TAXATION Chapter 4 chargeable income - part 1 - sept 2013

Chapter 4:Chargeable Income

Part One

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Learning outcome:

By the end of this topic, you should be able to:1.Explain and determine basis period;2.Understand the derivation of “Chargeable Income” (pendapatan yang dikenakan cukai);3.Understand balancing charge, capital allowance balancing allowance; and deductions4.Understand types of donations

REMEMBER THIS – the formulaRM

1) Gross Income xxAdd:a) Non-allowable expenses (NAE) xxb) Capital asset expensed off to profit & xx

loss accountXX

Less:a) Allowable expenses (AE)/revenue expenses capitalised xxb) Double deduction (DD) xxc) Special deduction (SD) xx (xx)2) Adjusted income XXXAdd:Balancing Charges xx

XXLess: Capital Allowance Unabsorbed

Capital allowance b/f xxCurrent year Capital allowance xxBalancing Allowance xx (xx)

3) Statutory income XX

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- COMPANY

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- PERSONAL

Section 4(b)S13(1)(a), S13(1)(b), S13(1)(c), S13(1)(d), S13(1)(e),Section 4 (c) - 4 (f)

Adjusted Income = Statutory Income

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- PERSONAL

Introduction• Income tax payable computed based on chargeable income.• With ascertained in the basis year for year assessment.• The ascertainment of chargeable income stated in S5 of the

act.

1.0: The legislation• Section 5(1) of the act provides:

- Basis period (tempoh asas)- Gross income (G) (pendapatan kasar)- Adjusted income (A) (pendapatan terselaras)- Statutory income (S) (pendapatan berkanun)- Aggregate income (A) (pendapatan terkumpul)- Total Income (T) / Chargeable income (C) (jumlah pendapatan / pendapatan yang dikenakan cukai)

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2.0 Basis period (tempoh asas)• Self assessment system of taxation in Malaysia – was fully

implemented in YA 2004.• Section 21 : Person (other than company, trust body and co-

operative society): CALENDAR YEAR BASIS: all his sources of income.• CALENDAR YEAR: 1 JANUARY – 31 DECEMBER

Eg 1: 4.1• Adam, sole proprietor (not company) so all his business income,

Trading, Dividend & Rental on calendar year basis (1 Jan – 31 Dec): Personel Income: CALENDAR YEAR

Eg 2: 4.2• Ice Pear Sdn Bhd (company) closes an accounts to 31 Dec every

year.• Company: according to financial period so basis period: 1 Jan – 31

Dec

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Eg 3: 4.3• Ice Pear (company), financial calendar 30 June so year

assessment 2013 for company is according to financial year, 1 July 2012– 30 June 2013 - YA 2013.

“3.0: Gross Income” [pendapatan kasar]• Income which chargeable under S 4(a) – S4(f) of the Act• Each source of income has to be determine separately and

computed individually.

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Example 4.4• S4(a): Gross Income from business sources

includinga) Turnover (sales or services rendered) (hasil dari perniagaan)b) Insurance recoveries (bayaran tuntutan insuran)c) compensation for loss income (pampasan akibat kehilangan pendapatan) - eg: breach contractd) recoveries where such sums were given deduction in prior years (such as specific bad debts written back).

- berjaya kutip semula hutang lapuke) Interest income (applicable to financial institution) - pendapatan drp faedah pinjaman (institusi kewangan)

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Example 4.5

• S4(b): Gross Income from employment sources including

a) Salary, bonus, wages, directors’ fees [S13(1)(a)]b) Benefits provided by employer (provision of cars, furnishings etc) [S13(1)(b)]c) living accommodation provided by employer [S13(1)(c)]d) Withdrawal of contributions from unapproved pension scheme. [S13(1)(d)]e) Compensation for loss of employment [S13(1)(e)]

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“4.0: Adjusted income” [pendapatan boleh selaras]RM

Gross Income (each source is determined separately) XX

Less: Allowable expenses (permissible by S33 and not prohibited by S39) (xx)

(dibenarkan oleh S33 tidak dilarang oleh S39)Adjusted Income XX

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Allowable expenses (S 33)a) Revenue expenditure (Perbelanjaan yang berkaitan bagi

menghasilkan pendapatan)b) Allowable expenses

1) outgoing or expenses2) Wholly and exclusively – look of the purpose of payment for the production of income, must be revenue expenditure not capital expenditure (purchase of asset).

c) Incurredd) In the production of gross income

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The list of prohibited expenses as provided under S39 ( 1): you cannot LESS or DEDUCT (prohibit by S39) so you ADD: Non Allowable Expenses

a) Domestic or private expenses.b) Disbursement or expenses that are of “dual” purposes (both private

and business).c) Capital withdrawn/sum employed as capital.d) Contribution to an unapproved pension and provident scheme.e) Qualifying mining, agriculture, forest, prospecting, and farm

expenditure. f) Interest and royalty expenses where applicable withholding tax are

not deducted and paid.g) Payment for use of license or permit to extract timber from a forest

in Malaysia other than to government or statutory bodies.

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Example 4.6

h) Bonus restriction – deletedi) Contract payment to non resident where applicable

withholding tax are not deducted and paid.j) Special classes of income paid to non-resident where

withholding tax are not deducted and paid.k) Lease rental for motor vehicles in excess of RM50,000 or

RM100,000 (in certain cases) per vehicle, computed on aggregate basis.

l) “A sum equal to 50% of the entertainment expense”m) Leave passage for employees within and outside Malaysia.

Note: also refer to page 436-437 (text book)

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Double deduction & special deduction – REMEMBER THIS

RMGross Income xxAdd:a) Non-allowable expenses (NAE) xxb) Capital asset expensed off to profit & xx

loss accountXX

Less:a) Allowable expenses (AE)/ revenue expenses capitalised xxa) Double deduction (DD) xxb) Special deduction (SD) xx (xx)

Adjusted income XXX

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Double deduction for expenses (penolakan dua kali)

• Malaysian government want biz to incur the types of expenses by providing double tax deduction.

• Double deduction arriving before adjusted income.• Gazetted under Perundangan Umum. (PU Order)• Generally, the pre-requisites for claiming the

double deduction.a) the expenses must be revenue expenditures.b) Such expenses must be eligible for S33 and nor

prohibited under S39.c) The expenses are related to the business activities.

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Eg 4.8

The following are some examples of revenue expenses that are eligible for Double Deduction.

a. Promotion of export; (belanja promosi bagi eksport)b. Approved training; (latihan yang diluluskan)c. Research and Development, cash contribution to

approved research institute; (Kajian dan Pembangunan, tunai yang disumbangkan kpd Institut Kajian yang diluluskan)

d. Advertising expenses on Malaysian brand names (perbelanjaan periklanan atas jenama Malaysia).

e. Freight charges incurred by manufactures to ship goods from Sabah and Sarawak via ports in Peninsular Malaysia.

(Perbelanjaan korgo yang dikenakan oleh pengilang utuk menghantar barang dari Sabah dan Sarawak melalui pelabuhan di semenanjung Malaysia).

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Eg 4.8

The following are some examples of revenue expenses that are eligible for Double Deduction - contd

f. Insurance premium paid for import/export of cargo insured with local insurance companies. (Premium insurance yang dibayar bagi mengimport/mengeksport kargo dengan syarikat insurance tempatan);

g. employment if handicapped staff. (pembayar gaji pekerja kurung upaya)

h. Expenses in obtaining certification for recognised quality systems and standards, and halal certification. (pembelanjaan bagi memperoleh sijil pengiktirafan kualiti sistem dan piawaian, dan sijil halal).

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Special deduction (penolakan istimewa)

S 34(6) of the Act provides certain expenses that are eligible for tax deduction notwithstanding such expenses may be capital in nature or not wholly and exclusively incurred in the production of income.

Special deduction of expenses for YA 2013 includes:a. Mining expenditure; (perbelanjaan perlombongan)b. Replanting expenses; (perbelanjaan penanaman

semula)c. Provision of equipment and renovation of building for

disabled person. (peruntukan perbelanjaan bagi mengubah suai bangunan bagi orang kurang upaya)

d. Translation into or publication of books approved by DBP (penterjemahan dan penerbitan buku yang diluluskan oleh DBP).

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e. Contribution to school, public libraries, college and universities (restricted to RM100,000).(Sumbangan kepada sekolah, perpustakaan awam, kolej, dan universiti, [terhad kepada RM100,000]).

f. Contribution to approved charity or community projects, pertaining to education, health, housing, conservation, or preservation of environment, enhancement of income of poor, infrastructure, information and communication technology approved by minister. (Sumbangan kepada badan amal yang diluluskan atau projek kemasyarakatan berkaitan pembelajaran, kesihatan, perumahan, pemulihan dan pemuliharaan persekitaran, meningkatkan pendapatan warga miskin, infrastruktur, maklumat, dan teknologi komunikasi yang diluluskan oleh kementerian).

g. Expenditure for the provision or maintenance of child care centre. (perbelanjaan bagi peruntukan atau pembaikan pusat jagaan kanak-kanak).

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h. Expenditure for establishing and managing musical and cultural group. (perbelanjaan bagi penubuhan muzikal dan kumpulan kebudayaan).

i. Sponsoring local or foreign arts, cultural or heritage activity approved by the Ministry of Information, Communication and Cultural (restricted to RM500,000) (of which maximum allowed for sponsoring foreign arts, cultural or heritage activities is RM200,000). (menaja kesenian tempatan dan asing atau aktiviti warisan yang diluluskan oleh Kementerian Maklumat, Komunikasi dan Kebudayaan – (terhad kepada RM500,000) Menaja – kesenian luar – RM200,000

j. Scholarship expenses. (perbelanjaan biasiswa)

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k. Expenses incurring obtaining accreditation for a laboratory or as certified by Department of Standards Malaysia.(Perbelanjaan memperoleh akreditasi bagi makmal atau diluluskan oleh Jabatan Piawaian Malaysia).

l. Training expenses for non-employees. (Perbelanjaan latihan bagi bukan pekerja);

m. Participating in international standardization activities approved by the Department of Standards Malaysia. (terlibat dalam piawaian antarabangsa diluluskan oleh Jabatan Piawaian Malaysia)

n. Infrastructure expense for public use in relation to business (w.e.f YA 2008). (Perbelanjaan infrastruktur bagi kegunaan awam yang

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Eg 4.7 – page 44Clear Vision S/B has been in the business of consultancy since 2001. For the year ended 31.12.2013, its profit and loss account is as follows:

RM’000 RM’000Service Fees 3,000Less: operating expenses

payroll cost 1,800Director’s remuneration 200Freight and insurance 165Utilities 65Depreciation 100Entertainment of clients (related wholly to sales) 40

(2,370)Profit Before Taxation (Gross income) 630

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Note:Freight and insuranceInclude in F&I is an amount RM5,000 paid to

Guarantee Safe Insurance Bhd, a co. incorporated in M’sia for insuring books imported from UK. The tax authorities confirmed that this amount is eligible for DD.

Required:Compute the adjusted income for the company for

the YA 2013.

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Clear Vision Sdn BhdComputation of Adjusted income for YA 2013

RM’000RM’000

PBT (Gross Income) 630Add: Non – allowable expenses

Depreciation (pg 425) 100Entertainment for clients -(deductible as relateswholly to sales) 100

730Less: Double Deduction

Freight & Insurance (5)

Adjusted income 725

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RMGross Income (NPBT) xxADD:a) Non-allowable expenses (NAE) XX

- expenses that are not incurred- capital expenditure- expenses related to investment income- section 39 prohibited expenses * NON ALLOWABLE ENTERTAINMENT ALLOWANCES*

- PAGES 270 till 271a) 50% entertainment to suppliers & bankers = ADD

[so 50% is deductible -> so the amount already deduct before NPBT (gross income)]b) 50% of staff entertainment which client also

involve.

b) Capital asset expensed off to profit & loss account

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List of Entertainment that u have to show in ADD section but don’t have to show figure, show (-)

1) Entertainment provided to employees2) Entertainment business 3) Promotional gifts at foreign trade fairs4) Promotional samples5) Cultural or sporting events6) Entertainment relates to wholly to sales

[Further discuss in Taxation 2: Chapter 14 – Business Expenses]

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Non – allowable expenses (NAE) (ADD back): pages 425-426

• Depreciation: In accounting depreciation considered as an expenses, but tax don’t consider it since no actual money spending. SO ADD BACK.

• NAE are not tax deductible – need to ADD BACK.

• NAE can be categorised into 4 groups:(A) Expenses that are not incurred; (Perbelanjaan yg TIDAK berlaku – most provision)

1) general provision for bad and doubtful debts;2) provision for gratuity/retirement benefits;3) provision for warranty cost, stock obsolescene;4) depreciation;5) amortisation for renovation of premises, lease amortisation;6) unrealised exchange loss in relation to acquisition of raw materials7) provision for repair and maintenance8) preliminary expenses written off

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(B) Capital Expenditure; (Perbelanjaan Modal) 1) cost of printing and distribution of annual reports;

2) stamp duty and secretarial fees for increased shared capital;3) stock listing expenses;4) pre-commencement business expenses;5) entrance fees to club;6) legal and profesional fees relating to violation of laws, capital structure of company; acquisition of loan or assets;7) donations (approved or unapproved)8) lump sum payment for early termination of lease;9) loan written off in relation to that of employees’ or suppliers’:10) fine imposed for violation;11) penalty on withholding tax;12) foreign exchange gain/loss an acquisition of plant and machinery, repayment of foreign loan.13) registration of trademark.14) fees of designing company logo;15) compensation to competitor to restrict competition (restrictive covenant)16) loss on disposal on long term investments.

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(C) Expenses related to investment income 1) The act requires adjusted income of each source of income to be computed separately;

2) Therefore, any expenses relating to investment income is NOT DEDUCTIBLE AGAINST business income;

3) It has to ADD BACK.4) These expenses will be set off against individual investment source of income.

(D) Section 39 prohibited expenses1) Domestic or private expenses (dual purpose)2) Expenses that are not wholly and exclusively laid out or expended for the purpose of producing gross income, for e.g: excessive remuneration paid to family members; 3) Capital employed or money withdrawn as capital;4) Contribution to unapproved pension / provident / saving scheme;5) Withholding tax and penalty on late payment on withholding tax imposed on interest, royalty, contract payment, S4A payment, S4(f) payment, (to non-resident) not paid to the tax authorities.6) Leave passage (other than yearly leave passage provided to employees)

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(D) Section 39 prohibited expenses7) License or permit fees to extract timber to persons other than State Government statutory authority or body approved by minister;8) Lease rental exceeding RM50,000 (or RM100,000 in special circumstances) in aggregate on passenger vehicle;9) Entertainment to non-employees (including reimbursement to staff in relation to entertainment to client or entertainment allowance to employees) is given 50% deduction. However, entertainment

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Capital asset expensed off to profit and loss account• Capital asset are not deductible for tax purpose.• This capital expenditure expensed off [already deducted before

arrive gross income (NPBT)].• It means all expenses below need to ADD BACK:

a) renovation of factory, office premises;b) improvements for repairs;c) small value capital items e.g: chairs & calculatorsd) installation cost of machines charges in repair &maintenance account;e) cost of stand used in advertising;f) deposits paid for telephone or utilities;g) replacement of electrical alarm system.

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Adjusted losses• Allowable Expenses (AE) exceed (>) Gross Income (GI)

= deficit but you must put NILEg: RMGross Income “business source” 500less:allowable expenses (1,000)Adjusted loss -> supposed (RM500) Nil

(but you must put)

• This deficit known as “adjusted loss” (kerugian terselaras)• The acts permits only adjusted losses from business source to be

SET OFF against “aggregate income”.(akta hanya benarkan kerugian terselaras dari sumber perniagaan ditolak daripada pendapatan terkumpul )

• For non-business income – adjusted losses would be permanent loss.

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Adjusted losses – page 73

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Section 4 (a)BUSINESS IIGross Income

Wholly andExclusively expenses

less

SayAdjusted loss

Aggregate Income

Adjusted loss fromBusiness in basisperiod – SS 44(2)

Less: Unabsorbed loss c/f to next YA

Adjusted losses• Where the adjusted business loss cannot be fully utilised in the current

basis year at the ‘aggregate income’ level, the balance (known as unabsorbed business loss), can be carried forward to the next YA to be off set against the aggregate ‘statutory income’ from business source only. (Bila kerugian perniagaan terselaras tidak boleh dicover oleh ‘PENDAPATAN TERKUMPUL’ pada tahun semasa, (kerugian tersebut dipanggil = kerugian perniagaan yang tidak boleh diserap), boleh dibawa ke tahun hadapan dan boleh ditolak dari jumlah ‘pendapatan berkanun terkumpul’ dari sumber perniagaan sahaja.

• The business source (s) NO NEED to be the same that incurred loss.(Sumber perniagaan TIDAK PERLU dari jenis perniagaan yang sama).

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Section 4 (a)BUSINESS II

Gross Income


less

SayAdjusted loss

Aggregate Income


Less:

Unabsorbed loss c/f to next YA


Gross Income


less

SayAdjusted loss

Statutory Income

2012 2013

Aggregate Statutory Income

Less: Business losses b/f – S43 (2)

Unabsorbed business loss (UBL)(kerugian yang tidak boleh diserap)

• Can be carried forward indefinitely notwithstanding that business sources that incurred losses may ceased it business operation permanently.(boleh dibawa ke masa hadapan sehingga habis dicover atau sehingga perniagaan berhenti beroperasi)

• In practice, taxpayer would maintain UBL where unutilised losses would be aggregated without differentiate the original nature of business.(Dlm realiti pekerjaan, syarikat (pembayar cukai) akan mengekalkan UBL dengan mengabungkan semua tanpa mengira jenis kerugian perniagaan (example 4.10)

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Example 4.9

• Toy manufacturing Sdn Bhd manufactures “Kitty Cat” toys since 1.2.2013.

• Statutory Income from manufacturing for year ended 31.12.2013 amount RM680,000.

• Unabsorbed biz losses (previous year; 2012) from book trading previously RM240,000.

Taxable amount YA 2013Aggregate Statutory Income RM680,000[YA 2013]

manufacturingSet off - Unabsorbed biz losses c/f RM240,000 [from last year; 2012]

book tradingNew Aggregate Income taxable RM440,000 [YA 2013]

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Example 4.10

• Mariemie S/B is a trading co. importing instant noodles from Korea for sale in Malaysia,

• Besides trading, the co. also manufactures shoes.• In YA 2013, the co. had unabsorbed biz loss (UBL) to be c/f to

YA 2013 as follows.RM

i) UBL – Trading 20,000ii) UBL – Manufacturing 60,000Total UBL c/f 80,000

• There are “NO” requirement to differentiate between trading and manufacturing so RM80,000 c/f to future as UBL.

• Tak perlu asingkan kerugian perniagaan boleh serap antara trading dan manufacturing; campur semua.

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Example 4.10 - AnswerRM

Statutory Income – Biz 1 xxx (a)Statutory Income – Biz 2 xxx (b)Statutory Income – Biz 3 xxx (c)Aggregate Statutory Income XXX Less: Unabsorbed Bis Loss b/f (80,000)New Aggregate Income – Taxable xxx

Less: Adjusted loss from business in basis period (current year)

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Statutory Income (pendapatan berkanun)• For employment income

adjusted income = statutory income, because no CAPITAL ALLOWANCE.

• Statutory income of biz source is computed:RM

Adjusted Income xxAdd: balancing charge xx

xxLess: Capital Allowances (3 components)

- Unabsorbed capital allowance b/f xx- Current year capital allowance xx- Balancing allowance xx (xx)

Statutory Income XXX

Note: Balancing Allowance (Less)

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Aggregate Income – Mathematical FormulaRM

Statutory IncomeBiz 1 - trading xBiz 2 - manufacturing x_

xxStatutory incomeDividends xInterest xRental x x

Aggregrate Statutory Income xxLess: unabsorbed biz loss b/f (x)

xxAdd: recoveries of:

Abortive prospecting expenditure * xAggregate income xx

Less: Adjusted loss from business in XXbasis period (current year)

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“Statutory Income” [pendapatan berkanun]

• Balancing adjustment and capital allowances apply to business sources only.

• Where a person incurs qualifying expenditures (plant, machinery or industrial building) in relation to a business, he is given allowance (initial and annual allowance). (bila berlaku belian mesin, barulah layak dapat elaun)

• Capital allowances can be claim every year until it is equivalent to the amount to qualifying capital expenditure incurred. (replacing depreciation)(elaun modal boleh ditolak setiap tahun, sehingga sama dengan nilai perbelanjaan modal yang layak (QPE)

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Capital Allowance• Capital allowance provide a consistent tax relief of capital

expenditure among taxpayers.• It is to replace “depreciation” which is not a tax deductible

expense.

Mathematical FormulaRM

Qualifying Capital Expenditure (Q) xxYear 1 – Initial allowance (20% x Q) xx

Annual allowance (a x Q) xx (xx)Residual expenditure (tax written down value) XX

Year 2 – Annual allowance ( a x Q) (xx)Residual expenditure (tax written down value) XX

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Capital Allowance• There can be more than one business income within a company,

partnership or sole proprietor claiming capital allowances.(dalam kebanyakan syarikat mempunyai lebih dari satu pendapatan perniagaan)

• However, the set off capital allowance is restricted to the same business source.(menolak elaun modal TERHAD kepada jenis perniagaan YANG SAMA)

• Capital allowance computed for manufacturing business can only set off again manufacturing business. (Elaun modal bagi perniagaan pengilangan hanya boleh perniagaan pengilangan).

• Any unabsorbed capital allowances can be carried forward to future years set off against the adjusted income only with the same business sources. (sebarang elaun modal yang tidak diserap boleh dibawa ke masa hadapan ditolak dengan pendapatan pelarasan HANYA dari sumber perniagaan yang sama)

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Distinction between Unabsorbed Capital Allowance and Unabsorbed Business Loss

• There can be more than one business income within a company, partnership or sole proprietor claiming capital allowances.(Dalam sesuatu perniagaan, semestinya ada lebih dari pendapatan perniagaan yang menuntut elaun modal)

• However, the set off capital allowance is restricted to the same business source. (Walau bagi menolak elaun modal mesti terhad hanya kepada sumber perniagaan).

• Capital allowance computed for manufacturing business can only set off again manufacturing business.(Elaun modal yang dikira dari perniagaan perkilangan hanya boleh ditolak dengan perniagaan perkilangan)

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• Any unabsorbed capital allowances can be carried forward to future years set off against the adjusted income only with the same business sources.(sebarang elaun modal yang tidak boleh diserap habis pada tahun semasa akan dibawa kemasa hadapan dan boleh ditolak hanya dengan pendapatan perniagaan).

• Unabsorbed Capital Allowance (UCA) will be “NIL” when the biz source ceased permanently.(Elaun modal yang tidak diserap adak direkodkan sebagai NIL bila syarikat berhenti beroperasi).

• Unabsorbed Business Losses (UBL)) much flexible no restriction.(Kerugian yang tidak boleh diserap dari perniagaan adalah lebih flexible berbanding UCA)

• UBL will c/f until it fully set off against any statutory income of any business. (Kerugian yang dibawa kemasa hadapan ditolak daripada pendapatan berkanun dari sebarang sumber perniagaan).

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Initial allowance (Elaun Permulaan)• Initial allowance – 1 time only at the time qualifying expenditure is

incurred. (Hanya sekali)• Initial allowance could be 10%, 20% and 40% - Schedule 3 of the

Actor gazette order.

Annual allowance (Elaun Tahunan)• Straight line basis by applying prescribed rate on the qualifying

plant expenditure until it is completely claimed with in a fixed time frame. (Kadar yang ditentukan adalah garis lurus)

• Initial and annual allowance are computed when the assets in acquired and in use in the business. (Elaun permulaan dan tahunan dikira bila aset dibeli dan digunakan dalam perniagaan)

• In the year of the asset is not use, NOTIONAL allowance is computed.(pada tahun aset tidak digunakan, elaun angaran adalah dikira).

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Example 4.11• Jenny Ai manufactures toys and trades in shoes.• In YA 2013, the information as below.

Adjusted income Capital AllowancesRM RM

Business 1 – Manufacturing 10,000 12,000Business 2 – Trading 7,000 5,000Statutory incomeWould thus be:

RMSection 4(a)ManufacturingAdjusted income 10,000Less: Capital allowance (restricted to) (10,000) **RM2,000Statutory Income (A) NIL __

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Trading RM

Adjusted income 7,000Less: capital allowance (5,000)Statutory Income (B) 2,000

Aggregate statutory income [(A) + (B)] 2,000 [nil + RM2,000]

**The unutilized capital allowances of RM2,000 would be carried forward to future YAS to be set off against manufacturing business sources.

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Example 4.12 –study this• An ammonia and sulphur plant was bought by

Kim Win Chemicals Bhd in 2008 for RM10 million. • The accounts close on 31.12 each.• The initial and annual allowances are 20% and

14% respectively.

Note: IA and AA normally given in the question

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The claim of capital allowances is as follows: RM (million)

RM(million)Qualifying expenditure 10.0YA2008 Initial allowance (20%) 2.0

Annual allowance (14%) 1.4 (3.4)

Tax written down value (Residual expenditure) 6.6

2009 Annual Allowance (14%) 1.42010 Annual Allowance (14%) 1.42011 Annual Allowance (14%) 1.42012 Annual Allowance (14%) 1.42013 Annual Allowance (14%) 1.0 6.6 **(restricted to)Tax written down (Residual expenditure) nil2013 – Just take the balance – not RM1.4

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Balancing Charge (ADD) - UNTUNG• When a qualifying asset in relation to a business is disposed

of, balancing adjustment will arise. (bila aset perniagaan dijual akan berlaku penyelarasan baki)

• Where the sales proceeds exceed the residual expenditure, the excess balancing charges is taxable. (Bila jualan melebihi baki perbelanjaan (nilai aset semasa) akan dapat balancing charge, dan balancing charge adalah dikenakan CUKAI)Eg: Sales – Residual Expenditure (NBV)

RM5 million – RM3.5 million = RM1.5 million (taxable)• This excess will add back to adjusted income.

(Lebihan ini akan ditambah semula pada pendapatan pelarasan)

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• Balancing charge restricted up to the actual capital allowance previously claimed (accumulated annual allowance + initial allowance)(Balancing charge TERHAD kepada maximum elaun tahunan terkumpul + elaun permulaan)

• Balancing charges = make profit when sale asset (untung jadi tambah pendapatan terselaras)(Eg: ADD the RM1.5 million]

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Balancing Allowance (BA) – [LESS] (Rugi)• BA = Sales proceeds less than residual expenditure.

(BA berlaku bila jualan lebih rendah dari baki perbelanjaan [nilai aset semasa])

• BA is set off against adjusted income of the same business source. (BA akan ditolak dari pelarasan pendapatan dari sumber perniagaan yang sama)

• loss from selling asset (Rugi bila jual aset)• The disposal is NOT among related parties (controlled

transfer)note: BC = Profit = ADD [Adjusted income + BC]

effect: incurred additional tax BA = loss = DEDUCT [Adjusted income – BA] effect: pay less tax

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Example 4.13

• Samuel Ho commenced business on 1.5.2001 and closes its account to 31.12 each year.

• On 1.6.2007, he ordered a machine costing RM20,000

• But the delivery was made on 1.2.2008.• He began to use the machine from 1.2.2008.• During the years ending 2009, the machine was

not maintained for use.• The machine was brought back into use in 2010

and sold on 14.2.2013 for RM18,600.• The initial allowance rate is 20%• The annual allowance rate is 14%

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Example 4.13 - Answer

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[6,800+8,400 =15,200]

13,200

Balancing Charge - Don’t take thisWhen has notional annual allowance &Normally with ever is LOWER?

YA 2008 (1.1.2008 – 31.12.2008

Residual expenditure 1.1.2009



YA 2010 - 2012

YA 2013 – Sales proceed

YA 2009 – Notional annual allowance

balance Charge “cause taxpayerPay more so take the lower”

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BALANCING CHARGE

Example 4.13Explain this • The balancing charge restricted to RM15,200.• Being actual allowance (initial + accumulated)• Notional allowance not included as tax payer did not claim

such allowance.

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Example 4.13

• Samuel Ho commenced business on 1.5.2000 and closes its account to 31.12 each year.

• On 1.6.2007, he ordered a machine costing RM20,000

• But the delivery was made on 1.2.2008.• He began to use the machine from 1.2.2008.• During the years ending 2009, the machine was

not maintained for use.• The machine was brought back into use in 2010

and sold on 14.2.2013 for RM1,400.• The initial allowance rate is 20%• The annual allowance rate is 14%

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MT

Example 4.14 - Answer

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Balancing Allowance - take thisRM600

YA 2008 (1.1.2008 – 31.12.2008

Residual expenditure 1.1.2009YA 2008 – Notional annual allowance

Residual expenditure 1.1.2009YA 2009 - 2011

Residual expenditure 1.1.2012YA 2012 – Sales proceed

13,200

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BALANCING ALLOWANCE

What is the financial implication of Balancing Charges and Balancing Allowance to the amount of company tax?

Think:Balancing Charges = ADD (more tax company paid)Balancing Allowance = DEDUCT (less tax)

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Summary

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18,600 > 2,000

18,600 -2,000 = 16,60015,20015,200

Balancing charge

1,400 < 2,000

1,400 - 2,000600

Balancing allowance

Computation of statutory income where is an adjusted losses(Pengiraan pendapatan berkanun bila berlaku penyelarasan kerugian)

• Balancing allowance and balancing charge do not increase an adjusted loss. (BA and BC tidak meningkatkan penyelarasan kerugian)

• When adjusted loss existed, such loss would be set off against AGGREGATE INCOME in the same year in arriving total income.(Bila berlaku kerugian = adjusted income (negative), ia akan ditolak selepas pendapatan berkanun)

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Section 4 (a)BUSINESS I

Gross Income


less

SayAdjusted income

Aggregate Income


Less:

Unabsorbed loss c/f to next YA ---2014


Gross Income


less

SayAdjusted loss

Statutory Income

2013 2013


Adjusted income = NIL

Balancing chargeLess: capital allowance

Balancing ChargeLess: capital

allowance

Statutory Income

Aggregate Income – Mathematical FormulaRM

Statutory IncomeBiz 1 - trading xBiz 2 - manufacturing x_

xxLess: unabsorbed biz loss b/f (x)(thn lepas punya kerugian)Statutory income XXDividends x Interest xRental x xAggregate Statutory Income xx

Add: recoveries of: Abortive prospecting expenditure * x

Aggregate income xx

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Total Income – Mathematical FormulaRM

Aggregate Income XXXLess: Current Year business loss (x) (thn semasa punya kerugiaan)

Prospecting operation Sch 4 (x)Pre-operational business exp Sch 4B (x)

xxApproved donations (x) Excess

cannotc/f

Total income XX

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Excess c/f to next YA

Aggregate Income (S3)• Summation of statutory income from non-biz and biz.

[Penambahan (jumlah) pendapatan berkanun dari sumber perniagaan dan bukan perniagaan)

• The statutory income of business less the unabsorbed biz loss brought forward.(Pendapatan berkanun TOLAK daripada kerugian perniagaan yang dibawa dari tahun lepas)

• It also include recoveries abortive prospecting expenditure. Which has been allowed as deduction in the previous year.(termasuk juga ditambah pengutipan semula abortive prospecting expenditure)

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Gross Income


less

SayAdjusted loss

Aggregate Income


Less:

Unabsorbed loss c/f to next YA


Gross Income


less

SayAdjusted loss

Statutory Income

2012 2013


Less: Business losses b/f – S43 (2)

Dividend Income - Company• YA 2008, dividend income received by company would be

deemed as total income.(Bermula YA 2008, pendapatan dividend bagi syarikat dikira sebagai total income)

• Thus, it would not form part of aggregate income (bukan dicampur untuk menjadikan pendapatan berkanun).

• Not available to deduct current year business loss and approved donation (tidak boleh tolak kerugian tahun semasa dan sumbangan yang diluluskan)

Dividend Income – individual / other that company• Remain to add before arrive aggregate income

(Kekal ditambah sebelum sampai pendapatan terkumpul).

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Eg 4.15• Tanin is a sole proprietor who specialised in manufacturing

“Runner” brand shoes.• For the year ended 30.6.2013, the business recorded the following

information.RM

Adjusted loss – shoes manufacturing 12,000Balancing charge NILCapital allowances 4,000

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Eg 4.15 - ANSWERRM

Adjusted loss – shoes manufacturing NIL(why NIL because loss RM12,000** this will set of against aggregate

income before arrive total income)(+ ) Balancing charge NIL

-(-) Capital allowances 4,000 So capital allowance c/f to next year to be set off against income from business sources, in this case manufacturingStatutory income shoes manufacturing NILLet say:Statutory income from trading 15,000Aggregate income 15,000(-) Current year business loss 12,000Total income 3,000

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Computation of statutory income where there is an adjusted loss, balancing charge and capital allowance(Pengiraan pendapatan berkanun bila pelarasan pendapatan KOSONG, kesan terhadap BC and CA)

• Adjusted loss exist = Adjusted income will be NIL(Bila berlaku adjusted loss = adjusted income akan jadi KOSONG atau tulis NIL)

• Adjusted loss is used to set of again aggregate income before arriving total income.(Adjusted loss digunakan untuk tolak pendapatan terkumpul, pengiraan yang terlibat sebelum mendapat jumlah pendapatan)

• If Balancing Charge exist, the Balancing Charge will be first set off against Capital Allowance before arrive statutory income.[Bila BC wujud, BC yang perlu diselesaikan dulu (tambah) dan diikuti oleh statutory CA (tolak)]

• See e.g 4.16

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Eg 4.16 2013 RMAdjusted loss 8,000Balancing charge 6,000Capital allowances 10,000

The computation of Statutory Income would be:RM

Adjusted income (Adjusted loss) NILAdd: Balancing charge 6,000

6,000Less: Capital allowances (restricted)(4,000)* 6,000Statutory Income NIL

* Can not take RM10,000 limit to Balancing charge amount1) Unabsorbed Capital Allowance c/f is RM4,000 to future (2014), to

less Capital Allowance b/f from 20132) RM8,000: Adjusted loss against Aggregate Income before arrive the

total income.

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Non-business source• Taxpayer with non-business income such as dividend

income, interest income or rental income NO capital allowance is available.(Pendapatan bukan perniagaan tiada tolak capital allowance)

• Adjusted income = statutory incomePendapatan pelarasan = Pendapatan berkanun

• Don’t have balancing charge and capital allowance(Tiada BC dan Capital allowance)

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MID TERM – 20% (100 MARKS)

Questions• 15 – 17 • Majoriti theory• 3-5 calculation • GOOD LUCK….

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