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40 Tax Planning, Financing of qualifying expenditure of biz assets,…
40 Tax Planning
Financing of qualifying expenditure of biz assets
Outright purchase using Co's own cash
CA
can claim IA & AA
CA dedn restricted to adj Y
excess CA c/f set off same biz source in subsequent YAs until fully utilized
full purchase cost, except motor vehicles
for MV
commercial MV: no restriction;
non-commercial MV:
PC<= 150k, Max QE=100k
PC> 150k, 2nd-hand MV, Max QE= 50k
No deductions
Tax relief
deferred tax relief
Ownership
Owner
Outright purchase using borrowings
:star: BEST
Ownership
Owner
CA
full purchase cost, except motor vehicles
can claim IA & AA
Deductions
Interest paid on installments is deductible
Tax relief
deferred tax relief for purchase cost incurred
immediate tax relied for interest payment
Purchase through Hire Purchase
Ownership
Owner
CA
QE = deposit payment + capital portion of instalments paid (X full purchase cost, CA lesser)
IA: claimed on deposit + new cap instalment payments paid each YA
AA: claimed on accumulated cap instalments paid
Deductions
Hire purchase interest is deductible
Tax relief
deferred tax relief for QE
immediate tax relief for hire purchase int paid
Normal Lease
:star:BEST
Ownership
Owner
CA
cannot claim CA
Deductions
Lease rental paid: deductible
no restriction on dedn
adj Y not sufficient, result in CYBL
Tax relief
immediate tax relief
Lease treated as deemed sale
Ownership
lessee deemed to be the owner
CA
full purchase cost
claim CA
Deductions
lease interest: deductible
Tax relief
deferred tax relief for purchase cost incurred
immediate tax relief for interest payment
Investment in
Assets VS Equity
biz assets
Co B (acquirer) buys biz assets from Co A (disposer)
Co A (disposer)
disposal of biz assets
Control transfer
:green_cross: CT
DV - RE = BC/BA
DV
Higher of
MV
net proceeds
:check: CT
DV = RE on FDDFP
no BC/BA
Co B (acquirer)
purchase of biz asset
Control transfer
:check: CT
claim AA based on
original QE of disposer
but
restricted to RE of disposer
Co B claim CA from YA... onwards
:green_cross: CT
claim CA (both IA + AA) based on purchase cost
Co A bought over the biz assets from Co B
to carry out a new biz in Co A (acquirer)
Co A (acquirer)
has an old biz + bought new biz from Co B
IF
old biz (has CA b/f + loss b/f) + new biz (X have CA and loss b/f)
in Co A are
similar biz
gross Y + exp of both biz: combined adj Y
CA b/f from old biz
: set off agnst combined adj Y
loss b/f from old biz
: set off agnst combined SI
IF
old biz (has CA b/f + loss b/f) + new biz (X have CA and loss b/f)
in Co A are
different biz
CA b/f from old biz
: set off agnst adj Y of old biz only, X adj Y of new biz
loss b/f from old biz
: set off agnst ASIB
Loss b/f :arrow_down: Y
regardless 2 biz treated as similar/different biz
Co B (disposer)
ceased biz
CA b/f
: permanent loss
unultilised loss
: c/f for max of another 7 subsequent YAs
IF
becomes dormant + change in sh holders > 50%
:
both become
permanent loss
equity
Co B (acquirer) buys shares from Co A (disposer)
no disposal of assets took place
Co A
only change in sh incurred
Stocks
Co B(acquirer) buys stocks from Co A (disposer)
Co A (disposer)
Disposal of stocks - S35(5)
Conditions
Co A ceased biz permanently
Co A sell the stock for consideration
Co B uses the stock in its biz
SP = gross taxable Y
IF has loss + CA b/f, SP = MV (to help Co B reduce tax)
Co B: higher purchase cost give rise to higher dedn
Co B (acquirer)
IF has loss + CA b/f, SP = cost (low value, avoid having high profits)
Co B: lower purchase cost give rise to lower dedn, higher profit
profit set off by the loss + CA b/f in Co B
Trade receivables
Co B (acquirer) buys trade receivable from Co B (disposer)
Co A (disposer)
is a
sale of an asset
, X taxable
transfer only good debt
to Co B
retain bad debt
and
write off to claim dedn
as amt has been taxed as gross Y before in Co A
Co B (acquirer)
is a
purchase of asset
, X deductible
when purchased trade receivable is written off, X deductible
amt was not taxed as gross Y before in Co B,
is a
write off of an asset
Investment in a Co through
debt capital VS equity capital
Debt equity
Co A take loan from bank, invest in debt(loan) in Co B
Co A
int Y received
taxable as S4(c)Y
int exp ded from int Y
Co B
sh cap will not :arrow_up:, remain the same
pay int exp to Co A
ensure @ mkt rate to avoid
transfer pricing
int exp is
ded
if loan is used W&E for
pdt of Y
- S33(1)(a)
need to
deduct WT
if Co a is
NR
equity capital
Co A take loan from bank, invest in shares/equity in Co B
Co A
divided received: exempt from tax
any int exp is X deductible agnst STD - Para12B Sch 6
Co B
sh cap of Co B will :arrow_up:
pays div to Co A
X deductible, appropriation of profits
payments depends on availability of retained profits