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Other sources of income and sch 6 exemptions - Coggle Diagram
Other sources of income and sch 6 exemptions
Dividends
Income tax is the final tax
Any distributions of profit after tax is exempted from income tax in the hand of the shareholders
It shall be exempted from tax under the single-tier tax system
Distribution of income includes
Any distribution, whether in money or other property
Any distributions of div that has been credited by a company to its shareholders
A company can only make return to its shareholders by way of a step in an authorised capital reduction
Any other payment made by it by means of which it parts with moneys to its shareholders must and can only be made by way of dividing profits. It can be called dividend or bonus
Liquidation
Before
Dividend
Distribution other than authorised capital reduction
Capital
Authorised capital reduction
After
Distribution
Loan made to all shareholders where none of the shareholders requested, in proportion to their shareholdings with no term of repayment are dividends
Gross div income
Div deemed to be derived from Malaysia
All gross income from that source paid or credited
Single tier div is exempted from tax in the hand of shareholders
Do not constitute div
Distributions made in the course of liquidation, as it is capital
Distribution made under a scheme of authorised capital reduction, as such distribution is also a return of part of the original capital investment
Basis period
Individual
Calendar year ending 31 December
Company
Financial year ending
Interest
When first received for the basis year in which the income is first receivable
Basis period is either
Individuals
Year ended 31 December
Companies
Financial year ended
Def
The return or consideration received by one person for allowing the use of their money by another person
The compensation received as a result of the retention or non-payment
Interest or discount
Discount is also chargeable to tax under Section 4(c) that is deductible from a bill of exchange or promissory note (by way of interest) by banker or bill discounter who pays for it before it becomes due
Deeming provision of interest income
Where the interest is known for a period that has elapsed for more than four years before the beginning of the year of assessment, the gross income for the basis period of the relevant years of assessment shall be treated as income that began four years before the beginning of the years of the assessment in which the receipt of interest is first is became known
Income tax exemption
On individuals
A non-resident, interest paid or credited by Bank Kerjasama Rakyat Malaysia Berhad
A resident individual
Negotiable cert of deposit
Rediscounting of banker's acceptance on repurchase agreement or any similar instrument or trade financing that is traded on money market fund
Payment of income tax on gains or profit, interest or bonus received from money deposited from money deposited with the following institutions.
A bank licensed under the Financial Service Act 2013
An islamic bank licensed under the Islamic Financial Services Act 2013
A development financial institution prescribed under the Development Financial Institution Act 1995
The Lembaga Tabung Haji established under the Tabung Haji Act 1995
The Malaysian Building Society Berhad incorporated under the Companies Act 1965
The Borneo Housing Mortgage Finance Berhad incorporated under the Companies Act 1965
A co-operative society registered under the Co-operative Societies Act 1993
The money shall be deposited in either of the following:
Any savings deposit, current deposit, fixed deposit or investment deposit
Any savings deposit, current deposit or investment deposit under the Islamic banking scheme
Company
Resident
Does not fall under the exemption. This means that interest income is included in determining the chargeable income of the company
Deemed obtainable
Gross income on interest source shall consist of interest that relates to a loan between related parties that is deemed obtainable when interest is due to be paid
Related parties refer to either of the following
Between persons one of whom has control over the other
Between persons both of whom are controlled by some other person
Individuals who are relative of each other
Interest income on a loan between related parties is taxed when it is due to be paid instead of when it is received or obtainable on demand
Deemed interest income on loan or advances to directors
A company shall be deemed to derive interest income in respect of loans or advances to a director who holds at least 20% of ordinary shares in the company from its internal fund
The amount of interest income is the aggregate sum of monthly interest determinable as follows
1/12 x amount of loan or advance that is outstanding at the end of each month x average lending rate of commercial bank published by Central Bank at the end of each month
Where interest is charged on the loan
The total interest paid by the director is more than the deemed interest ascertained above, the deemed interest is regarded, or
The total interest payable is less than the deemed interest, the amount chargeable shall be the deemed interest instead of the interest of the interest payable by the director
Where interest is charged on the loan or advances to a director, the deemed interest by a company shall be the higher of
Total amount of interest chargeable
Total deemed interest ascertained above
Rent
Return either in money or otherwise received by the landlord at certain specific times from the tenant for the use of land, a house, a property
Whether a person is carrying on the business of letting of property. 4(a) instead of 4(d)
Capital allowance shall be given to the taxpayer
If there is any excess of allowable expenditure on income, the diff shall be claimed as an adjusted loss from a business source
Income from letting of properties can be taxed under 4(a) where maintenance service is comprehensively and actively provided by the owner
Deductible expenses
Those incurred in the production of the gross income
Includes
Assessment rates, quit rent, loan interest for the house, insurance premiums and any repairs and maintenance not of a capital nature
Basis period
the same as other non-business income that is for the year ended 31 december for individuals and financial year ended for companies
Controlled transaction and transactions between relatives
Where the person is entitled to receive rental income from a Malaysian source and such amount is first receivable to the person, it shall be deemed obtainable on demand in the following basis period and treated as gross income for the following period
This apply to transaction between
Persons one of whom has control over the other
Individuals who are relatives of each other or
Persons both of whom are controlled by some other persons
Royalties
Agreement governing the rights on the use of patents, copyright or even technical advice or know-how
Can either be income or capital nature
Capital payment
Acquisition of a patent right by assignment
Acquisition of patents either for the whole of its unexpired life or for future unlimited use for a term of years
In the case of copyright royalties where the author not exercising a profession or vocation
The lump sum received for the outright assignment would be a capital nature and not subject to tax
Income nature
Copyright royalties if
Conditions
The lump sum payments received from the copyright is for the use of technical knowledge or know-how
The owner carries on a profession or vocation during the basis year and
The ownership of the copyright is not passed on to the user
This kind of royalties are chargeable to tax
Deduction of expenses
Incurred wholly and exclusively in the production of gross income that are not specifically prohibited under sec 39 of the ITA
Scope of royalties expended effective from 17 jan 2017
Copyright, software, artistic, scientific work, patents, designs, models, plans, secret processes or formulae, trademarks or other like property or rights
Tapes for radio or tv broadcasting, motion picture films, films or video tapes, or other means of video reproduction where such films and tapes have been or are to be used or reproduced in Malaysia, or other like property or rights
Know-how or information concerning technical, industrial, commercial or scientific knowledge, experience or skills
The reception of, or the right to receive, visual images or sound, or both, transmitted to the public by satellite or cable, fibre optic, or similar technology
Some or all part of radiofrequency spectrum specified in a relevant licensed
A total or partial forbearance in respect of any of the above
Royalties deemed derived from Malaysia
Responsibilities for payment of royalties lies with the Government, a State Government or a local authority
Responsibilities for payment of royalty in the basis for a year of assessment lies with a person resident for that basis year
If royalty is charged as an ongoing or expense against any income accruing in or derived from Malaysia
Exemptions
A resident individual
RM10000
Artistic work (other than original painting)
Recording discs or tapes
RM12000
Translation of books
Literary work at the specific request of any agency of the Ministry of Education or the Attorney General's Chambers
This exemption shall not apply where the payment arises as part of the emoluments in the exercise of their official duties
RM20000
Other than royalties in respect of recording discs or tapes
Publication or use of literary work or any original painting
Musical composition
All
Individual's performance in cultural performances approved by the Minister
Fee or honorarium for the purpose of validation, moderation or accreditation of franchised educational programmes in a higher education institution, and the services are verified by the LAN
This exemption does not apply where the payment is for emolument for official duties
Pensions, annuities, periodical payments
Pension
Can be taxable(all other from employment) or
Exempted
pension received from an approved scheme paid to or for the benefits of the widow, widower, children of a deceased contributor to the scheme
If it is relating to widows' or widowers' or orphans' pensions
On reaching the age of 55 or compulsory age specified under any written law or DG is satisfied that the reason is due to ill health
The pension must be
In respect of services rendered in exercising a former employment in Malaysia, and
An approved scheme
If a person is paid more than one pension, this paragraph shall apply to the higher or the highest pension paid
Annuity
Fixed sum payable either in perpetuity or for a term of years
In the case of annuity purchased by an annuitant from Malaysia, the amount received is exempted from tax
Periodical payments
Payments made periodically at fixed times
This is a payment of recurring nature
Not at any variable period at the discretion of the individual
Example
Alimony payments made under separation order by court
Exempt income
Non-resident employee
Conditions
The period does not exceed 60 days in the basis year, or
The period does not exceed a continuous period of 60 days that overlaps two successive basis year
The continuous period of not exceeding 60 days which overlaps those basis years, together with a period or periods, do not exceed 60 days
60-day rule does not apply to a public entertainer
Provided that, no part of the income is paid out to public funds of the government of a country outside Malaysia
Therefore, if more than 60 days still tax exempt
Remittance
Income receive from outside Malaysia by a person other than a resident company carrying on specialised business shall be tax exempted from income tax
Other exemptions
Non-resident individual, interest derived from Malaysia and paid or credited by any person carrying on the business of banking and finance in Malaysia and is licensed under the Financial Services Act 2013 or the Islamic Financial Services Act 2013
Not exempted if interest paid or credited on funds required for the purpose of maintaining net working funds
Income from exercising an employment on broad ship used in a business operated by a resident person being a registered owner of a ship under the Merchant shipping Ordinance 1952
A ship means a sea-going ship other than ferry, barge, tug boat, supply vessel, crew boat, lighter
Payment in lieu of leave out of public funds on retirement from an employment under any written law shall be tax exempt
Official cash awards received by scientist, writers, and artists shall be tax exempt
For more pls read page 95