(TAX UPDATE) Pay Your Staff Extra Leave to Care for Family, Claim Extra 50% Tax Deduction.

(TAX UPDATE) Pay Your Staff Extra Leave to Care for Family, Claim Extra 50% Tax Deduction.

Income Tax (Deduction for Payment of Additional Paid Leave for the Care of Child or Sick or Disabled Immediate Family Member) Rules 2026, P.U. (A) 289/2026, gazetted 11 August 2026

Introduction

One of your best people comes to you quietly. Her father has just been discharged from hospital and needs someone at home for the next few weeks. Or a new parent on your team is stretched thin caring for a baby who is not yet two. You want to give them paid time to cope. You also run a business, and paid leave is a real cost.

For a long time that cost sat entirely on the employer. A new set of rules changes the arithmetic.

On 11 August 2026, the Government gazetted the Income Tax (Deduction for Payment of Additional Paid Leave for the Care of Child or Sick or Disabled Immediate Family Member) Rules 2026, P.U. (A) 289/2026.

In plain terms, if you pay a full-time employee for additional care leave, you may now claim a tax deduction on top of the salary you already deduct under Section 33 of the Income Tax Act 1967.

What the deduction gives you

A qualifying employer may claim an additional deduction equal to 50 percent of the payment made for additional paid leave granted for any of the following :

  • Care of a child under 2 years old.

  • Care of a sick immediate family member.

  • Care of a disabled immediate family member.

Read that carefully. This is an additional deduction.

It sits on top of the normal deduction you already take for the wage cost. In effect the Government is sharing part of the burden of keeping your people employed while they carry a caring responsibility at home.

Who counts as immediate family

The scope is wider than many employers expect. Immediate family here includes your employee's spouse, parents and parents-in-law, children, siblings, and grandparents. Specified step relationships and adoptive relationships are also included.

That breadth matters when you set your internal leave policy. The rule is not limited to a spouse or a young child. It reaches up and down the family line.

The conditions you have to meet

A deduction is only as good as the conditions attached to it. Here is what you need to satisfy.

The employee must be full-time. Part-time and casual arrangements do not qualify.

You need the right certification. For a sick immediate family member, a medical certificate is required. For a disabled immediate family member, certification from Jabatan Kebajikan Masyarakat, JKM, is required. Keep these on file. They are your evidence if the deduction is ever questioned.

The deduction period is capped. It runs for a maximum of 12 consecutive months per year of assessment.

The relief applies for a defined window, YA 2025 to YA 2027, and is subject to verification by TalentCorp. The TalentCorp step is not a formality. If it is not completed, the deduction is not available.

Who is shut out

Not every employer can claim. The rules exclude several categories, and the exclusions are deliberate.

Sole proprietorships are excluded. Companies controlled, directly or indirectly, by the employee are excluded. Specified related-party employers are also excluded.

The logic is straightforward. The deduction is meant to encourage genuine, arm's length employers to support their staff, not to let a person route a benefit to themselves or to a connected party through an employment label. If your group has related entities, check the relationship before you assume the claim is safe.

What you should do now

Map your current leave policy against the rule. If you already grant compassionate or care leave beyond statutory entitlement, part of that cost may now carry a deduction.

Fix your documentation. A claim without the medical certificate or the JKM certification is a claim waiting to be disallowed. Build the certification requirement into your leave approval process so the evidence is collected at the point of approval, not scrambled for at year end.

Confirm the TalentCorp verification pathway before you rely on the number in your tax computation.

Check whether you fall inside any of the excluded categories, especially if the employee has any ownership or control link to the company.

KTP's View

This is a rare thing in tax. A rule where doing the humane thing and the tax efficient thing point in the same direction.

But do not let the incentive drive the decision on its own. The deduction is 50 percent of the leave payment, which means you still bear real cost. Treat the tax break as what it is, a partial subsidy for a policy you should be considering for retention and culture reasons anyway. The employers who will benefit most are the ones who already want to look after their people and simply needed the numbers to make it easier.

Two practical cautions.

First, this rule is new, gazetted on 11 August 2026, and the fine detail sits in the P.U. (A) itself. Read the instrument, not the summary, before you commit a figure to a tax computation.

Second, the YA 2025 to YA 2027 window means part of the benefit is retrospective. If you granted qualifying care leave earlier in the window, revisit whether a claim is available before that year of assessment closes.

If you want help checking whether your leave policy and your group structure let you claim cleanly, talk to us before you file.

This article is general information based on P.U. (A) 289/2026 as we understand it at the date of writing. It is not tax advice for any specific taxpayer. Rules, conditions, and verification requirements should be confirmed against the gazetted instrument and current LHDN and TalentCorp guidance before you act.

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