Chapter 1 basis period

CHAPTER 1BASIS PERIOD

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Learning Outcomes

• Theory of Company Taxation:– Classical system– Fiscal transparency system– Two tier system– Single tier– Imputation system

• Basis Period Commencement date Changes in Accounting Date

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INTRODUCTION

MIGRATION TO SINGLE TIER TAX SYSTEM:– Imputation system single tier system– Wef. YA 2008– Profits will be taxed at the company level– Dividends received by shareholders would be

exempted – Transitional period: up to 31 December 2013

(6 years)

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1. Single Tier System Profits will be taxed at the company level Dividends received by the shareholders being

exempted from tax Income tax payable on the chargeable income

of a company is a final tax Impact on share value

Reason for migration Simplify tax compliance Removes restrictions on distributions of dividends Lower administration cost for IRB

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Under this system, the tax paid by the company is imputed to the s/holders so that the tax paid by the company is taken as an advance tax payable by the s/holders on their dividends received.

The dividend received by a shareholders is included in the computation of his total income.

2. Imputation System

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3. Classical Theory

In this system, the company is different and separate from s/holder.

The company is taxed on its profit based on specific rate.

S/holder – received profit (dividend) and also will be taxed at another rate.

S/holder will give a rebate for the tax suffered by the company on the same income.

If no rebate given – contribute to double taxation on the same income.

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4. Fiscal Transparency System

The system ignores the legal entity of the company.

Company as intermediate recipient of income on behalf of the s/holder.

The income of the company must be allocated to individual s/holders whether the dividend is declared or not.

Then the tax burden should be on the shareholders.This system is similar to the system of taxation for

partnership business.

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5. Two-Tier System

Under this system, the profits of the company are classified into two types:Distributed profitsUndistributed profits.

It depend on the legal, social, economic and political need of the country – whether it wants to encourage distribution or retention of profits of the company.

The rates of taxes will be different between distributed and undistributed profits.

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BASIS PERIOD (PR7/2001)

Basis period means the period relative to a year of assessment.

Before January 2001 (for buss. inc. of company) – states that the calendar year immediately preceding a year of assessment would constitute the basis year for YA.Basis period is year 1998YA is year 1999

After January 2001 – states that calendar year coinciding with the YA shall constitute the basis year for YA.Basis Period is year 2001YA is year 2001

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Basis Period…cont’

Failure year concept: year in which the business fails to prepare its

account for a financial year/ financial period/ accounting period ending on corresponding day in the relevant YA.

With effect year 2004, the company may have an option to close their financial accounts either on 31 Dec or non-31 Dec.

But for person (other than company, trusts, co-operatives societies) can only close his accounts to 31 Dec for his income sources.

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Commencement date

A. Accounts End on 31 December

B. Accounts End other than 31 December

C. Company with existing operation commencing new operations

D. Requirement under law of place of incorporation

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Commencement of BusinessA. Accounts End on 31 December

When a company commences business and prepares its first accounts are prepared for less or more than 12 mths ending on 31 Dec, the basis period for the YA is the period ending on 31 Dec.

Example 1XYZ Bhd commenced operations on 10 April 12 and

prepared its first account to 31 Dec 12. Therefore the basis period for YA 2012 is similar to accounting period, i.e., 10 April 2012 to 31 Dec 2012.

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Commencement of Business

B. Accounts End other than 31 DecemberWhen company commences operations and its first

accounts are made up for less or more than 12 mths not ending on 31 Dec, therefore the first basis period will end on 31 Dec and thereafter until the accounting period is made of 12 months.

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Example 2

PQR Bhd commenced business on 26/6/10 and ended it first account on 30/9/11 and subsequently on 30/9/12.The basis periods are as follow:

The above example show that the overlapping period is from 01/10/11 – 31/12/11 (3 months)

YEAR ASSESSMENT BASIS PERIOD

YA2010 26/06/10 – 31/12/2010

YA2011 01/01/10 – 31/12/2011

YA2012 01/10/11 – 30/09/2012

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C. Company with existing operation commencing new operationsWhere a company which is already carrying on one

operation commences a new operation, the basis period for the existing operation is also the basis period for the new operation.

Example 3

XYZ Bhd has been in operation for several year and makes up its account ending on 30 Sept each year. The company starts a new operation 1/6/12.

YA 2012 ; Basis period 1/6/2012 – 30/9/2012

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YA 2012 ; Basis period 21/10/2011 – 30/4/2012

D. Requirement under law of place of incorporationWhere a company commences operations and the law

of the place where it is incorporated requires it to close its account on a particular date, the period from the date of commencement to that accounting date is the basis period for the first YA.

Example 4XYZ Bhd commences operation on 21/10/11 and and makes up its account to 30/4/12 as required by the law of the place of its incorporation.

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Change of Accounting Datei. Normal accounts ending on 31 December

ii. Normal accounts not ending on 31 Dec and the new account prepared for period LESS than 12 months

a. New account end in following year

b. The new accounts and last accounts end in the same year.

iii. Normal accounting period does not end on 31 Dec and the new account are prepared for a period of MORE than 12 months.

c. The new account end in the following year

d. The new account end in the third year

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Change of Accounting Date

I. Normal accounts ending on 31 DecemberWhere normal accounts are normally prepared up to

31 Dec each year and there is a change of accounting period to non 31 Dec, the basis period in the year where changes are made shall end on 31 Dec.

The subsequent BP after the year of change also should end at 31 Dec, unless there is 12-mths accounting period ending in that year.

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Example 5Granite Bhd closes its accounts on 31 Dec each year. On 1/1/12 the company decided to change its accounting period to 31/10/12 and subsequently to 31 Oct each year.Answer:The BP before and after the changes will be as follows:

The overlapping period is 2 months (Nov & Dec 2011)

YEAR ASSESSMENT BASIS PERIOD

YA2011 01/01/11 – 31/12/2011

YA2012 01/11/11 – 31/10/2012

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ii. Normal accounts not ending on 31 Dec and the new account prepared for period less than 12 months

a. New account end in following yearIf new accounting period ends in the following

year, it shall be basis period for that YA in the failure year.

No overlapping period.

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Change of Accounting DateExample 6Mesra Sdn Bhd closes its accounts on 30 September each year. In the basis year 2008, the company changed its accounting period to 30 June, 2008. The following are the accounting periods before and after the changes.

1 October, 2006 to 30 September, 2007 1 October, 2007 to 30 June, 2008 1 July, 2008 to 30 June, 2009

Answer:YEAR ASSESSMENT BASIS PERIOD

YA2007 01/10/06 – 30/9/2007

YA2008 01/10/07 – 30/6/2008 (9 months)

YA2009 1/7/2008- 30/6/2009

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b. The new accounts and last accounts end in the same year.

Where the new accounting period and the last accounts end in the same year, the basis period for that year of assessment in the failure year shall be both periods from last accounts and the new accounts.

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Change of Accounting DateExample 7

Cantik Bhd closes its accounts on 31 May each year. In the basis year 2008, the company changed its accounting period to 31 December, 2008. The following are the accounting periods before and after the changes.

1 June, 2007 to 31 May, 20081 June, 2008 to 31 December, 20081 January, 2009 to 31 December, 2009

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Change of Accounting DateExample 7 (Answer)

YA2008; 1/6/2007 – 31/12/2008 (FY = 19 months)

YA2009; 1/1/2009 – 31/12/2009

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iii. Normal accounting period does not end on 31 Dec and the new account are prepared for a period of more than 12 months.

a. The new account end in the following year

If the new accounting period ends in the following year, it shall be the basis period for that year of assessment in the failure year.

No overlapping period

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Change of Accounting Date Example 8

Gemilang Bhd closes its accounts on 31 March each year. In the basis year 2009, the company changes its accounting periods to 30 June, 2009. The following are the accounting periods before and after changes.

1 April, 2007 to 31 March, 2008

1 April, 2008 to 30 June, 2009

1 July, 2009 to 30 June, 2010

The basis periods for the years of assessment are as follows:

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Example 8 (Answer)

YA2008; 1/4/2007 – 31/3/2008 (current)YA2009; 1/4/2008 – 30/6/2009

(FY = 15 months)YA2010; 1/7/2009 – 30/6/2010

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b)The new account end in the third year

Where the new accounting period ends in the third year i.e. span over a period of three basis years, the basis period for that year of assessment in the failure year shall be apportioned into two periods and these periods shall be the basis periods for the first two years of assessment commencing in the failure year.

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Example 9

Paremba Bhd's accounting period ends on 31 May each year. In the basis year 2007, the management of the company changes its accounting period to 31 August, 2008. The following are the accounting periods before and after the changes.

1 June, 2005 to 31 May, 2006

1 June, 2006 to 31 August, 2008 – 27 months

1 September, 2008 to 31 August, 2009

The basis periods for the years of assessment are as follows:

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Example 9 (Answer)

For accounting period 1 June, 2006 to 31 August, 2008 (27 months) is apportioned into 2 period, so that;

YA2006; 1/6/2005 – 31/5/2006 (current)

YA2007; 1/6/2006 – 31/7/2007 (FY - 14 mnths)

YA2008; 1/8/2007 – 31/8/2008 (FY - 13 mnths)

YA2009; 1/9/2008 – 31/8/2009

THANK YOUQ & A

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