Income Tax Relief Tips

KDN : PP16208/07/2012(030260)

Income Tax Relief Tips Live the lifestyle you desire by managing your income tax payments Pg 6

Market Outlook 2012

by HSBC Global Asset Management

New opportunities for longer term investors Pg 2

7 Habits of Highly Effective Investors Pg 12

ISSUE 12

MARCH 2012

off the cuff

Opportunities & uncertainties

Hello again and welcome to the first issue of Liquid for 2012. With the festive celebrations and holidays behind us, let us gear up to tackle 2012 head on.

The first quarter of the year is also income tax season. We feature some interesting ways in which you may enjoy greater income tax savings. If you have yet to maximise your income tax efficiencies, we suggest that you consider putting some of these tips to practise this year. The best thing about them is that they may help you live your desired lifestyle and increase income tax efficiencies. That is a fantastic combo, don't you think? The beginning of the year is a good time to develop new habits. You may have considered adding more exercise into your life and eating healthy to improve your lifestyle.

Publisher HSBC Bank Malaysia Berhad (Company No. 127776-V) Editorial Chin Sook Fun Lo Wei Teing Noraniza Yunus Yap Mei Mei Bernard Pang Printed by Superior Press Sdn. Bhd. Lot 2063A, Jalan Kusta Sungai Buloh Kawasan Industri Taman Jaya 47000 Sungai Buloh, Selangor

For more information HSBC products and services, please feel free to contact us. • Call 1 300 88 0181 • Click www.hsbc.com.my • Visit your nearest HSBC branch © Copyright. HSBC Bank Malaysia Berhad (Company No.127776-V) 2011. All right reserved. This publication is for private circulation to selected customers of HSBC Bank Malaysia Berhad (”HSBC”), and may not be redistributed, reproduced, copied

How about investment habits? Are there disciplines you could include in your investment strategy that may help you stay on target, invest more prudently and achieve your financial goals? We hope our article on the 7 Habits of Highly Effective Investors may give you the impetus to develop some sound investment habits, which can stay with you all through 2012 and beyond. With that, I will leave you to enjoy this issue of Liquid. Once again on behalf of HSBC, I thank you for banking with us and for your support in 2011. We look forward to bringing you even more practical financial tips and useful insights this year. Here is to a great and prosperous year ahead.

Best regards,

Lim Eng Seong

General Manager Retail Banking and Wealth Management

or published, in whole or in part, for any purpose. This publication is solely for general information and does not constitute any advice, recommendation or offer by HSBC. HSBC does not endorse or promote any third party (other than HSBC Group members) or websites referred to in this publication. The opinions, statements and information contained in this publication are based on available data delivered to be reliable. HSBC does not warrant the accuracy, completeness of fairness of such

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Photo by Relucent Photography

For starters, the HSBC Global Asset Management (UK) team offers their outlook for 2012. The year may be one of mixed fortunes, nevertheless, there may be opportunities to be captured in various asset classes. Do turn over to page 2 to read their insights. Alongside our market outlook article, we also feature Feng Shui Master Joey Yap’s article, which presents an alternative viewpoint on the world's economy in year 2012.

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Market Outlook 2012

by HSBC Global Asset Management New Opportunities for longer-term investors 2011 started out robustly but as the year progressed, the outlook deteriorated sharply. Contributing to the volatility were key events such as the civil unrest in the Middle East which resulted in oil prices rising to a two-and-a-half year high.

Equities Global equities are now trading at very attractive valuations relative to longterm historical levels thus offering excellent opportunities for building wealth in the longer term, as part of a balanced portfolio1. Equity dividend yields currently stand at attractive levels, compared with government bonds, while company balance sheets are enabling them to grow dividends – a very attractive combination in a low interest rate environment2. Bonds Within the bond universe, emerging market or Asian bonds offer solid growth and resilient performance amid a challenging global environment. Corporate bonds, as opposed to government bonds, may be considered as many companies are in solid financial shape, having applied their

own austerity measures thus reducing the probability of a default. These factors support the positive outlook for corporate bonds especially at the high-yield end of the spectrum and in Asia, where fundamentals are relatively stronger3.

economies are increasingly driven by domestic demand as exports as percentage of GDP falls. As such, exposure to the activities of BRIC consumers could be one way in which investors could play the dynamic emerging market consumption theme2.

Emerging markets Emerging markets offer a range of opportunities for discerning investors as fundamentals remain strong relative to developed markets. Valuations have cheapened considerably as risky assets are sold off2.

In summary, the short-term view is uncertain, but for those who prefer a long-term investment horizon, this increasingly short-term world may create some rare opportunities to generate wealth. The start point may be uncertain but the eventual upside could be potentially significant1.

BRIC Driven by rising domestic consumption, emerging economies such as BRIC (Brazil, Russia, India and China) are among the fastest growing economies today and continue to be supported by higher levels of consumer confidence and solid fiscal accounts. These

Source: 1. “Outlook for 2012 - Looking past the abyss.” by HSBC Global Asset Management (UK) Limited. 2. “Investment Intelligence December 2011” by HSBC Global Asset Management (Hong Kong) Limited. 3. “HSBC sees volatility creating longterm wealth opportunities in 2012”, news release issued by The Hongkong and Shanghai Banking Corporation Limited on 14 December 2011.

Against this background, many investors fled to what they saw as safe havens, forcing gold prices to record highs and government bonds yields to generational lows. Markets have gone from being dominated by investors with longer-term investment horizons to being driven by short-termism, as investors turn from targeting wealth generation to focusing on preserving it1. However, short-termism has created what HSBC Global Asset Management believes to be deep value emerging across asset classes which may offer opportunities for investors with a long-term investment perspective2. 2

HSBC Bank Malaysia Berhad March 2012

Embarking into 2012

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hen the massive earthquake, tsunami and nuclear incident in Japan which caused supply chain issues for much of the year. Over the summer, the Eurozone debt situation crisis peaked, with the contagion spreading to larger nations like Spain and Italy. Volatility is likely to continue in 2012 as the Eurozone sovereign debt crisis remains an overhang in the near term1.

Year of the Water Dragon with Feng Shui By Joey Yap

Besides the views of the HSBC Global Asset Management team, Feng Shui master Joey Yap also shared his thoughts on the possible impact of the Water Dragon on the world's economy in year 2012.

I had predicted that the year 2011 of the Metal Rabbit would be volatile and towards the end of the year we would see the possibility of Europe abandoning the Euro as the elements of metal and wood clashed.

under control - i.e. Fire melts Metal - which is an element countered or subjugated by its controlling element. The Weakening Cycle, on the other hand, is the reverse process of the Productive Cycle - i.e. Wood absorbs Water, therefore weakens it.

Before we go into the forecast, you need to understand that in Feng Shui, there are 5 Elements that come into play: Water, Wood, Fire, Earth and Metal. The 5 Elements share three types of relationships known as Cycles, through which an element can affect another element as illustrated on the chart below. Depending on the cycle, these elements Produce (grow), Control (counter) or Weaken one another. The Productive Cycle is where the 5 Elements produce one another, - i.e. Water provides nourishment for trees (Wood), etc. It is an element that strengthens and grows the element it produces. The Controlling Cycle is where the 5 Elements keep each other

In terms of the outlook and forecast for 2012, we study the BaZi Chart of the year itself. BaZi, literally translated as Eight Characters, is known as the

Four Pillars of Destiny under the study of Chinese Astrology. Developed by the Chinese, it is an ancient and sophisticated discipline of Destiny and Personality Analysis, which utilises birth information – Year, Month, Day, Time - to analyse and determine with much accuracy an individual's path in life. In this case, we can also determine the forecast of a particular year based on the said year’s “birthday”, which falls on the February 4 of each year. Looking at the BaZi chart, every time there is a clash between the elements such as metal and wood which happened in 2011, it normally indicates uncertainties and problems. But looking at the chart for 2012, I do not see so many clashes, contrary to what people are so afraid of 2012 being the end of the world and there would be economic disasters and all. But if we look at the chart, it is actually not that bad, though, there are still some problems compared to 2011. So after 2011, towards mid-2012, which is the Water Dragon year, we should be able to see things stabilising.


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Feature In the 2012’s BaZi Chart, there are only elements of water and wood, which do not clash with each other. If you refer to the 'Month' and 'Year' on the chart, they are yang water elements while the 'Day' and 'Hour' are yin wood elements. There are more water element as compared to the wood element. If we take cues from nature, we will know that wood ﬂoats on water. This reveals to us that we may face the possibility of a lot of waterrelated issues and natural disasters like floods. Meanwhile, as the Dragon and Goat are both earth elements, there could be earth-related problems such as earthquakes as well.The general theme for 2012 where water produces wood, represents healing and recovery. So towards the mid-year onwards, we may see things stabilise.

Elements at play in 2012

BaZI Chart for 2012

To learn more about your outlook for 2012, please visit http://www. masteryacademy.com/fsa2012 Joey Yap is the founder of the Joey Yap Consulting Group, a global organization devoted to the teaching Feng Shui, BaZi, Mian Xiang (Face Reading) and other Chinese Metaphysics Subjects. He is also the Chief Consultant of Yap Global Consulting, an international consulting firm specializing in Feng Shui and Chinese Astrology services and audits. He is also the bestselling author of over 75 books on Feng Shui, Chinese Astrology, Face Reading and Yi Jing, many of which have topped the Malaysian and Singaporean MPH bookstores’ bestseller lists. Log on www.joeyyap.com for more details about Joey Yap Consulting Group. He can be reached via facebook: www.facebook.com/JoeyYapFB This article does not constitute an advertisement, offer, invitation, commitment, advice or recommendation to make a purchase of securities or enter into any such transaction. The information given in this article represents the views of Joey Yap Consulting Group. HSBC Bank Malaysia Berhad (the “Bank”) is not involved in the preparation of this article. The Bank neither endorses nor is responsible for the accuracy or reliability of, and under no circumstances will the Bank be liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this article.

All charts herein are courtesy of Joey Yap Consulting Group. 4


Investment involves risks. You should refer to the offering documents and/or relevant documents for further details. You must make your own assessment of any such transaction and the risks and benefits associated with it and of all the matters referred to above in view of your investment experience, objectives, financial resources and circumstances. You should enter into transactions only after having considered, with the assistance of your external advisors, the specific risks of any such transaction.


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Income Tax

Relief Tips Live the lifestyle you desire by managing your income tax payments

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ncome tax time is coming soon. It is the season where employees and business owners try to maximise their income tax deductions. Here are a few simple income tax relief tips especially for resident individuals that you can leverage on for noteworthy income tax savings. Read on to find out how you may reduce your income tax liability by saving for retirement, owning a home and funding your children’s education!

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Negotiate for the ‘CEO’ package

If you are earning at least RM10,000 per month and are paying income taxes at the highest bracket (26%), the following methods may be helpful in reducing your income tax liability. You may start by exploring opportunities to discuss and customise your remuneration package with your employer. Consider converting your gross income into Benefit-in-Kind (BIK) The ‘CEO’ package is a tongue-in-cheek reference to the nonmonetary perks that a CEO may typically receive. For example, negotiate your remuneration package to include BIKs such as a company car, reasonable amount of travel benefits, telephone bill subsidy and so forth, which will result in reduced chargeable income. Although BIKs are still considered income and taxable, the taxable value of BIKs may be lower compared to receiving the amount in cash. For example a car valued between RM150,001 to RM200,000 may incur BIK taxes at RM8,800 per annum compared to the RM52,000 (RM200,000 x 26%) you may have to pay if you were to receive RM200,000 as an income1. Consider negotiating for travel allowances An employee is provided an income tax exemption of up to RM6,000 per annum for any travel allowance, petrol card, petrol allowance or toll payment or any of its combination for work related travel2.

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Buy a home

If you purchased a residential property and signed a Sale and Purchase Agreement between 10th March 2009 and 31st December 2010, you will enjoy up to RM10,000 income tax relief on interest expended to finance the purchase, for three consecutive years from the first year the interest is paid. That means, if you purchased a house in 2010, you will receive RM10,000 income tax relief yearly from 2010 to 2012. If the property was jointly purchased by more than one person, all of them are entitled for the relief up to a maximum of RM10,000 jointly. For instance, if David and his wife jointly purchased a property, they will both be entitled to a relief of RM5,000 each for 3 consecutive years3.

More tips on the following page 

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Send your child to college

Invest in yourself

Start saving for your child’s education and qualify for income tax relief on education savings and education fees at the same time.

Sharpening your skills is often the best investment you can make. Plus, you get income tax relief for your efforts too.

RM3,000 income tax relief for child’s education savings (Skim Simpanan Pendidikan Nasional, SSPN) Any amount that is deposited into a savings account for your child under SSPN allows you to claim for income tax deduction up to a maximum of RM3,000 per annum. If your spouse files a separate income tax return, he or she can also claim this amount. So jointly, if each spouse saves a net contribution of RM3,000 for their child per annum, the income tax relief chalks up to RM6,000. If you and your spouse are paying income taxes at the highest bracket, that would translate to a saving of RM1,560 (RM6,000 x 26%) per annum.

Read as much as you can You will enjoy an income tax deduction of a maximum of RM1,000 on the purchase of books, journals, magazines and publications.

Enjoy child relief on education fees RM1,000 for a child aged 18 years old and above, not married and receiving full-time tertiary education and RM4,000 for a child aged 18 years old and above, not married and pursuing diplomas or above qualification in Malaysia or Bachelor’s degree or above outside Malaysia in a Higher Education Institute accredited by related Government authorities.

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Start a business

If you are an entrepreneur or have a side business, you can claim deductions for all expenses related to the business when calculating business income other than expenses disallowed under the Income Tax Act 1967. For example, if you provide IT consulting work on a part-time basis, you can claim an income tax deduction for office rental, cost of stationery, printing material or training manuals. If your spouse or family members are employed to help you in the business, their salaries are also deductible5. They, however, will need to file personal income taxes for the income received from you.

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Further your learning Enjoy a relief of RM5,000 per year for any course of study at the Master’s or PhD level. The course does not have to be full time, but must be in an institution or professional body in Malaysia recognised by the government or approved by the Ministry of Finance. Get fit You may claim up to RM500 for a complete medical examination. To encourage a healthier lifestyle, the government also allows claims of up to RM300 each year for the purchase of any sports or exercise equipment for any sports activity (Sports equipment does not include attire and shoes). Now that’s an incentive to start exercising6.

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Invest in income taxefficient instruments

Look for investments that offer lower income tax rates to enjoy greater income tax savings. Real Estate Investment Trusts (REIT) Invest in REITs to enjoy concessionary income tax rate of 10% as opposed to dividends on normal shares that are taxed at 25%. Since the REIT distributions you receive are already subjected to the 10% tax, you are not required to declare the amount in your income tax return7. Invest in overseas stocks with lower corporate income tax Corporate income tax rate in some countries may be lower (eg. 17% in Singapore compared to Malaysia’s 25%), which may mean you save on income taxes. As the income is already taxed in the country of origin, it will be tax-free when repatriated back to Malaysia8.

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Save for your retirement

Sign-up for a Deferred Annuity Retirement Scheme to enjoy an income tax relief of RM3,000 annually on premiums paid. For instance, if you sign up for a new annuity scheme (including Private Retirement Schemes approved by the Securities Commission) in 2012 and pay RM3,000 in premiums, you can claim RM3,000 for income tax deduction the next year 9. Should you be at the 26% income tax bracket, you would have made a saving of RM780. Better yet, and you would have also invested in your future.

Meet up with an income tax professional for further advice on your taxation. An income tax adviser may be best equipped to help you boost income tax efficiencies and explore different ways to maximise income tax savings on your remuneration package. With professional advice and some of these tips, income tax time may not be so taxing after all.


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the last minute

Income Tax Guide Income tax savings require planning and staying proactive throughout the year. However, with the income tax return deadline looming close, are there still ways to save a little on income taxes and reduce the stress load of filing your income taxes? Read on to find out if these last minute tips can help you.

File separate income tax returns. With individual returns, you will enjoy personal income tax relief of RM9,000 each versus spouse relief of only RM3,000 in a joint return10. Divide income tax relief with your spouse. Work the numbers to decide whether to place all child relief under one person or divide them between the two of you.

Hire an income tax consultant. An income tax consultant may be able to provide additional ways to save on income taxes. Furthermore, if you don't want the burden of filing your own returns, an income tax consultant can file them for you for a fee.

Get ready and organise your supporting documents. Collate your EA forms, receipts, pay slips, medical bills and all supporting documents before you start filing your return.

File your return before the deadline. There are no extensions to the deadline. The penalty for not filing or late filing can be hefty (up to 20% of income tax payable in practice for late submissions up to 12 months and the Inland Revenue Board (IRB) can impose penalty up to 3 times the income tax payable)11.

Register for e-filing if you have yet to. Visit www.hasil.gov.my to register so that you can submit your return electronically.

Settle your outstanding income tax on time. Even if your income taxes are paid under the Schedular Tax Deduction System, you may still incur

outstanding income tax which is payable before the April 30 deadline (if you are filing the BE Form). Missing the deadline will cost a penalty of 10% of the taxable amount immediately and another 5% if you still do not clear your outstanding taxes after 60 days. If it is really impossible to pay up on time, the least you can do is to first submit your return12.If you have registered for e-filing, you may also access the IRB's e-lejar to check the income tax payments made to the IRB to assess whether there are any discrepancies. Check and double check your form before submitting them. Whether it is in the form of a hard copy or an electronic file, once you have submitted your income tax return, making any amendment is tough. You may file an amended income tax return for 'increased assessment' where you enter 'underdeclared income or overclaimed relief or expenses'. Amendments must be made by the sixth month after the filing. Thereafter, no amendments will be entertained13. Clear any outstanding income tax from last year to minimise chances of incurring a penalty. Make an annual visit to your nearest Inland Revenue Board (IRB) to review your income tax position. Get a Form PCB2 from your employer (which shows all your income tax deductions) and reconcile the figures with the IRB. Decide to maintain your books starting right now for next year's income tax filing in order to maximise your income tax efficiencies and reduce the stress of managing your income tax.

Source: 1. Inland Revenue Board Malaysia, Public Ruling No. 2/2004. 2. www.hasil.gov.my Income Tax (Exemption) Order 2009 3. www.hasil.gov.my, “Tax Relief for Resident Individual 2010”, Section 46B, Income Tax Act. 4. www.hasil.gov.my, “Tax Relief for Resident Individual 2010”. 5. www.hasil.gov.my. 6. www.hasil.gov.my, “Tax Relief for Resident Individual 2010”. 7. www.nbc.com.my “Real Estate Investment Trust (REIT) in Malaysia - Taxation on REIT and Investors”. 8. Inland Revenue Authority of Singapore website, “Tax rates & tax exemption schemes”, 12 July 2011; Source: The Star, “US is top 2012 property investment pick”, 2 January 2012. 9. Budget 2012. 10. www.hasil.gov.my, Tax Relief for Resident Individual. 11. The Star, “Heavier penalty for late tax submission”, 1 October 2011. 12. The Star, “136,000 who filed returns in March get tax refunds”, 1 May 2010. 13. www.hasil.gov.my, “Procedure On Submission Of Amended Return Form ”, 5 January 2011.

This article is for information purposes only and HSBC Bank Malaysia Berhad is not providing any income tax advice. Please consult your income tax adviser for professional income tax advice in the first instance. 10


Personal Finance

Personal Finance

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Habits of Highly 0

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Effective Investors

Habit 1

Be pro-active Being proactive means assessing the situation and developing a positive response for it. Instead of reacting to economic changes around you, you may choose to use your resourcefulness and “Make the decision to initiative to find solutions. In investment terms, that could improve your financial mean assessing your financial situation through the situation and developing a things that you can financial plan. You could also stay pro-active by monitoring influence rather than economic developments for by simply reacting to new insights and researching external forces.” investment options that may help you reach your goals. Even a simple act such as making an appointment to speak with your Relationship Manager or Personal Banker to review your portfolio may be a positive step towards staying informed of current economic changes.

Habit 2

"Begin with the End in Mind" Ideally, before you even make a decision to invest, know what your goals are in terms of investment. In short, begin with the end in mind. Determine your short-term and longterm goals. Once you have a vision of how your investment portfolio should look like, you are more likely to find and evaluate investment instruments that fit into your plan.

Habit 3

Put First Things First This habit is about making the main thing, the main thing. That means discovering your investment priorities and making decisions to put them first. You may choose to place greater emphasis on the things that are important to you. For instance, that could mean “paying yourself first” via contributions to your savings and retirement plan. Other priorities may be saving for your child's education fund as time is of the “Organise and essence in meeting this goal. execute your An emergency fund, paying down debt and getting adequate investments insurance coverage are also around priorities.” priorities you may consider.

In his bestseller, 7 Habits of Highly Effective People, Stephen R. Covey presented a principle-centered approach for personal and professional development. The underlying principles that Covey shared may similarly impact us in the area of investment and here is how we applied Covey's 7 famous habits1.

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Personal Finance

Personal Finance

Habit 4

Habit 5

Think Win-Win Returns and risks are opposing sides of the coin. Investments that potentially yield higher returns may also leave you open to greater risk. On the other hand, safer financial options such as Fixed Deposits may offer modest returns. Having a win-win mindset is to realistically balance both risk and return: managing the risk level you are willing to take on with the best possible returns.

“Balance the best possible outcome from both sides.”

Habit 7

Habit 6

Seek First to Understand, Then to be Understood

Sharpen the Saw

Synergise

Peter Lynch, famed investor and manager from Fidelity, offered the advice, "invest in what you know" 2. When investing in stocks, take time to understand how the company generates income and profitability, read up on their main competitors and be familiar with the risks and opportunities in the field. The same concept applies to different types of investment instruments such as bonds, structured investments and unit trust funds. Understanding industry changes may open you to new investment opportunities. For example, the Employees' Provident Fund (EPF) now has more stringent fund selection criteria in its Members Investment Scheme (EPF-MIS). Appointed Funds offered under the EPF-MIS must have a track record of at least 3 years and not more than 30% foreign exposure3. You may consider the EPF-MIS as an investment option to potentially grow your EPF funds at a faster rate. It also has lower upfront fees capped at 3% compared to the unit trust industry rate of 5% - 7%4. You may also consider withdrawing from your EPF savings to invest in appointed Unit Trust Funds every quarter (subject to a maximum of 20% from your savings in excess of the Basic Savings amount in your Account I).

There's a famous saying that goes, “Two heads are better than one.” Take the opportunity to leverage on the skills and knowledge of those around you. Have a chat with your Relationship Manager for the latest investment news and opportunities. Put into good use any investment tool available such as the newly introduced HSBC’s Fund Navigator that places comprehensive fund analysis at your fingertips.

“Leverage on the strength of others.”

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Stay updated and keep abreast of economic developments. The portfolio you set in place a few years ago may be outdated and not performing optimally. Regular portfolio rebalancing can realign your investments to your desired asset allocation that may have fluctuated over time. Your portfolio may also need to be reviewed as your life situation changes. You may also consider to periodically reflect on underperforming and successful investments with the aim of getting better results the next time round.

“Stay fresh. Stay keen. And do it all over again.”

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Once you understand how investment works, set your investment ground rules and investment philosophy. They will serve as a compass especially when the market gets choppy. For example, some ground rules may include instructions on how often you wish to invest, your policy on speculation and your strategies on when to diversify or exit an investment.

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“Invest in what you know.”

The diagram below shows the average annualised returns of the Top 10 EPF Appointed Funds distributed by HSBC and the average KWSP dividend over 3 years. 22.98% p.a. Average annualised returns of the Top 10 EPF Appointed Funds distributed by HSBC based on data obtained from Morningstar Asia Limited.

5.82% p.a. Based on average KWSP dividend.

If you make it a habit to develop these 7 habits, you may soon develop an investment discipline that may increase your effectiveness in making sound investments. That would be a great habit to have!

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Source: 1. www.stephencovey.com/7habits/ 2. USNews-Money, “Why You Need to Invest In What You Know”, 26 October 2010 3. The Star. “EPF members can buy unit trust with up to 30% foreign portfolio from August”, 4 June 2010 4. The Star, “High fees dampener for unit trust”, Saturday 12 November 2011

Average annualised returns over 3 years (31/12/2008 - 31/12/2011)

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