Can LHDN force your family members to pay YOUR tax...if you die?

Perhaps the age old saying “Nothing is certain except death and taxes” might be true after all. So, if you ever thought death would finally release someone from all monetary commitments, we can confirm it via this article, that it doesn’t. Let us explain better with a scenario. 

Imagine this: You’ve been happily married for almost 5 years until...your spouse suddenly dies from a heart attack. As tragic as this may sound, the loss of your partner brings you more pain, when you receive a letter from the Inland Revenue Department—or better known as LHDN—stating that you’re now responsible to pay for your partner’s taxes.

Apart from feeling shocked and confused, you also have so many questions buzzing in your head on why YOU have to pay tax on behalf of your deceased partner. 

Now, this isn’t some scam or trick played by LHDN...as it is a legal requirement for you to do so.

LHDN can legally collect tax even after someone dies

Here’s something to take note of before we go on: The tax that needs to be paid, basically applies for individual taxes and not business tax. This tax is also not the same as an ‘inheritance tax’ (tax on property/money inherited) which does not exist in Malaysia. 

Now if someone dies, one of the first things you’d want to look into, is whether or not they have written a will. A will essentially contains information on how the assets of a person is passed down to their beneficiaries after their death. 

So if there is a will, the executor (person who “executes” the duties listed in the will), is responsible to pay any remaining taxes owed by the deceased, using the deceased person’s wealth.

But if the deceased person died without a will, the next-of-kin (normally the spouse or children) are responsible to pay LHDN whatever amount of tax that has been unpaid by the deceased. Read the link below to know what to do if your partner dies without a will. 

[READ MORE: Can the Malaysian government take your property if you die without a will?]

So once your spouse or family member has passed, and you’re now responsible for all their monetary commitments, you have the duty to inform LHDN about the death. Section 74 of the Income Tax Act 1967 states as such:

The Act essentially states that the executor or next-of-kin shall be responsible and can be charged on behalf of the deceased person, as if he was still alive. LHDN will then conduct an assessment on the deceased person’s individual taxes and property within a period of 3 years from the day the death was informed to them. 

So assuming the deceased person had 3 sources of income—mainly from his job, the rental of his house and interest from a personal loan he gave out—LHDN will consider all of that as the income that shall be assessed. The executor/next-of-kin will be responsible for filing the taxes for the deceased, until all outstanding payments are settled. 

But there are certain leeways on how you can pay on behalf of a deceased person...

LHDN allows payment by installments 

Now if you’re reading this, you’re obviously alive and have been paying your taxes (we hope). It’s important to note, that the form used to file taxes on behalf of a deceased person is called the TP form, which is pretty much the same as our BE/B form. The payments can be made at any LHDN office, online banking and at post offices. 

[READ MORE: Here's 5 common tax filing mistakes made by Malaysian taxpayers]

So in the event you become responsible for someone else’s outstanding taxes, you can always make the payments by installments, as stated by LHDN. But if you fail to do so, LHDN can bring a civil suit to recover the outstanding sum owed to them. Section 106 of the Act states so, like this:

In other words, the taxes owed by the deceased person still counts and legal action will be taken to recover it. This can even include freezing the deceased person’s assets until the outstanding tax amount is paid. There is also a penalty imposed for late submissions of the TP Form, which is a 10% increase of any pending payment.

As you can see, even in death you can’t escape the taxman. This is one spooky story indeed. So in order to avoid having to deal with a huge mess, LHDN urges the next-of-kin or executor of the deceased person, to check if there are any taxes that need to be paid. 

[READ MORE: 5 common Malaysian tax offences you don’t want to accidentally commit]