REV 01
PARTNERSHIPS
• A partnership is defined as an association of
any kind between parties who have agreed to
combine any of their rights, property, labor of
kill, for the purpose of carrying on a business
an sharing the profit therefrom (Section 2).
• As partnership is the relationship which
comprises of two or more persons (restricted
to a maximum 20 of person) carrying on
business in common view of profit, the source
is a business income.
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• A basis year is in general the basis period for
the year of assessment.
• The following factors need to be present in a
partnership
For the purpose of carrying on business
Sharing of rights and responsibilities
With a view of profit
Element of risk and reward for each
partner
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•
Important points to consider:
i. There is a contract (agreement) between
the partners to engaged in a business.
ii. The business must be carried on for the
joint benefit of the partners.
iii. The object of the partnership is to make
profit and what is the basis of sharing
profit (or loss).
iv. In achieving the above, property, skill or
labour is contributed by each partner.
v. Whether the partnership is registered.
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ILLUSTRATION
Cave Sdn. Bhd., a timber company entered into
an agreement with Forest Sdn. Bhd., a
furniture manufacturer, to supply furniture to
supermarkets. In this agreement, Cave Sdn.
Bhd., would supply sawn timber to be used by
Forest Sdn. Bhd., for the furniture
manufacturing business. The profits/losses
from the sale of furniture would be shared
equally between the two companies. From this
case, a partnership exists above
circumstantial.
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ILLUSTRATION
Whether a partnership exists under the
circumstance below:
Lydia and Lucas entered into an agreement for
the purpose of jointly tendering for a
construction project worth RM1 million. They
were successful in obtaining the contract.
Under the provisions of the agreement
between Lydia and Lucas, the contract sum of
RM1 million is to be split equally between
them. The scope of work to be carried out by
each party is clearly identified. The agreement
further provides that each of them shall be
responsible for the costs incurred in carrying
out their respective duties.
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ASSESSMENT OF PARTNERSHIP
• As a partnership is not a ‘person’, no
assessment can be raised on the partnership
but each individual partner is assessed on his
share of the partnership income.
• The computation of partnership income is the
same as that of computation for a business
source except that no deductions are allowed
for partners’ wages, interest payable on a
partner’s capital and private expenses charged
to the partnership accounts in arriving at the
provisional adjusted income of the
partnership.
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Net Profit/Loss of
partnership
Tax Disallowable Items
Partners’ Salaries
Partners’ Loan Interest
ADD
Partners’ Private Expenses
Provisional
Adjusted Income
LESS
Divisible Income
Partners’ Salaries
Partners’ Loan Interest
Partners’ Private Expenses
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ADD
Partners’ Salaries
Partners’ Loan Interest
Partners’ Private Expenses
Share of
Divisible Income
Adjusted
Income
Capital
Allowance
Statutory Income
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Assessment of partnership
Step 1:Calculate the partnership adjusted income
and divisible income
NET PROFIT BEFORE TAX AS PER ACCOUNT
Less: Income taxable under separate source
Capital profits
Exempt profits
Revenue expenditure capitalized
Add: non-deductive expenses
Partner's private or domestic expenses
Partner’s salaries’
Partners interest on capital
PROVISIONAL ADJUSTED INCOME
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XXXX
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Assessment of partnership(cont’)
PROVISIONAL ADJUSTED INCOME
XXXX
Less: Partner’s private/domestic expenses
Partners’ salaries
Partners’ interest on capital
DIVISIBEL INCOME
XXX
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Step 2: Allocate the partners’ salaries, interest
on capital and divisible income (loss) among
the partners
Partner
Mr. A
Mr. B
Mr. C
2/5
2/5
1/5
Private expenses*
X
Y
Z
Salary*
X
Y
Z
Interest on capital*
X
Y
Z
Share of divisible profit (loss)**
X
Y
Z
PS Ratio
Adjusted partnership Income (loss)
Less:partner entitlement to capital
allowances
Statutory partnership income
RMXX RMYY RMZZ
(allowances)
RMXX RMYY RMZZ
DDW
3273
Add:income from non-business
source
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Note:*/**
1. Private expenses, salaries and interest on
capital is allocated to the partners on an
actual basis
2. Divisible profit is apportioned among the
partners based on their respective share of
profit or losses or the partnership
3. Capital allowance, balancing allowance
(charge), approved donations and separate
source of income is apportioned on a basis
of share of profit.
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EXAMPLE:
Bonnie and Melanie are partners in a firm and
the net profit for the year to December 2003 is
RM 25,000. The only disallowable item, for
income tax purpose, charged in the account
are depreciation RM 1,700 and donation
RM1,300. The partnership agreement provides
that Bonnie and Melanie are to be paid an
annual salary of RM3,600 and interest on
capital amounting to RM2,000 for Bonnie and
RM 400 for Melanie. The capital allowances
computed in accordance with the prescribed
rate are RM 2,400 and donation made to
approved institutions are RM 1,000. Profit are
shared equally, (try in net loss for RM 25,000).
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• Divisible income is allocated taxable income
to individual partners based on the ratio as
stipulated in partnership agreement.
• If there is a change in the profit sharing ratio
during the basis year, the allocation of
divisible income will be apportioned on a time
basis to the period before and after the
change in the profit sharing ratio. The
amounts allocated to the various periods are
then aggregated to arrive at the adjusted
income for the basis period.
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•
There are three ways of changes in
partnership:1. New partnership exits when:
The old partnership ceased business on the
last day of a 12 month period
New partnership took over the business of
the old partnership, also prepared its
accounts for a 12 months period.
2. Continuing partnership without change of
basis period
There is at least a person who was a
partner in the old partnership and
continues to be a partner in the new
partnership.
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PARTNERSHIPS
The continuing partner is deemed to have
one continuing source of business income
as there is no revision of basis period.
3.Continuing partnership with change of basis
period
Director General of Inland Revenue will
direct the basis period for the existing
partner to avoid transfer of income from
year of assessment where individual
partner is subject to high rate of tax to a
lower rate in the following year
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• New partner admitting into existing partnership
without change of basis period
• Director General will direct the basis period for
the new partner for the first Y/A from the date
of entering into partnership to the next annual
accounting date
• Change of partnership will not affect the claim
of capital allowances.
• Capital claim is attributable to the individual
partners instead of the partnership.
• Since capital allowance is computed at year
end, new partner admitted would enjoy a full
year capital allowance while a retired partner
would not get any capital allowance in the year
of withdrawal.
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• Capital allowance is calculated in respect of:
That person if at the end of the basis
period, the actual business is that of a
person; or
The partners who are partners in the
partnership at the end of the basis period
for the year of assessment in accordance
with the division of their divisible income at
the end of that basis period
• The non-business income from partnership is
computed separately and has to be
apportioned among partners in accordance to
the profit sharing ratio.
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REV 01
INDUSTRIAL BUILDING
ALLOWANCE
• An industrial building allowance (IBA) is
granted to a person who incurs capital
expenditure on the construction of or the
purchase of an industrial building or structure
for use in a qualifying trade.
• Paragraph 63 set out the types of use which
qualify for IB. IB is any building or structure
which is used for any of the following
purpose;
1. For the purpose of a business carried out on
its factory, a factory is define:
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A building consisting of a mill, workshop or
other building for the housing of machinery or
plant used in the manufacture of any product
or the subjection of goods or materials to any
process or the generating of power used for
the purposes of that manufacture or process;
and
A building used incidental to the
manufacturing business
- A workshop used for the repair or servicing of
goods, which is carried out in conjunction
with or incidental to a business of selling
those goods is not considered as a workshop
for the purpose of industrial buildings
allowance.
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ILLUTRATION:
Yamaha Distributor who has a workshop in
which motor repair and servicing are carried
out would not be able to claim industrial
building allowance because such workshop
is not within the ambit of ‘factory’.
– A building (within the same curtilage of the
factory building) used for the storage of any
raw materials, fuel or stores used in the
manufacturing or processing or for the
storage of finished product.
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2.For the purpose of a dock, wharf or jetty or
other similar building. Such building or
structure are those which vessels can ship
or unship merchandise or passenger. It
include:
Walls and floors of the docks, basins and
locks and gates thereof;
Piers, moors, jetties, mooring facilities and
breakwaters, whether fixed or floating.
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Bridges, roads, parking and surface
areas generally, drains, culverts, sluices
etc.
3. For the purpose of a warehouse where
the business consist or mainly consist
of hiring of storage space to the public.
4. For the purpose of business which
consist of an undertaking to supply
water or electricity for the consumption
of the public or which consist to
telecommunication undertaking
providing telecommunication services to
the public.
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5.For the purpose of a business which
consist of the working of farm. The
working of a farm means the cultivation of
any crop, animal farm, agriculture, inland
fishing and any other agriculture or
pastoral pursuit.
6.For the purpose of a trade (mill, workshop)
which consist of the working of a mine.
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CIRCUMSTANCES AS AN INDUSTRIAL BUILDING
1. Building used for staff welfare – canteen, restroom, recreation room, lavatory, bathroom or
washroom.
2. Building for living accommodation of
employees
Farm [para 65(2)]
Construction of employees’ quarters [para
42(1)]
Manufacturing, hotel or tourism project,
approved service project [para 42A(1)]
Child care facilities [para 42A(2)]
3. School/educational institution and technical
training
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4. Licensed private hospital, maternity home
and nursing home [para 37A].
5. Research
Research approved by the Minister within
the meaning of s 34A(1)(a) where:
- Approved by the Minister; or
- Undertaken by person participating in
industrial adjustment programme as
approved under s 31A of the Promotion of
Investment Act 1986.
Research by an approved research
company or institute (s 34B)
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Research by a research and development
company or a contract research and
development company (as defined in s 2 of
Promotion of Investments Act 1986).
6. Storage of goods for export [para 37C]
7. Public road and ancillary structures [para
67A]
8. Building used in approved service project
[para 37E]
9. Building used for hotel [para 37F]
10. Airport [para 37G]
11. Motor racing circuit [para 37H]
12. Old folks care center
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•
•
•
Qualifying building expenditure (QBE) is
capital expenditure incurred on the
construction or purchase of a building which
is used at any time after its construction or
purchase.
The taxpayer would be able to claim IBA on
such qualifying building expenditure
incurred.
QBE includes the following:
Architect’s fees;
The cost of preparing plans, etc. in connection
with obtaining approval from the local
authority for the erection of the building;
The cost of clearing the old site including the
demolition of any existing building;
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The cost of construction which includes
labour, materials, haulage, management
supervision and other overhead charges;
Incidental expenditure on work which may be
separately contracted eg drainage scheme,
installation of water, electricity
The cost of installing fittings e.g. wiring for
electric supply, fans air-conditioning
equipment;
Legal charges, stamp duty etc. connected with
the building.
•
The cost of the land and legal fees relating to
the acquisition of the land would not qualify
for industrial building allowance.
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Example: Safety (Manufacturing) Sdn Bhd carries on the
business of manufacturing safety belts. The company
prepares it accounts to 31.12 annually.
In July 2007, it completed the construction of its won
factory at the following costs:
(RM’000)
Land
580
Legal fees for
- agreement for purchase of land
11
- agreement with the building contractor
10
Consultant’s fees and building plan
80
Stamp duty for purchase of land
9
Construction cost
1,510
Land and factory costs
2,200
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•
•
The QBE of constructed building includes:
Cost of construction of building;
Subsequent capital expenditure on construction,
extension, alterations and renovation;
Initial repairs (which enhance the value) of the
building
75% rule is where the cost of preparing, cutting,
tunneling or leveling land in order to prepare a site for
the installation of the machinery or plant to be used
for purposes of a business and if such expenditure
exceeds 75% of the aggregate cost of that plant or
machinery and the cost of installation, then aggregate
expenditure is treaded as QBE.
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Example:
Wong Wei Sdn Bhd is in the business of
manufacturing toys. On 1.6.2007, the company
bought one machinery which is to be installed
in the factory located at Shah Alam. The cost
for leveling the site for such installation
amounts to RM 260,000.
Cost of machinery
RM 85,000
Cost of leveling the site RM 260,000
RM 345,000
Calculate the allowances, if any, under Sch 3 of
ITA 1967.
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PURCHASED INDUSTRIAL BUILDING
• The qualifying building expenditure for a
purchased IB would depend on whether the
vendor has used the industrial building one
month before the disposal.
Qualifying building expenditure
Purchased building
Purchased price>Residual expenditure of vendor?
Yes
No
RE + BC of vendor
Purchase price
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ILLUSTRATION
A factory was constructed on 1.8.1993 at a
cost of RM1,000,000. The factory was used by
a manufacturer who makes its accounts to
31.12 every year. From the date of completion
to 31.8.1997, its was used as an office
premise. Thereafter, it was used as a factory
and disposed of to another manufacturing
company on 12.12.2002 for RM 680,000. (AA is
2%).
a. Calculate the qualifying building
expenditure for the second company.
b. As in (a) but sale proceeds is RM 980,000.
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•
In the case of purchased building not in use
as IB within one month prior to purchase, the
qualifying building expenditure is either:
The amount of the capital expenditure
incurred on the construction of the
building less the aggregate of all annual
allowances which would have been given
if the building had been in use as an IB; or
The amount of the purchase price of the
building
Whichever is the lower amount.
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REV 01
Example:
A building constructed in 1991 at cost of RM
150,000 but was not used as an industrial
building. The building was sold in 2004 for
RM145,000 to a manufacturing company and
used as an industrial building. The qualifying
expenditure to the purchaser is not RM 145,000
but is RM 108,000 calculated as follows:
RM
Cost
150,000
Notional allowances for Y/As 1992 to 2001 -33,000 [RM150,000 x 2% x 11]
Notional allowances for Y/As 2002 to 2003 -9,000 [RM150,000 x 3% x 2]
108,000
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Example (Cont’)
The qualifying building expenditure is the lower
of:
Residual expenditure, RM 108,000; or
Purchase price of building RM 145,000
Therefore, the qualifying building
expenditure is RM108,000
(N.B. There will be 2 Y/As in 2000)
• If the cost of construction is not known, the
tax authorities in practice will estimate the
building cost in accordance to the best of his
judgment.
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•
In the event a building is purchased for used as an
industrial building from a person who constructed
that building and that building has not been used by
any person for any purpose prior o the purchase,
then:
The purchaser shall be deemed to have
constructed that building and deemed to have
incurred capital expenditure on the construction
of that building
The purchase price shall be deemed to be the
capital expenditure incurred on the construction
of that building
The date of purchase shall be deemed to be the
date of construction of that building
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REV 01
Example:
Miaw Sdn Bhd constructed a child care centre in Taman
Mihaji on 1.2.2007 at a cost RM450,000. Upon
completion, the company changed its intention and sold
the child care centre to Wooh Manufacturing Sdn Bhd
(Who) on 1.11.2007 at RM 570,000. Who uses it as child
care centre for its employees and the company closes
its accounts on 31.12.
Since the building has not been used Miaw Sdn Bhd,
Wooh shall be deemed to have constructed that
building and deemed to have incurred capital
expenditure on the construction. The QBE shall be the
purchase price that is RM570,000 on 1.11.2007.
The capital expenditure and the date of completion of
Miaw Sdn Bhd are disregarded.
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• Part of building used as IB, the whole building
or extension is to be treated as IB if the capital
expenditure on the construction of that part of
the building which is not in use (non-qualifying
part) is less than 10% of the cost of
constructing the whole building.
• If the cost of construction of the non-qualifying
part exceeds 10% of the cost of constructing
the whole building, then IB allowance is given
on that proportion of the building that is in use
(qualifying part) as an IB.
• The computation of annual allowance rate has
been simplified with effect from Y/A 2002. The
rate is 3% of the QBE incurred.
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DISPOSAL OF INDUSTRIAL BUILDING
• An industrial building is disposed on:
The sale, transfer or assignment of the
relevant interest in the building;
Relevant interest depends on the duration
of a concession, the coming to an end of
the concession
Relevant interest is a leasehold interest, the
determination of that relevant interest
otherwise than on the person entitled
thereto acquiring the reversion
The demolition or destruction of the
building
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•
•
•
The building ceased to be used as an IB
Relevant interest is the interest in the building to
which the person who incurred the expenditure was
entitled to when he incurred it.
The disposal value of a building is an amount equal to
its market value at the date of disposal.
Where the building is sold, transferred or assigned,
the disposal value will be:
Its market value at the date of sale, transfer or
assignment; or
The net proceeds of sale, transfer or assignment,
Whichever is the greater.
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BASIS PERIOD AND CHANGE
IN ACCOUNTING DATES
• With effect from 1 January 2000, Malaysia moves into
current year assessment (Y/A).
• The basis year for a Y/A in relation to a source of a
company, trust body or co-operative society, shall
constitute the basis period for that Y/A.
• This applies to all sources of income, irrespective of
business or non-business income.
• The basis year for a business is determined by its
basis periods.
• The basis period of a business must end of the 31/12
every year.
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• If the company, trust or co-operative society REV 01
closes its accounts to a non 31/12 year end, the
financial period of 12 months shall constitute
the basis period for that Y/A.
• In the case of a non 31/12 year-end, certain
profit of the year would be assessed in a later
Y/A.
• For example, companies with April year-end.
Y/A 2006
1.5.2005-30.4.2006
Y/A 2007
1.5.2006-30.4.2007
The period 1.5.2006-31.12.2006 is assessed in:
Y/A 2006
If calendar year-end is chosen
Y/A 2007
If 30.4 year-end is chosen
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•
•
The commencement date and the year-end date are
important for business source because:
Any revenue expense incurred before the date of
commencement is not deductible in arriving at adjusted
income.
Capital allowance on qualifying capital expenditure
would be available beginning from the first basis period
where the commencement date falls
It results in the determination of the first Y/A
Where a person commences to carry on a business on
a day in a basis year and makes its first set of accounts
for a period of 12 months, then that accounting period
forms the basis period for the relevant Y/A.
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•
Commencement of business:Required by law
Where a company commences business and:
Is required by the law of the place of
incorporation to close its accounts on a
specified day; or
Being a company within a group, is required
to close its account on specified day to
coincide with the group year-end,
Then the commencement date and the
specified day shall constitute the basis period
of that company for that Y/A.
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Example:
Lina Ltd. Commences business on 1.7.2007 in
Malaysia and under the law of the country in
which the company was incorporated, it is
required to make up its accounts to 30.9 each
year. Accounts were make up from 1.7.2007 to
30.9.2007 and to the year ending 30.9
thereafter. The basis periods for the first Y/A
in relation to the company’s will be 1.7.200730.9.2007, that is Y/A 2007.
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• Where a company, trust, and co-operative
society commences a new business and is
currently carrying on one or more other
businesses, the new business will be treated
as having the same basis period as the old
business.
• Commencement of business: Not required by
law
Where a person commences business and the
first set of accounts are not made up for a
period of 12 months, there would be an
overlapping period. The calendar year basis
would continue until a full 12 months
accounting period is available.
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Example: Homemade Cake Sdn Bhd commenced
a food catering business on 1.4.2006 and made
up the first set of accounts to 30.6.2006 and
annually to 30 June thereafter.
The adjusted income of the business was as
follows:
1.4.2006-30.6.2006
RM 4,000
1.7.2006-30.6.2007
RM 28,000
The Y/A for income tax purposes would be:
Y/A
2006
1.4.2006-31.12.2006
2007
1.7.2006-30.6.2007
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• Overlapping period
A x B/C where
A is the amount of the adjusted income for the
basis period for the relevant year;
B is the length of the period of the overlap
C is the length of the basis period for the
relevant
year
From the example, the adjusted income for the
2 Y/As would be computed as follows:
Y/A 2006 4000 + 6/12 x 28,000 = RM 18,000
Y/A 2007 28,000 – 14,000
= RM 14,000
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Change in accounting date
• Normal accounting date not ending 31
December
1. Where new accounts are prepared for more
than 12 months
a. New accounts ending in the following year
In situation where the new accounting period
which consist of more than 12 months ending
in the following year of the normal year end,
the new accounting period would then be the
basis period for the Y/A in the failure year.
1/7/2002
normal a/c date
1/7/2001
30/9/2003
15 months
30/6/2002
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30/9/2004
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b. New accounts ending in the third year
1/12/2003
normal a/c date
1/12/2002
28/2/2005
15 months
30/11/2003
1/3/2005
28/2/2006
The Y/A 2003 has its 12 months from 1.12.2002
30.11.2003. As the new accounts (1.12.200328.2005) spread over 3 basis years, such period will
be apportioned equally (round up the month) as
follow:
Y/A 2003 1.12.2003-31.7.2004 (8 months)
2004 1.8.2004 – 28.2.2005 (7 months)
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2. New accounts are prepared for less than 12
months (not ending 31 December)
a. New accounts ending in the following year
In situation where the new set of accounts
ends in the following year of the normal year
end (12 months), the new accounting period
is the basis period for the Y/A in the failure
1/12/2003
31/3/2003
year.
normal a/c date
1/12/2002
4 months
30/11/2003
1/4/2003
31/3/2004
o Since the new accounts 1.12.2002-31.3.2003 is
ending following the normal 12 months in 2002,
the basis period would be accepted for Y/A 2003
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b. New accounts and the last accounts ending
the same year
In situation where the new accounting period
and the last accounts ending in the same year,
such new accounting period would be added
with the following accounting period to be the
basis period for the Y/A in the failure year.
1/12/2003
31/12/2003 (new accounting date)
normal a/c date
1/7/2002
30/6/2003
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The failure year is 2004.
The period 1.7.2003-31.12.2003 would be added
to
the following accounting period
The basis period for the Y/A
2004 1.7.2003-31.12.2004 (18 months)
2005 1.1.2005-31.12.2005 (12 months)
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REV 01
COMPANY TAXATION
• Section 2 of the ITA 1967 defines a company
as being a body corporate inclusive of
persons established with separate and legal
identities.
• Tax computation of a company would then
be constructed based on the audited
accounts and additional schedules provided
by the company.
• Prior to Y/A 2001, the tax authorities would
require the return Form C, tax computation
together with the audited accounts to be
submitted for raising an assessment.
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REV 01
• Companies are placed on self-assessment
from the Y/A 2001.
• Under self-assessment, a company is required
to submit only the tax return (Form C) within 7
months after closing the company’s year end.
• It is a requirement for the company to maintain
and complete the following worksheets for the
IRB inspection during the audit.
1. Computation of statutory income for
a.) business
b.) interest
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REV 01
2.
3.
4.
5.
c.) rents (with details of properties)
d.) dividends
e.) royalties
Current year business loss
Withholding tax payment to non-resident
Section 110 credit on dividend income
received
Information on 5 directors and 5
shareholders who are controlling the
company.
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REV 01
• The format of tax computation is as follows:
Computation of adjusted income for Y/A 20X4
Less
Add
Net profit before taxation
XX
Add: Non allowable expenses
- depreciation
X
- interest expense relates to rental income
X
- entertainment for client (50% allowable)
XX
: Capital asset expensed off to profit and loss account
- renovation
XX
Less: Expenses qualified for double deduction
- double deduction for training
XX
: Revenue expenses capialized
- interest expense
XX
- lease rental
XX
: Non-taxable items credited to profit and loss account
- gains on disposal of long term investment
XX
: Investment income separately assessed
X
XX
Adjusted income
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XX
(XX)
XX
59
REV 01
• The statutory income form a business source
is arrived as follows:
RM
RM
Adjusted income
XX
Add: Balancing charge
XX
XX
Less: Capital allowance
Unabsorbed capital
allowance
Current year capital
allowance
X
Balancing allowance
X
Statutory income
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X
(XX)
XX
60
REV 01
Statutory income-business 1
XX
Add: Statutory income-business 2
XX
Aggregate statutory income
XX
Less: unabsorbed business b/f
(X)
XX
Add: Investment income
Statutory income-dividend
X
Statutory income-interest
X
Statutory income-rental
X
X
XX
Add: Recoveries
Abortive prospecting expenditure
X
Approved agricultural projects
X
Aggregate income
X
XX
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REV 01
Less:
Current year business loss
Prospecting expenditure
Approved agricultural projects
X
X
X
Pre-operational business expenditure
X
Less:
Approved donation - cash
Donation of artifacts/manuscripts
Donation to approved libraries
X
X
X
Donation of painting
X
Total income/chargeable income
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(X)
XX
(X)
XX
62
REV 01
• Non-allowable expenses that are shown in the
profit and loss account are non-deductible.
Such expenses have to be added back.
• Non-allowable expenses can be categorized
into four groups:
1. Expenses that are not incurred
2. Capital expenditure
3. Expenses related to investment income
4. Section 39 prohibited expenses
(further detail refer to ‘Malaysia Taxation’ from
page 401 – 418)
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REV 01
• Revenue expenses would be given a deduction
if it satisfies:
1. the ‘wholly and exclusively’ test under s 33;
and
2. such expense is not prohibited by s 39 of
the Act.
• Business income includes insurance
compensation for loss of trading stock,
compensation from trade creditors for
defective goods, gains on realization of long
term investment such as shares, and
residential properties, motor vehicles.
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REV 01
CONTROLLED SALES
• The purchaser of asset claims initial and annual
allowances on the qualifying capital expenditure
incurred (purchase consideration).
• In order to prevent related party to claiming excessive
capital allowance through non-arm’s length sales, the
Government has laid down special provision in the Act
as well as gazetted rules as an anti avoidance measure
to govern related party on disposal of qualifying asset.
• These are known as ‘controlled transfer’ provisions as
governed in:
Paragraph 38-40, Sch 3 of the Act;
Income Tax (capital allowances and charges) Rules,
1969
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REV 01
CRITERIA OF CONTROLLED TRANSFER
• Controlled transfer provision will apply if all the
following conditions are satisfied:
A person disposes of an asset in which an
initial or annual allowance (in the case of
qualifying plant or building expenditure),
agriculture or forest allowance has been
made, or would have been made. This
disposer must be carrying on a business.
One of the controlled situations stipulated in
para 38(1) exists at the time of disposal
The acquirer uses the asset in a business
and is eligible for capital allowance. Such
asset cannot be part of trading stock for the
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acquirer.
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REV 01
CONTOLLED SITUATION [PARA 38(1), SCH3]
• Disposals of assets are subject to control if
any one of the following circumstances occur
at the time of disposal:
The disposer of the asset is a person over
whom the acquirer of the asset has control;
The acquirer of the asset is a person over
whom the disposer of the asset has control;
Some other person has control over the
disposer and the acquirer of the assets
(common control);
The disposal is effected in consequence of a
scheme of reconstruction or amalgamation of
companies; or
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REV 01
The disposal is effected by way of a
settlement or gift or by devolution of the
property in the asset on death.
• ‘Control’ in relation to a company means: a
person is said to have control in general when
he owns more than 50% share of a company
or exercise significant influence on the
conduct of the company.
• In relation to a partnership, ‘control’ means the
right to a share of more than one-half of the
partnership assets, or to more than one-half of
the divisible profits (distributable income) of
the partnership.
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REV 01
TAX IMPLICATIONS OF CONTROLLED TRANSFER
• When a controlled transfer takes place, the sale
consideration is ignored in the computation of
balancing adjustments.
• The disposal value of the asset at the date of
disposal is deemed to be the residual
expenditure of the asset on the first day of the
disposer’s final period.
Residual expenditure (RE)
xx
Less: disposal value
(deemed equal to RE)
(xx)
Balancing adjustment
Nil
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• A disposal subject to control is deemed to REV 01
have taken place on the first day of the
disposer’s final period (deemed date of
disposal).
• The disposer’s final period is defined as the
basis period for the Y/A, which coincides with
the first Y/A for which the acquirer could claim
capital allowances if the asset was used for
business purposes [para 39(2), Sch 3].
Example: Adam Bhd closes its accounts on
30.9 annually. Eve Sdn Bhd, a company under
common control, makes its accounts to 31.3
annually. Adam sold an asset to Eve on
1.8.2003. The first Y/A in which Eve can claim
capital allowance is Y/A 2004 (1.4.200331.3.2004).
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The basis period of Adam for Y/A 2004 is theREV 01
year ended 30.9.2004. Therefore, the first day
of the disposer’s final period is 1.10.2003. The
actual date of disposal 1.8.2003 is not relevant.
The disposal value of the asset is the residual
expenditure of the asset at 1.10.2003.
• Step of controlled transfer
1. Obtain date of disposal = 1.8.2003
2. Using the date of disposal, relate it to the
first Y/A in which the acquirer (Eve) can
claim capital allowance
1.8.2003
Eve [1.4.2003]
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Y/A 2004
31.3.2004
71
REV 01
3. Using the Y/A 2004 relates to the basis
period of disposer (Adam)
Y/A 2004
1.10.2003
30.9.2004
4. Ascertain the first day of disposer final
period, that is 1 October 2003. (Deemed date
of disposal).
(Note: The actual disposal date 1.8.2003 is not
relevant)
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REV 01
• Under the controlled transfer provisions, the
acquirer will continue claiming AA subject to
the remaining RE transferred into the
business.
• The value of the asset at the date of its
disposal, will be deemed at the RE of the
disposer on the first day of the disposer’s final
period [para 39(1) of Sch 3].
• No balancing adjustments need to be
computed for the disposer.
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73
REV 01
DIVIDENDS AND TAX
IMPUTATION SYSTEM
• Malaysia adopts a full imputation system for
its company taxation. Under this system,
income tax paid by a resident company is fully
integrated with the income tax position of
shareholders.
• This income tax paid by the company will be
imputed as a tax credit to shareholders upon
payment of taxable dividend.
• When shareholders have nil chargeable
income, the tax credit on dividend (which is
currently at 28%) will be a total tax refund to
shareholders.
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REV 01
• Imputation system only applies to resident
companies upon paying taxable dividends
• The tax authorities require resident company to
maintain a ‘Section 108 account’, keeping
records of income tax paid by the resident
company
• The computation of income tax paid of a
company is as follow:
a. Resident company (other than banking,
shipping, air transport company)
Chargeable income
xxx
Income tax payable @ 28%
xx
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REV 01
b. Banking, shipping, air transport company
Chargeable income
xxx
Income tax payable @ 28%
xx
Less: Rebate (Sec. 6B)(applies to bank) (x)
Bilateral relief (Sec. 132)
(x)
Unilateral relief (Sec. 133)
(x)
Net income tax payable
xx
• It should be noted the section 108 account is
a memorandum account and it does not has
the correspondence debit when the income
tax payable is shown at the ‘credit side’ of
section 108 account.
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REV 01
• This ‘credit balance’ is available to frank
dividend to the shareholders of the resident
company upon paying any taxable dividends.
• In the case the resident company pays any
taxable dividend during the calendar year, only
the net dividend (72%) is pay to the
shareholders.
• The tax credit on the dividends (28%) is debit
to section 108 account.
• This mechanism means that the Section 108
balance is utilize to ‘frank dividend’ and the
amount in section 108 account will thus reduce
accordingly
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REV 01
• Prior to YA 2001, the income tax payable is allowed
to credit to section 108 account, available to frank
dividends to shareholders notwithstanding the
fact that such resident company may not paid the
income tax to the tax authorities.
• This results a loss of revenue to the Government.
• Compared Aggregate is a terminology prescribing
the credit balance of section 108 account. It
comprises of
• (i) the balance b/f (if any) from the immediate
preceding year of assessment, and
(ii) the income tax payable or net income tax
payable (in the case of bank, shipping or air
transport company) for the current year.
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REV 01
• At any one time, the maximum net taxable
dividend can be paid out will be determined by:
Compared aggregate x 0.72
0.28
• In the event the company wishes to utilize the
compare aggregate to frank dividend to its
shareholders, the maximum net taxable
dividend can be paid out will be:
78,400
x 0.720
0.28
= RM201,600
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REV 01
• May Tan Sdn. Bhd. has a credit balance of
section 108 account brought forward to year of
assessment 2000 (CYB) amounting RM14,000.
The income tax payable for year of assessment
2000 (CYB) is computed as follow:
RM
Chargeable income
230,000
Income tax payable @ 28%
64,400
The section 108 account will then be updated:
RM
Balance b/f
14,000
+ Income tax payable for Y/A 2000 64,400
Compared Aggregate
78,400
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REV 01
TAX PLANNING ON IMPUTATION SYSTEM
• Tax imputation system allows the amount
stated in the section 108 (old) and section
108 account (new) to be franked out to
shareholders upon dividend paid, credited
or distributed.
• In order to avoid section 108(5) charge
being additional cash paid to the tax
authorities and the possible late payment
penalty, the company should only paid,
credited or distributed the net dividend
(72%) in accordance to the availability
balance of section 108 (old and new
account).
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REV 01
• Maximum net dividend can be paid, credited or
distributed will be
Compared aggregate of section 108:
old and new account
x 0.72
0.28
EXEMPT INCOME
• Malaysian imputation system applies where
resident company pays, credits or distributes
taxable dividend to its shareholders.
• Shareholders will always received the net
dividend but assessed at gross amount.
• Tax credit on dividend will be available as a set
off against the income tax charged on
chargeable income.
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REV 01
• Resident company may has exempt income
account accrued from incentives such as ITEO
48, pioneer status, investment tax allowance,
reinvestment allowance, tax waiver year etc of
which exempt dividends can be paid out.
• Section 108 account does not apply when
exempt dividend is paid.
• The exempt income account is used instead.
Shareholders receiving exempt dividend from
the paying company would be exempted from
income tax.
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REV 01
TWO TIER DIVIDEND
• Every company in Malaysia would credit the
chargeable income (exclude dividend income)
accrued or derived in the basis 1999 (Y/A 2000
on preceding year basis) to an exempt income
amount maintained separately.
• Such exempt income account would be used to
pay exempt dividends.
Dividend (Exempt income account)
[Exempted income account]
First tier
Shareholders (Company 1)
Second tier
Shareholders (Company 2)
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[Further credited into
another exempted
income account]
84
REV 01
SALES TAX
• Sales tax is a form of indirect taxation impose
in Malaysia.
• It is consumers, collected by business
enterprises and accountable to the Royal
Malaysian Customs and Excise Department.
Sales tax (1)
Business
enterprise
Customer
(taxpayer)
Director General
of Customs
Sales tax (2)
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REV 01
• Sales tax would be imposed on:
Manufacturer upon sale, use or disposal of
taxable goods in Malaysia;
Importer of taxable goods
Taxable goods mean goods of a class or kind
not for the time being exempted from Sales
tax.
• Sales tax is imposed on ‘sale’ or ‘import’ stage.
• Generally, a sale takes place when the
ownership or the risk of goods passes from the
manufacturer to the customer.
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REV 01
• Rate of tax
General rate on all taxable goods
10%
Food, fruits and building materials
5%
Liquor and alcoholic drinks
20%
Cigars and cigarettes
25%
• Petroleum products
RM per litre
Motor sprit,leaded or unleaded
0.5862
Diesel
0.1964
Liquefied natural gas
0.0100
Aviation sprit
0.3080
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REV 01
• Section 16 of STA 1972 provides that sales tax
shall be levied on the sales value at the rate in
force at the time at which sales tax is due.
• This applies to general goods manufactured in
Malaysia or goods imported.
• In relation to petroleum products, it would be
on the quantity of goods sold, used or
disposed of, or imported at the rate in force at
the time at which the sales tax is due.
• The computation of sales tax by reference to
the quantity of goods sold, used, disposed or
imported instead of on the value at the rate in
force at the time at which the sales tax is due
is to facilitate in special circumstances where
need arises.
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REV 01
• There are six taxable periods, each make up of
two calendar months, in a calendar year. They
are:
Due date of payment of sales tax
January – February
28 March
March – April
28 May
May – June
28 July
July – August
28 September
September – October
28 November
November – December 28 January of
following year
• The taxable period for petroleum manufactured
in Malaysia is one calendar month.
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In relation to general goods manufactured in REV 01
Malaysia and disposed by sale, or deemed sale
situation, a penalty on late payment will be
imposed on sales tax which remains unpaid
after the 28th day from the expiration of taxable
period:
A penalty of 10% on such unpaid sales tax
shall be payable;
A further 10% will be imposed if the sales
tax due and payable remains unpaid for more
than 30 days after the date of imposition of
the 10% penalty;
An additional penalty of 10% will be imposed
for very succeeding 30 days period or part
thereof until a maximum of 50% is reached
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REV 01
SERVICE TAX
• Service tax is a form of indirect tax levied on
customers who consume food or services in
place such as restaurants, hotels, health
centres, or engaged in professional services
such as legal firms, auditing firms, etc.
• Service tax is collected by these business
enterprises (individual, partnership, or
company) who are accountable to the Royal
Customs and Excise Department.
Taxable service
payment
Business
enterprise
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Director
General
of Customs
91
REV 01
• Service tax is charged based on various
categories of taxable person into groups and
also its corresponding taxable services, liable for
service tax.
Group
A
Hotels
B1 Restaurants located in hotel having>25
rooms
B2 Restaurants located outside hotel>25
rooms
C
Restaurants located outside hotel
D
Night-clubs, dance halls, cabarets,
health centres, massage parlours, public
houses and beer houses
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REV 01
E Private clubs
E1 Golf course and golf driving range other
than those in group A and E
F Private hospital
G Other service providers
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REV 01
• Service tax is only levied and charged when
the taxable service provided by the taxable
person for the year (annual sales turnover)
reaches the threshold.
• The threshold varies between RM150,000RM300,00, depending on the group of taxable
person.
• The ascertainment of this threshold is on a
revolving 12 months basis.
12 months
1.1.2004
31.12.2004
12 months
1.2.2004
31.1.2005
12 months
1.3.2004
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94
REV 01
Example: Natasha sets up a management firm,
providing management services to customers
on 1.1.2007. The threshold is provided in
Group G (item 14) at an annual of RM150,000.
Natasha closes her account on 31.12.2007.
She would have to apply for service tax license
if the accumulated turnover for the 12 months
or part thereof reaches RM150,000.
Assuming that the annual sales turnover for
the 12 months period did not reach RM150,000
as at 31.12.2007. The amount is brought
forward to the year 2008 even though that
starts a new accounting year:1.1.2008 to
31.12.2008.
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REV 01
•
The charge, premium or value on which
service tax is payable shall be ascertained as
follows:
1. Taxable services
In the case of taxable services provided by
taxable person to a non-related party
(independent person):
i. The charge levied or collected
ii. The premium for insurance coverage
2. Taxable service for the sale of goods
In the case of goods sold by a taxable
person:
i. The actual price for which the goods are
sold to non-related party (independent
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person);
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REV 01
ii. Where no charge is levied for the provision of
such goods, the price at which the goods would
have been sold in the ordinary course of business
to a person independent of the taxable person.
This arm’s length concept is also applied in
situation where the goods are sold related party
Service tax shall be charged and levied on taxable
services at the rate of 5% of the price, charge of
premium of the taxable services ascertained in
accordance with the arm’s length basis.
After 28 days from the expiration of a taxable
period (mandatory penalty of 10%). If it remain
unpaid, increased by a further 10% for every
exceeding of 30 days or part thereof, subject to a
maximum of 50%.
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REV 01
REAL PROPERTY GAIN TAX
• Real property gain tax is governed by Real
Property Gains Tax Act 1975.
• The tax is imposed on gains arising from the
disposal of real property in Malaysia.
• Section 2 of the RPGTA 1975 describes the real
property is any land situated in Malaysia and
any interest, option and other right in or over
such land.
• Land includes:
1.) The surface of the earth and all substances
forming that surface.
2.) The earth below the surface and substances
therein
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3.) Buildings on land and anything attached to
land or permanently fastened to anything
attached to land (whether on or below surface)
4.) Standing timber, trees, crops and other
vegetation growing on land.
5.) Land covered by water.
• The basis year and basis period for RPGT
purposes are based on calendar year.
• A chargeable person includes a company, a
partnership, a body of persons and a
corporation sole.
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REV 01
• Real Property Company (RPC) is a concept
affecting the shareholders of the RPC
company.
• This concept was legislated through the
Finance Act 1988 (Act 364/88), inserting para.
34A into sch. 2 of the Real Property Gains Tax
Act 1975 (the RPGT Act), which took effect
from 21 October 1988.
• Once a company has been termed as RPC, the
shares of the company will be known as RPC
shares. Any sale of such RPC shares would be
liable to real property gains tax.
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REV 01
ACQUISITION DATE
• Para 34A(2), sch. 2 of the RPGT Act provides
for the determination of acquisition date of the
RPC shares as follows:
The chargeable asset in this paragraph shall
be deemed to be acquired:
(a) on the date the relevant company becomes
a real property company; or
(b) on the date of acquisition of the chargeable
asset
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REV 01
ACQUISITION PRICE
• The RPGT Act defines the component of
'acquisition price'. It comprises the
consideration paid for the property plus the
incidental costs incurred in acquiring the
property (aggregate sum).
• Incidental costs refer to stamp duty,
advertisement to obtain a seller, legal fees on
transferring the property and interest
expenses (provided the house is acquired from
a property developer on a work-in progress
basis).
• These incidental expenses are incurred 'wholly
and exclusively' in acquiring the said property.
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• If the real property owner receives such as
compensation, insurances recovery or
forfeit of deposit from selling the
properties, the sum received will be
deducted fro the aggregate sum.
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REV 01
The acquisition price computed as follows:
RM
RM
Consideration paid
XX
Add: Incidental costs of acquisition
XX
Less:
Compensation received for any
kind of damage to the real property
XX
Insurance recoveries for any damage
or loss to the real property
XX
Deposit forfeited in connection with
an intended transfer of the real
property
Acquisition price
XX
(XX)
XX
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REV 01
DISPOSAL PRICE
• The RPGT Act also specifically defines the
component of 'disposal price'. It is arrived at
by taking the consideration received from the
sale (this may or may not be monetary
consideration) minus (i) enhancement costs,
(ii) legal fees defending the title of property
and (iii) incidental cost on disposing the real
property.
• Enhancement costs comprise the cost
incurred, which adds value to the investment
of real property. It refers to the construction of
houses or factories on the land or the
renovation cost of the real property.
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• Incidental costs of disposal are expenditure REV 01
incurred 'wholly and exclusively' for the
purpose of selling the property.
• These are valuation fees, advertisement costs
to obtain a buyer, estate agent's commission
and RPGT filling fees.
• Circumstances where disposal price is deemed
at market value:
A bargain not at arm's length or gift
A disposal of real property for a consideration that
cannot be valued
A disposal of real property in connection with loss
of employment or gratuity payment
Transfer of real property for satisfaction of debt
Lump sum disposal of real property and other
assets
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106
REV 01
The disposal price computed as follows:
RM
Consideration
received
RM
XX
Less:
Expenditure incurred for enhancing
or
preserving the value of the
asset
Expenditure incurred for defending
the
title of the asset
Incidental cost of disposal
Disposal price
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XX
XX
XX
(XX)
XX
107
REV 01
Example: Swee Ting Sdn Bhd disposes of a
double storey shophouse in 2003 with the
following particulars:
A double storey shop house. The property was
acquired for RM 100,000 on 1.3.2001. Legal
fees and stamp duty of RM2,450 were incurred
upon purchase. In 2001, the company incurred
legal fees of RM6,350 in defending the title to
the house. In 2002, an intended buyer,
Hamson Wong, who called off the deal,
forfeited a deposit of RM9,000 to the company.
The shop house was sold for RM 178,000 on
7.5.2003. The company incurred real estate
agent fees of RM3,100 in correction with the
sale.
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REV 01
RM
Consideration received (5.7.2003)
(-): Legal fees defending the title
Incidental cost on disposal
Disposal Price
Less: Acquisition price
Consideration paid (1.3.2001)
Add: Incidental cost on acquisition
Legal fees and stamp duty
Less: Recoveries
Deposit forfeited
Chargeable gain
Rate (disposal in the third year)
RPGT payable
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RM
178,000
(6,350)
(3,100)
168,550
100,000
2,450
102,450
(9,000)
(93,450)
75,100
20%
15,020
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SCHEDULE 4 EXEMPTION
• If an individual disposes of real property they
are given preferential tax treatment (i.e. that
individual could further reduce the chargeable
gain by the greater of RM5,000 or 10% of the
chargeable gain (Sch 4 exemption).
• Sch 4 exemption is available to any individual
(Malaysian citizens as well as foreigners) who
dispose of the whole unit of real property. Part
disposals of a real property by an individual
will not be granted Sch 4 exemption.
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TAX ADMINISTRATION
• The disposer is required to submit CKHT 1
return and the acquirer is required to submit
CKHT 2 return to the tax authorities within one
month of the date of disposal or such further
period as he may be allowed on a written
request made by him.
• The acquirer has a duty to withhold from the
consideration money a sum equal to 5% of the
total value of the consideration or the whole of
the consideration that consists of money if it
is less.
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PAYMENT OF TAX
• The tax authorities will issue a notice of
assessment on receiving the CKHT1 even if
an appeal has been made.
• The RPGT payable must be paid within 30
days from the notice of assessment. A 10%
penalty, without further notice, will be
imposed for late payment.
• The tax authorities would issue a certificate of
clearance to both disposer and acquirer upon
payment of tax by the disposer or being
satisfied that no RPGT is payable.
• The acquirer would then release the 5% of the
consideration to the disposer.
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REV 01
TAX ADMINSTRATION FOR
COMPANY IN MALAYSIA
•
The self assessment system for companies
was implemented at the beginning of year of
assessment 2001.
• Under the scheme, companies need to
determine their own tax liabilities.
• There are several stages in the self
assessment system:
1. Estimation of future tax liability and
completion of Form CP204 (by the IRB). It
has been specified that the estimate should
not be less than the previous year’s
assessment.
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•
•
A 10% (without notice) penalty will be
imposed when the variance between the
estimated and actual tax liabilities
exceeds 30% of the actual tax liability.
Forward the Prescribed Form (CP 204) to
the IRB not later than 30 days before the
beginning of the Y/A.
The first installment payment should be
made in the second month of the basis
year. For tax payable of RM600 and
below, a lump sum payment should be
made.
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4. A new company is required to pay its first tax
installment in the 6 month after commencing
operation
5. Any cent amount in the installment should be
added to the final installment made. All
payments of tax must be accompanied with
Remittance Slips (SP 207) sent by the IRB to
the companies.
6. Payment can be made via post or directly to
the respective branch. The installment
payment should be received by the IRB not
later than the 10 day of every month. Late
payment will be subjected to a penalty of 10%
on the accrued amount.
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7. Any charges to the closing date of account
should be communicated to the IRB. The
form has to reach the IRB one month before
the commencement of the new accounting
period.
8. Confirmation on the installment payment
after considering tax adjustment must be
made upon receiving the Revised Instalment
Adjustment Scheme (CP 206) from the IRB.
9. Fill up and submit tax Return form C within
six months after closing date of the
accounts. Failure to submit Form C be
entails a penalty between RM200 and RM2000
or imprisonment for not less than six months
or both.
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10. Settle the difference (between the actual tax
•
•
liability and the aggregate of instalment
payment made) on or before the end of a six
month period from closing date of accounts.
When a taxpayer is dissatisfied with the
deemed notice of assessment or additional
assessment, he or she should write to the tax
authorities to object within 30 days of the date
of deemed notice of assessment [s 99(1)],
stating the reasons for objection.
Taxpayer may also exercise the right of appeal
in relation to:
Advance assessment, additional
assessment & amount refunded
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