax in like manner and to the like amount as the individual would be assessed and charged to tax if he had not died.”
According to the act, ‘executors’ refer to person administering or managing the estate of a deceased person, which includes a spouse, children or family members.
Essentially, this act states that the next-of-kin of the deceased person is obligated to be responsible of their taxes, and LHDN will conduct an assessment within 3 years following the time the individual’s death was informed to declare all of his/her sources of income that require tax paying.
Is There A Way To Avoid This?
You may wonder if there is any way to escape from being responsible of a deceased family member’s taxes?
Unfortunately, NO.
But, before passing the torch around to who will pay up their taxes, you should first find out if the deceased person has written a will.
Having a will eases the entire process, as the will contains the information on who will be responsible of the deceased person’s assets, and he/she will be obligated to pay up the person’s taxes as well. However, if the person died without a will, the immediate next-of-kin will be required to settle the taxes.
Want to know how to write a will? Click here for a sample template!
Payment Through Installments
Fortunately, LHDN allows these taxes to be paid through installments. LHDN can file a legal suit to recover the outstanding amount, if you fail to settle the deceased person’s taxes, under Section 106(1) of the Income Tax Act 1967, which states, “tax due and payable may be recovered by the Government by civil proceedings as a debt due to the Government.”
This may lead to penalties such as:
- Freezing the deceased person’s assets
- Increase of 10% from pending payment
