Introduction - Part 1
1. Real Property Gains Tax Act, 1976, was introduced effective from 7-11-1975.
2. Effective from 21-10-1988, RPGT Act 1976, impose liability on gains on the disposal of shares in controlled companies holding directly or indirectly real property as a major asset - refers to "Real property Companies".
3. In Budget 2004, the Minister provides exemption to the RPGT on disposal of chargeable assets for a limited period from 1-06-2003 to 31-5-2004.
4. Effective from 1-4-2007, the Minister exempts all persons from the provisions of the RPGT Act 1976 in respect of any disposal of chargeable assets.
5. In Budget 2010, the Minister reinstated the RPGT. Effective from 1-1-2010, all individuals are subject to RPGT gains on disposal of chargeable assets within 5 years period.
Friday, March 12, 2010
Friday, November 6, 2009
Dividend received from foreign source
By Tan Thai Soon
Section 127 (1) - Exemptions from tax
Any income specified in Part 1 of Schedule 6 shall be exempt from tax
Part 1 Schedule 6, para 28 (1)
Income of any person, other than a resident company carrying on the business of banking, insurance or sea or air transport, for the basis year of assessment derived from sources outside Malaysia and received in Malaysia.
Comment:
1. Section 2(1)
Provides that "person" includes a company, a body of persons and a corporation sole.
In other words, its cover individual, company or holding company incorporated in Malaysia, & business enterprise.
2. This section has specifically excludes a resident company carrying on the business of banking, insurance or sea or air transport. In other words, except from the above four type of business, all other types of business can enjoy the tax exemption from dividend received from foreign source.
3. The tax exemption is based on the principle that the income is not derived in Malaysia.
4. The rationale for the exemption is to encourage Malaysian individuals or companies to remit back their income from oversea investment.
Section 127 (1) - Exemptions from tax
Any income specified in Part 1 of Schedule 6 shall be exempt from tax
Part 1 Schedule 6, para 28 (1)
Income of any person, other than a resident company carrying on the business of banking, insurance or sea or air transport, for the basis year of assessment derived from sources outside Malaysia and received in Malaysia.
Comment:
1. Section 2(1)
Provides that "person" includes a company, a body of persons and a corporation sole.
In other words, its cover individual, company or holding company incorporated in Malaysia, & business enterprise.
2. This section has specifically excludes a resident company carrying on the business of banking, insurance or sea or air transport. In other words, except from the above four type of business, all other types of business can enjoy the tax exemption from dividend received from foreign source.
3. The tax exemption is based on the principle that the income is not derived in Malaysia.
4. The rationale for the exemption is to encourage Malaysian individuals or companies to remit back their income from oversea investment.
Thursday, March 19, 2009
Tax Deductions - Section 33 (Part 1)
Tax Deductions from Gross Income - Section 33
By Tan Thai Soon
Section 33 (1)
The adjusted income of a person from a source for the basis period by deducting from the gross income of that person from that source for that period all out goings and expenses wholly and exclusively incurred during that period by that person in the production of gross income from that source, including:-
(a) Interest expense on money borrowed;
(b) Rent;
(c) Repairs and renewals.
Comment:
(1) Allowable expenses must be revenue expenses and not capital in nature. For example, goodwill. fixed asset purchase, purchase of license and franchising fees are capital in nature, therefore not deductible;
(2) Allowable expenses must be wholly and exclusively to derive gross income. It follows that the "motive and object" must be incurred in the production of income in order to meet the deductibility test;
(3) The allowable expenses must "incurred" in the year concerned and "incurred" means expenses paid and payable. Similarly, the liability must be real and not "anticipated losses or contingent liabilities" (Edward Collins & Sons Ltd vs. CIR); and
(4) It must be allowable by common law or a provision in the law. Section 34 provides a special provisions on tax deductions. On the other hand, Section 39 provides special provisions where expenses are not allowed as a deduction against the gross income.
By Tan Thai Soon
Section 33 (1)
The adjusted income of a person from a source for the basis period by deducting from the gross income of that person from that source for that period all out goings and expenses wholly and exclusively incurred during that period by that person in the production of gross income from that source, including:-
(a) Interest expense on money borrowed;
(b) Rent;
(c) Repairs and renewals.
Comment:
(1) Allowable expenses must be revenue expenses and not capital in nature. For example, goodwill. fixed asset purchase, purchase of license and franchising fees are capital in nature, therefore not deductible;
(2) Allowable expenses must be wholly and exclusively to derive gross income. It follows that the "motive and object" must be incurred in the production of income in order to meet the deductibility test;
(3) The allowable expenses must "incurred" in the year concerned and "incurred" means expenses paid and payable. Similarly, the liability must be real and not "anticipated losses or contingent liabilities" (Edward Collins & Sons Ltd vs. CIR); and
(4) It must be allowable by common law or a provision in the law. Section 34 provides a special provisions on tax deductions. On the other hand, Section 39 provides special provisions where expenses are not allowed as a deduction against the gross income.
Thursday, December 25, 2008
IMPUTATION SYSTEM-S108 Credit Balance Account
Deduction of Tax from Dividends
By Tan Thai Soon
Section 108(1)
Where a dividend is paid or credited by a company to its shareholders, the company shall be entitled to deduct tax therefrom at the rate applicable to the company on the chargeable income for the year of assessment.
Comment:
a) The dividend is deemed to be derived from Malaysia:Section 14
b) Company will deduct a tax from the dividends and shareholders would received a net dividends.
c) Company will maintains S 108 credit balance account.
S 108 account increases when company paid corporate tax or has credits (s110) from dividend income. On the other hand, S108 account reduced when there is a tax refunded and/or a dividends has been paid in the basis period.
d) S108 credit balance account is carried forward into the following year
e) Company need to maintains it S108 account by submitting From R to Inland Revenue Department (IRD).
f) With effect from YA2008:i) no additional credit balance to be added to the existing s108 account; ii) company can elect to disregard s108 account balance by filing Form 50 with IRD; or iii) continue to maintain S108 balance (as at 31.12.07) until nil balance or end of the transitional period (as at 31.12.2013).
g) With effect from YA2014: i) all unutilized S108 credit balance will be forfeited; ii) company does not need to maintain S108 account; and iii) all company will move from the existing imputation system to single tier tax system (STS).
By Tan Thai Soon
Section 108(1)
Where a dividend is paid or credited by a company to its shareholders, the company shall be entitled to deduct tax therefrom at the rate applicable to the company on the chargeable income for the year of assessment.
Comment:
a) The dividend is deemed to be derived from Malaysia:Section 14
b) Company will deduct a tax from the dividends and shareholders would received a net dividends.
c) Company will maintains S 108 credit balance account.
S 108 account increases when company paid corporate tax or has credits (s110) from dividend income. On the other hand, S108 account reduced when there is a tax refunded and/or a dividends has been paid in the basis period.
d) S108 credit balance account is carried forward into the following year
e) Company need to maintains it S108 account by submitting From R to Inland Revenue Department (IRD).
f) With effect from YA2008:i) no additional credit balance to be added to the existing s108 account; ii) company can elect to disregard s108 account balance by filing Form 50 with IRD; or iii) continue to maintain S108 balance (as at 31.12.07) until nil balance or end of the transitional period (as at 31.12.2013).
g) With effect from YA2014: i) all unutilized S108 credit balance will be forfeited; ii) company does not need to maintain S108 account; and iii) all company will move from the existing imputation system to single tier tax system (STS).
Thursday, November 27, 2008
Gross Income From An Employment
Gross Income from an Employment
By Tan Thai Soon
The following shall be treated as gross income from an employment.
Section 25 (1)
Where gross income from an employment:-
(a) is not receivable in respect of any particular period; and
(b) first becomes receivable in the relevant period,
it shall when received be treated as gross income of the relevant person for the relevant period.
Comment
The assessability of employment income is on receipt basis, and "received" means legal entitlement of the income or is able to obtain the receipt on demand e.g. Salary. However, any bonus proposed in 2008 but not receive in the same year will not be assessed as gross income in that particular year.
Section 25(2)
Where gross income from an employment is receivable in respect of the whole of the relevant period it shall when received be treated as gross income of the relevant person for the relevant period.
Section 25(3)
Where gross income fails to be treated under subsection (1) and (2) as gross income for the relevant period, then if its receipt first becomes known to the DG on a day more than 5 years after the end of the relevant period, it shall be treated for the year of assessment which begin 5 years before the beginning og the year of assessment which includes that day.
Comment
This section serves as an anti avoidance provision to prevent loss of revenue, if the DG discovers the receipt of employment income is time barred.
By Tan Thai Soon
The following shall be treated as gross income from an employment.
Section 25 (1)
Where gross income from an employment:-
(a) is not receivable in respect of any particular period; and
(b) first becomes receivable in the relevant period,
it shall when received be treated as gross income of the relevant person for the relevant period.
Comment
The assessability of employment income is on receipt basis, and "received" means legal entitlement of the income or is able to obtain the receipt on demand e.g. Salary. However, any bonus proposed in 2008 but not receive in the same year will not be assessed as gross income in that particular year.
Section 25(2)
Where gross income from an employment is receivable in respect of the whole of the relevant period it shall when received be treated as gross income of the relevant person for the relevant period.
Section 25(3)
Where gross income fails to be treated under subsection (1) and (2) as gross income for the relevant period, then if its receipt first becomes known to the DG on a day more than 5 years after the end of the relevant period, it shall be treated for the year of assessment which begin 5 years before the beginning og the year of assessment which includes that day.
Comment
This section serves as an anti avoidance provision to prevent loss of revenue, if the DG discovers the receipt of employment income is time barred.
Saturday, October 25, 2008
Gross Income From A Business
Gross Income from Business
Section 24(1)
Where a debt owing in respect of
a) any stock in trade sold
b) any services rendered
c) the use or enjoyment of any property
the amount of the debt shall be treated as gross income.
Comment
This section use accrual concept is in comparable with the accounting principle.
Section 24(2)
The market value of any stock in trade which has been taken for private purposes without payment or any stock withdrawn from business for gifts or donation other than disposal.
Comment
A furniture trader give a compliment furniture sofa set to his relative for wedding gift. A sum equal to the market value of the furniture set will be added back to gross income for tax purpose.
Section 24(5)
Interest income of an investment dealing business or a money lending business.
Section 30(1)
Recovery of a bad debt which has previously been allowed as a deduction in ascertaining the adjusted income.
Section 30(4)
Waiver of debts by creditors which pertaining to any amount of expenditure previously allowed as a deduction in ascertaining the adjusted income.
Comment
Any purchases from trade creditor will reduce the gross income, therefore any debts written off by the creditor should be added back to increase the gross income for tax purpose.
Section 24(1)
Where a debt owing in respect of
a) any stock in trade sold
b) any services rendered
c) the use or enjoyment of any property
the amount of the debt shall be treated as gross income.
Comment
This section use accrual concept is in comparable with the accounting principle.
Section 24(2)
The market value of any stock in trade which has been taken for private purposes without payment or any stock withdrawn from business for gifts or donation other than disposal.
Comment
A furniture trader give a compliment furniture sofa set to his relative for wedding gift. A sum equal to the market value of the furniture set will be added back to gross income for tax purpose.
Section 24(5)
Interest income of an investment dealing business or a money lending business.
Section 30(1)
Recovery of a bad debt which has previously been allowed as a deduction in ascertaining the adjusted income.
Section 30(4)
Waiver of debts by creditors which pertaining to any amount of expenditure previously allowed as a deduction in ascertaining the adjusted income.
Comment
Any purchases from trade creditor will reduce the gross income, therefore any debts written off by the creditor should be added back to increase the gross income for tax purpose.
Monday, September 8, 2008
Imposition of The Tax
Income Tax Act 1967-Part II
Imposition and General Characteristics of The Tax
Section 3-Scope of Charge
A tax to be known as income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.
Comment
Income must be accrued (i) in Malaysia or (ii) accrued outside Malaysia and receive in Malaysia.
Section 3B-Non-chargeability to tax in respect of offshore business activity
Notwithstanding S3, tax shall not be charged under this Act on income in respect of an offshore business activity carried on by an offshore company.
Section 4-Classes income on which tax is chargeable
Tax is chargeable on income in respect of
a) Business;
b) Employment;
c) Dividends, interest or discounts;
d) Rents, royalties or premiums;
e) Pension, annuities or other periodical payments;
f) Other gains or profits.
Comment
Section 2 define "Business" includes professional, vacation and trade, but excludes employment.
Section 4A-Special classes of income
Income of a person not resident in Malaysia which is derived from Malaysia is chargeable to tax.
Comment
It refer to special payments made to non-residents, to be taxed at sources and within 30 days of such payments being made, under Withholding Tax.
Section 7-Residence Individual
Section 7(1) (a) provides that a person stays in Malaysia for at least 182 days (not necessarily consecutive) in a calendar year, he/she would be a resident.
Section 7(1) (b) provided that any temporary absence from Malaysia shall be taken to form part of such period: (i) connected with his services in Malaysia and owing to service matters or attending conferences or seminars or study aboard; (ii) owing to ill-health involving himself or a member of his immediate family; and (iii) in respect of social visits not exceeding 14 days in the aggregate.
Section 8-Residence companies and bodies of persons
Section 8(1)(a) A Hindu joint family, if its manager or karta is resident for that basis year.
Section 8(1)(b) A company or a body of persons carrying on a business; if any time during the basis year the management and control of its affairs are exercised in Malaysia.
Section 8(1)(c) Any other company or body of persons; if any time during that basis year the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority.
Section 12-Derivation of business income from Malaysian
Section 12(1)(a) Gross income from the business as is not attributable to operations of the business carried on outside Malaysia shall be deeded derived from Malaysia.
Comment
The following activities would be deemed the business to be derived from Malaysia: (i) contract concluded in Malaysia; (ii) stocks maintained in Malaysia from which orders are fulfilled; (iii) ownership and risk passes in Malaysia;(iv) sale proceeds received in Malaysia; (v) services rendered in Malaysia.
Section 13-Employment Income
Section 13(1)(a) Salaries,fees,bonus and allowances.
Section 13(1)(b) Benefits in kind
Section 13(1)(c) Living accommodation
Section 13(1)(d) Refunds from unapproved funds
Section 13(1)(e) Compensation for loss of employment.
Section 14-General provisions as to dividend income
Section 14(1) where a company resident for the basis year of assessment pays, credits or distributes a dividend shall be derived from Malaysia.
Imposition and General Characteristics of The Tax
Section 3-Scope of Charge
A tax to be known as income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.
Comment
Income must be accrued (i) in Malaysia or (ii) accrued outside Malaysia and receive in Malaysia.
Section 3B-Non-chargeability to tax in respect of offshore business activity
Notwithstanding S3, tax shall not be charged under this Act on income in respect of an offshore business activity carried on by an offshore company.
Section 4-Classes income on which tax is chargeable
Tax is chargeable on income in respect of
a) Business;
b) Employment;
c) Dividends, interest or discounts;
d) Rents, royalties or premiums;
e) Pension, annuities or other periodical payments;
f) Other gains or profits.
Comment
Section 2 define "Business" includes professional, vacation and trade, but excludes employment.
Section 4A-Special classes of income
Income of a person not resident in Malaysia which is derived from Malaysia is chargeable to tax.
Comment
It refer to special payments made to non-residents, to be taxed at sources and within 30 days of such payments being made, under Withholding Tax.
Section 7-Residence Individual
Section 7(1) (a) provides that a person stays in Malaysia for at least 182 days (not necessarily consecutive) in a calendar year, he/she would be a resident.
Section 7(1) (b) provided that any temporary absence from Malaysia shall be taken to form part of such period: (i) connected with his services in Malaysia and owing to service matters or attending conferences or seminars or study aboard; (ii) owing to ill-health involving himself or a member of his immediate family; and (iii) in respect of social visits not exceeding 14 days in the aggregate.
Section 8-Residence companies and bodies of persons
Section 8(1)(a) A Hindu joint family, if its manager or karta is resident for that basis year.
Section 8(1)(b) A company or a body of persons carrying on a business; if any time during the basis year the management and control of its affairs are exercised in Malaysia.
Section 8(1)(c) Any other company or body of persons; if any time during that basis year the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority.
Section 12-Derivation of business income from Malaysian
Section 12(1)(a) Gross income from the business as is not attributable to operations of the business carried on outside Malaysia shall be deeded derived from Malaysia.
Comment
The following activities would be deemed the business to be derived from Malaysia: (i) contract concluded in Malaysia; (ii) stocks maintained in Malaysia from which orders are fulfilled; (iii) ownership and risk passes in Malaysia;(iv) sale proceeds received in Malaysia; (v) services rendered in Malaysia.
Section 13-Employment Income
Section 13(1)(a) Salaries,fees,bonus and allowances.
Section 13(1)(b) Benefits in kind
Section 13(1)(c) Living accommodation
Section 13(1)(d) Refunds from unapproved funds
Section 13(1)(e) Compensation for loss of employment.
Section 14-General provisions as to dividend income
Section 14(1) where a company resident for the basis year of assessment pays, credits or distributes a dividend shall be derived from Malaysia.
Subscribe to:
Posts (Atom)