Lecture 7
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Lecture 7
Tax Planning:Concept, Planning and Calculation
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LEGISLATION
• Income Tax Act 1967• Real Property Gains Tax Act 1976• Lembaga Hasil Dalam Negeri (LHDN)• Inland Revenue Board (IRB)
– Corporatised on March 1, 1995
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PERSONAL TAXATION
• Employment• Sole Proprietorship• Partnership
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SCOPE OF CHARGE
• Territorial concept• Income of any person
– Accruing in (right to receive)– Deriving from (who pays you – government
and state government, payment from tax resident, charged as outgoing expenses)
– Received in Malaysia – From outside Malaysia
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DEFINITION OF PERSON
• Individual• Company• Body of persons• Corporation sole• Excluding partnership – only on personal
income
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INCOME RECEIVED IN MALAYSIA FROM OUTSIDE MALAYSIA
• Taxable Income– Resident individual/body of persons/corporation– Resident companies involving 4 specific industries:
banking, insurance, shipping and air transport• Tax Exempted
– Non-resident (under Schedule 6 para. 28)– Resident company - income tax (exemption)– Unit Trusts – Offshore Companies (LOBATA 1990)
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RECENT TAX DEVELOPMENTS
• Historically – Preceding year basis (PYB)– 1/1/98 to 31/12/98 – Year of assessment 1999
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CHANGE OF ASSESSMENT SYSTEM
• Preceding year basis (PYB) to current year basis (CYB)
• Effective date– Year ended 31/12/2000– Financial year in 2000
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BASIS PERIOD
• Current year basis• Calendar year 1/1/2000 to 31/12/2000
– Year of assessment 2000• Financial year 1/7/1999 to 30/6/2000
– Year of assessment 2000
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BASIS YEAR 2000
• Current year basis (CYB)• 1/1/1999 to 31/12/2000
– Year of assessment 2000• 1/1/2000 to 31/12/2000
– Year of assessment 2000
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TAX IMPLICATIONS – SHIFT TO CYB
• Year of assessment 2000– 2 basis periods
• Basis period in 1999– Tax waiver year– Income tax (amendment) Act 1999
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TAX WAIVER YEAR
• Income earned in 1999– No tax payable
• Exceptions– Dividend– Payment subject to withholding tax– Non-citizen/non-resident individuals who
commence or cease employment in 1999
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SELF- ASSESSMENT
• Effective Date– 1 January 2000– Year of assessment (YA) 2001
• YA 2001 - Companies (220,000)• YA 2004 - Business, partnership and
cooperatives (800,000)• YA 2004 – Employment (1,800,000)
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CLASSES OF INCOME – SECTION 4 (RESIDENTS OR NON-RESIDENTS)
a) Businessb) Employmentc) Dividends, interest or discountsd) Rents, royalties or premiume) Pensions, annuities or other periodical
paymentsf) Gains or profit outside of (a) to (e)
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SPECIAL CLASSES OF INCOME – SECTION 4A
• Recipients: Non-residents• Withholding tax – payment/credit• Services
– use of property/rights– Installation/operation of plant + machinery
• Technical advice/services/assistance/management/ administration
• Rent – movable property
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PAYMENTS TO NON-RESIDENT – WITHHOLDING TAX
%Technical Fee 10Royalty 10Interest 15Management Fee 10Contract Payment 15Public Entertainer 15Rental or movable property 10
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INCOME VS CAPITAL
Income - Revenue/capitalRevenue -Taxable
- Tax exemptTax exempt - Schedule 6
- Gazette ordersCapital - Not taxable
- Real property gains tax (RPGT)
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Combined Assessment Separate Assessment
RM HusbandRM
WifeRM
Personal Relief
8,000 8,000 8,000
Wife/Husband relief
3,000 N/A N/A
Alimony Payment
N/A 3,000 N/A
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Combined Assessment Separate Assessment
RM HusbandRM
WifeRM
Child Relief 800 800
EnhancedRelief
3,200 3,200
Alimony Payment
5,000 5,000
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Combined Assessment
Separate Assessment
RM HusbandRM
WifeRM
EPF + Insurance
5,000 5,000 5,000
Medical/Edu. Insurance
3,000 3,000 3,000
EPF AnnuityScheme
1,000 1,000 1,000
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Combined Separate Assessment
RM Husband Wife
Medical exp. - parents - serious diseases - check-upDisabled Person Supporting Equipment
5,000 5,000*
5005,000
5,000#
5,0005,000
5005,000
5,000
5,0005,000
5005,000
5,000
* self, spouse + child# self, spouse, child + parent
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COMPUTATION OF TAX PAYABLE
• Tax Payable = Chargeable Income X Relevant Tax Rate
• Tax Rates– Resident individual/club/trade association/ co-operative society
• Scale rates : 0% to 28 %– Company Trust – 28 %– Non-resident individual – 28 %
(total income = chargeable income)
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TAX COMPUTATION FORMATBusiness X TOTAL INCOME XXEmployment X Less: Personal Reliefs (X)Investment IncomeX Chargeable Income XX Other Sources X TAX PAYABLE XXAggregate Income XX Less: Rebates (X)Less: XXBasis Year Loss (XX)Less: DTA Reliefs (X) Approved Donation/ Sec 110 Set-off (X)Subscription (X) TAX PAYABLE/REPAYABLE XX TOTAL INCOME XX
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Combined Assessment
Separate Assessment
RM HusbandRM
WifeRM
Approved Study
5,000 5,000 5,000
Books + Periodicals
500 500 500
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PERSONAL REBATES
• Set-off against tax payable• Chargeable income < RM35,000• Single (RM350)• Separate Assessment
– Husband (RM350)– Wife (RM350)
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PERSONAL REBATES
• Combined assessment– Husband (RM350)– Wife (RM350)
• Personal Computer– RM400 (every 5 years)
• Employment Levy• Religious Payments
– Zakat/Fitrah
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DERIVATION – SECTION 13(2)
• Exercised in Malaysia• Leave attributable to employment in
Malaysia• Overseas duties incidental to employment
in Malaysia• Director of resident company• Employment aboard ship/aircraft
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TYPES OF EMPLOYMENT INCOME
• Salary, wages, fee, bonus, remuneration, leave pay, commission, gratuity, perquisite, allowance
• Benefits-in-kind• Living accommodation• Non-approved pension scheme/provident
fund• Compensation payment
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GRATUITY
• Tax exempt – ill health– 55 years + 10 years of service
• Taxable– Period of employment – 6 years of assessment– Whichever is shorter
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ASSESSMENT - GRATUITY
• Gratuity – RM60,000• Employment period
– 5 years– RM12,000/ for each YA
• Employment period– 7 years– RM10,000 for each YA
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SHARE OPTIONS
• Not-Taxable– Option not exercised
• Taxable – Option exercised– Option date– Difference between market value and option
market
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BENEFITS-IN-KIND
• Motor vehicle– Private usage - RM1,200 to RM25,000– Fuel – RM600 to RM3,000
• Driver – RM3,600• Accommodation (30% of actual)• Household furnishings
– Barely-furnished, semi-furnished, fully-furnished, service charges, utilities payment etc.
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LIVING ACCOMMODATION• Job requirement
– Tax exempt• Hotel/hostel
– 3% X Sec 13 (1) (a)• Apartment/house
– Lower of • 30% Sec 13(1)(a) or• Actual rental (unfurnished accommodation)
• Mobile phone, gardener, servants, school/tuition fees, club membership, staff loan
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LIVING ACCOMMODATION
• Salary RM100K• Defined value – unfurnished : RM36K/24KAssessability of Benefits• Salary RM100KLower of
• 30% X RM100K or
• RM36K/24K RM30K/24KGross Income RM130K/124K
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TAX EXEMPT - BIK
• Discounted goods and services• Subsidised food and drinks• Free transport• Child care benefits• Medical/dental• Leave passage• Group insurance policy
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APPROVED FUND/SCHEME
• EPF Contributions– 11% (Employee)– 12% (Employer)– Tax deductibility – 19%
• Reduction in Cash Remuneration– Lower tax liability– Cash flow– Time value of money
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RESIDENT STATUS – INDIVIDUAL :SECTION 7
• > 182 days• <182 days but linked to another period of 182
days or more– Temporary absence
• Incidental to employment, conference/study/seminar, ill health, social visits (<14 days)
• 90 days – immediately preceding 3 years• < 90 days
– immediately following year – resident– Immediately preceding 3 years - resident
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SECTION 7(1)(B)
Aug.1999 Aug. 2000
A BPeriod A - < 182 daysPeriod B - > 182 daysPeriod A link to Period BLink - 31 Dec. to 1 Jan. in Malaysia
Period A qualifies as resident
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SECTION 7(1)(B)• April 1999 March
2000
• A B• Period A - > 182 days• Period B - < 182 days• Period A link to Period B• Link - 31 Dec. to 1 Jan. in Malaysia
• Period B qualifies as resident
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SECTION 7(1)(C)
YA1999 150 days1998 92 days1997 RESIDENT1996 15 days1995 138 daysQualifies as resident
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SECTION 7(1)(D)
YA1999 Resident1998 63 days1997 Resident1996 Resident1995 ResidentQualifies as resident
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CAPITAL GAINS
• Real Property Gains Tax (RPGT) Act, 1976
• Effective date – 7/11/1975• Disposal of real property or shares in a
real property company• Replaced Land Speculation Tax Act 1974
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ACQUISITION/DISPOSAL DATE
• Acquisition date = disposal date• Written agreement (S & P)• Completion date
– Asset transferred– Full consideration paid or received
• Conditional contract
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CHARGEABLE GAIN OR ALLOWABLE LOSS
• Disposal Price > Acquisition Price = Chargeable Gain
• Disposal Price < Acquisition Price = Allowable Loss
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TAX RATESC/I/NCo
%NC/NPR
%Year of Disposal (within years)2 30 303 20 304 15 30
5 5 30
6th year and thereafterCompany/Non-citizen/Non-PRMalaysian 0
5