Gifts, Donation or Contribution

Cash Donation

A taxpayer is entitled to claim deduction expenses on cash donation made in the basis year for each year assessment in ascertaining the total income which is chargeable to tax. Donations must be paid to the Government, State Government, local authorities, or institutions or organizations which are approved by the Director General of Inland Revenue. Each claim must be substantiated by the original receipt. The receipt is an endorsement for the donation has been approved by the LHDNM.

A taxpayer is also entitled to claim deduction in respect of:

1.     Cash donations for the provision of library facilities which are accessible to the public and contributions in-kind to public libraries and libraries of schools and institutions of higher education. The allowable deduction is restricted to a maximum of RM20, 000.

2.     Cash contribution for the cost of treatment of serious diseases for individuals, made through a fund or trust account approved by The LHDNM established for helping the individuals.

Gifts of Artefacts, Manuscripts or Painting

Starting year assessment 1997, a taxpayer could also give donation or gifts in the form, artefacts, manuscripts or paintings to the Government or States Government, an amount equals to the value of the gift is deductible in ascertaining the total income of the donor. The value or the amount of the gift should be determined by the Department of Museum and Antiquities or the National Archives.

Similarly with effect from year assessment 1998, a taxpayer could also give donation or gifts in the form of painting to the Balai Seni Lukis Negara or Balai Seni Lukis Negeri, and an amount equals to the value of the paintings is deductible in ascertaining the total income of the donor. The value or the amount of the painting should be determined by the respective art gallery.

Contribution For The Benefit Of Disabled Persons

A taxpayer is allowed a deduction for gift of money kind in the basis year for the provision of facilities in public places for the benefit of disabled persons. The value of the donation in-kind to be determined by the respective local authority.

 Contribution to Healthcare / Medical Centre

A taxpayer is allowed a deduction for gift of money or medical equipment in the basis year to any healthcare center approved by the Ministry of Health. The value of the donation in kinds is to be determined by the Ministry of Health or based on the cost of the medical equipment. However, the allowance deduction is restricted to a maximum of RM 20, 000.

How to Claim Deduction

Taxpayers who wish to make claim on the expenses in respect of the contributions, gifts or donations should fill up the Income Tax Return Form and the payment receipt or the certified letter by the relevant entity that received such gifts or donation must be obtained and kept for verifications.

Allowable Gifts as Deduction from Aggregate Income

1.     Cash donation  --- Approved Donation Amount

2.     Cash donations / contributions to libraries. --- Maximum RM20000

3.  Cash contribution to the cost of treatment of serious disease for an individual. --- Approved Donation Amount

4.  Gift of artefact, manuscript or painting. --- Amount determined by Department of Museum or Archives

5.     Contributions in cash or in kind towards facilities for the benefit of disabled persons. --- To be determined by local authority

6.     Gift of medical equipment or money to healthcare facility. --- maximum RM20000 (as certified by Ministry of Health)

7.     Gift of painting.  --- Amount determined by national Art Gallery or ant state art gallery.

Repayment of Tax

Tax Refund

A taxpayer is entitled to claim a refund of tax if:

1.     He has paid in excess of his actual tax liability.

2.     He has a credit balance after a reduced assessment.

3.     He tax deducted from dividend income is greater than the total tax liability for the year.

A claim for repayment of tax under category 3 above must be made within 6 years. For example, a claim for repayment of tax deducted from dividends paid in the year 1997 must be submitted latest by the end of the year 2003.

Preventing excess Credit in the Taxpayer’s Account

1.     Taxpayer should monitor the monthly deductions from salary or bi-monthly instalment payment on business income, and compare it with the actual tax liability according to the notice of assessment.

2.     An application to the Collection branch to stop further deductions from salaries must be made immediately upon confirmation of the tax liability so as to avoid excessive deduction from the salary.

3.     A taxpayer must ensure that the employer is notified of the following changes in personal  details:

a.     Marriage

b.     Number of children

c.      Divorce / separation

d.     Death of spouse

e.      Death of child

This information is important in determining the right amount of monthly salary deduction in accordance with the Scheduler Tax Deduction tables.

4.     To notify LHDNM on the amount of zakat paid in a year. 

Tax Appeal

An appeal is an objection against the assessment issued by the LHDNM. An appeal can be made if:

1.     A taxpayer is not satisfied with the manner in which his income has been assessed.

2.     Personal reliefs have not been appropriately given.

3.     The taxpayer forgot to claim certain expenses or relief.

4.     There is an error in the assessment issued by LHDNM.

How to Appeal

A taxpayer who received a notice assessment and disagrees with it:

1.     Must appeal in writing, within 30 days from the date of the notice, to the LHDNM office which issued the notice of assessment. Where the appeal is to be forwarded to the Special Commissioners of Income Tax, prescribed Form Q which can also be downloaded from the LHDNM website and it is available at all LHDNM offices must be filled it.

2.     If for some reasonable grounds the taxpayer has been unable to appeal within the stipulated 30 day-period, he may submit an application for extension of time to appeal, on the prescribed Form N, to be forwarded for the decision of the Special Commissioners of Income Tax.

Tax to be paid notwithstanding any appeal

Taxpayer has to pay his tax liability first irrespective of any appeal.

Settling an Appeal

An appeal may be settled:

1.     By agreement between the taxpayer and the LHDNM; or

2.     By a decision of the Special Commissioners of Income Tax.

If LHDNM does not accede to the appeal, it will be forwarded to the Special Commissioners of Income tax as the taxpayer wishes to pursue the appeal. If a taxpayer is dissatisfied with the Special Commissioners’ decision, he may appeal further to the High Court and subsequently to the Court of Appeal.

Special Commissioners of Income Tax

The Special Commissioners of Income Tax is an independent tribunal which consists of panel members appointed by the Yang Di Pertuan Agong to handle tax appeals.

Income chargeable to tax

Income chargeable to tax

Income chargeable to tax is the income earned from a business or a profession, an employment, or a passive activity.

 

a. Dividend

Dividend is the distribution of porfit by a company to its shareholders. Generally, dividend income is taxable. However, certain types of dividends are exempt from tax.

 

A taxpayer should declare the gross amount of dividend in the Income Tax Return Form. For example, if an individual receives dividend from Syarikat X Sdn. Bhd. in the year 2002 amounting to RM720 after deduction of tax RM280, he should declare RM 1000 and not RM 720. However, he may make a claim for RM280 as tax credit which be used to offset against the tax charged or as a tax repayment.

 

In the event where the offset is more than the tax liability, the excess amount used be refunded.

 

A taxpayer who intend to claim for the tax credit in respect of the tax deducted at source on the dividend received, should submit the original dividend voucher. The dividends should be declared in the Income Tax Return Form Part C and Part E.

 

b. Interest

In general, interest earned from the following sources are subject to tax.

i) Deposits in savings acconts with a bank or finance company

ii) Money lent to a person or an entity.

 

However, certain types of interest are exempt from tax. For a resident individual, interest which is not exempted from tax, is subject to a withholding tax of 5% of the gross interest income, and it is deducted by the bank or the finance company must be remitted to LHDNM. Hence such interest income need not be declared in the Income Tax Return Form.

 

c. Rental

Rents includes sum paid for the use of occupation of any premises or part thereof or for the hire of anything. RENs could either be received in the form of money or money equivalent or in any other form. Usually rental incomes received from the following sources are subject to tax.

i) The letting out of premises (houses, shop houses, land)

ii) The hire of motor vehicle, plant, machinery, furniture etc.

 

Taxpayer may claim deduction on expense which are wholly incurred on the asset concerned in the production of the rental income. Certaon expenses suc as quit rent, assessment rate, repair and maintenance, interest on loan taken to purchase the property, and fee for rent collection may be claimed as deductions against rental income. For the purpose of declaring the rental income and the related expenses against the rental income for a year of assessment, a taxpayer is required to fill the relevant columns in the statement of rental income and expenditure in the Income Tax Return Form.

 

d) Royalties

Royalty is money received by the owner of an asset or rights as consideration in respect of the publication of or for the us

e of the asset or rights. Royalty is money paid as consideration for the publiction of or for the use of or right to use any literary, artistic, scientific works, copyrights, patents, trademarks, recording discs or tapes or any similar rights or property. Royalty is also derived from the alienation of any property, and technical know-how. Income from royalties is taxable. HOwver, certain royalties are exempted from tax.

 

 

General Tax Guide

• Notifying Chargeability To Tax

If an individual is taxable and has never received any income tax return form before, he has a duty to notify chargeability to the nearest LHDNM office and request for an Income Tax Return Form.

If an individual already has an income tax file but has not receive an income tax return form by 31st March, he must immediately request for the said form from the LHDNM office which issued his last income tax return form. A taxpayer could also download an Income Tax  Return Form from the LHDNM website. He must then complete and submit the return to the LHDNM office using the address where his income tax file is situated.

• Change Of Mailing Address

A registered taxpayer must inform LHDNM of any change in the correspondence address within three months from the date of change to avoid any penalty. The income tax file reference number must be qouted in all the correspondence with  LHDNM.

• Income Tax Return Form

On Saturday, in the last week of February every year LHDNM issues the Income Tax Return Form to the taxpayer who is registered with LHDNM, as a service offers to them. However, if a person has not received an income tax return form, a copy of the said form can be obtain from the LHDNM office or can be downloaded from LHDNM website. 

A resident individual should fill up the Income Tax Return Form for a resident, that is the Form B. Whereas a non-resident individual should fill up the other Income Tax Return Form, Form M.

• Verification Of Form

Upon completing an Income Tax Return Form, a taxpayer should ensure that there is no error in the name, address, tax file reference number and identity card number as printed in the received form.

LHDNM must be informed of any correction.

• Form Addressed To A Married Woman

A married woman to whom an Income Tax Return Form is addressed shouldstate her husband's particulars as required in the front page of the form.

• Completing The Income Tax Return Form

An Income Tax Return Form is dicided into a number of parts.For example FormB consists of Part A to Part N.

A taxpayer and his wife are required to:

1. Fill in correctly all the relevant parts of the Income Tax Return Form
2. Where a wife intends to claim for child relief or shre the child relief under a separate assessment, she needs to fill in the appropriate column on her Income Tax Return Form.
3. If there is any doubt or problem contact, the nearest LHDNM office.

• Record Keeping

A taxpayer must keep records and documents for a period of 7 years from the end of the relevant year of assessment for verifiacation of the taxable income and the amount of tax payable. Documents are taken to mean statements of income and expenditures, invoices, vouches, receipts and others for the purpose of verifying the information declared in the return.

• Supporting Documents

A taxpayer is required to keep supporting documents such as statement of accounts (must be signed), rental statements, tax computation, capital allowance computation, salary statement (EA/EC Form), original dividend vouchers, original zakat receipts, etc., for verification by LHDNM.

For all claims made, the taxpayer should fill in the appropriate column and original receipts and other related documents should be kept.

• Declaration

The declaration column in the Income Tax Return Form must be signed by the taxpayer or any person making the return on his behalf. Otherwise the Income Tax Return Form will be considered as incomplete.

• When To Submit The Income Tax Return Form

The completed and signed Income Tax Return Form is to be submityed to LHDNM office before 30 April or by the required date.

• Filing The Income Tax Return Form

A complete Income Tax Return Form should be sent to the address of LHDNM office indicated on the said form. Income Tax Return Form may also be sent via postal service free of charge by using the envelope marked "CUKAI PENDAPATAN". In the case where the Income Tax Return Form downloaded from the LHDNM website, the completed return form should be sent to the LHDNM offices which handles the taxpayer file.

Scope of Tax Chargeability

A taxpayer who is resident in Malaysia, will be taxed on all income arising and earned in Malaysia and income recived in Malaysia from outside Malaysia. An individual whether resident or non-resident in Malaysia is liable to tax on the income derived from Malaysia will only be taxed on income arising or earned in Malaysia only. The scope of an individual's tax chargeablity depends on his residence status.

Income Chargeable to Tax

In general, a taxpayer is required to pay tax on all kinds of earnings, including income from:

1. Business or profession
2. Employment
3. Dividends 
4. Interest
5. Discounts
6. Rents
7. Royalties
8. Premiums
9. Pensions
10. Annuities
11. Others.

Period When Income is Earned?

Anyone who earns income or profits exceeding a certain amount will be required to pay income tax. The tax payable for a tax year (a year of assessment) will be based on the income earned for that year.

For example, for the year 2005 (year of assessment 2005) an individual is required to declare his earnings gained in the calendar year 2005. The declaration of the earnings is made in the year 2006.

Individual Taxpayer

Individual refers to a person or natural person. For the purpose of income tax, individual is defined as a person other than a company or a corporation.

However a Hindu Joint Family is deemed as an individual where the tax treatment is similar to that of an individual. A single person, a husband, a wife, a representative or agent who has been authorized by the respective person to act on behalf of the taxpayer are examples of an individual.

An individual is chargeable to tax if he earns income from any sources in the basis year for a year of assessment.

A married couple where each has his or her own income, are taxpayers who will be assessed separately. Where a wife elects to be assessed together with the husband or vice versa they are still required to submit their respective Income Tax Return Form to Lembaga Hasil Dalam Negeri Malaysia (LHDNM).

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Sources of Income

The following sources of income are chargeable to tax under Section 4 of the Act.

a. Gains or profits from a business
b. gains or profits from employment
c. Dividends, interest or disounts
d. rents, royalties or premiums
e. Pensions, annuities or periodical payments
f. Gains or profits not falling under any of the above.

Exercise Resident Status

        Encik Jeff, a Canadian citizen, came to Malaysia on 28 July 2007 and left Malaysia permanently on 31 October 2007. The record of Encik Jeff’s stays in Malaysia have been as follows:

Year               Stay in Malaysia                                               Days in Malaysia

2003               20 December to 31 December                               12

2004               1 January to 31 December                                      366

2005               1 January to 5 January                                           5

                        1 August to 30 November                                    122

2006               Absent                                                                   0

2007               28 July to 31 October                                           96

Required:

State, with explanation, the resident/nonresident status of Encik Jeff for each of the years of assessment 2003 to 2007 (inclusive) 

On 8 October 2007 Miss Nonaka took a 10am flight to Singapore to attend a concert. On 9 October 2007 she took a return flight arriving at Kuala Lumpur International Airport at 11pm.

Required:

State, with explanation, the tax treatment of Miss Nonaka’s visit to Singapore, under the Malaysian residence rules.        

Chargeable Income Of A Person

The chargeable income of a person upon which tax is chargeable for a year of assessment shall be ascertained as follows:-

a. Basis period for each source of income for that year of assessment.
b. Gross Income for each source of income for the basis period for that year of assessment.
c. Adjusted Income from each source of income for the basis period for that year of assessment.
d. Statutory Income for each source of income for that year of assessment.
e. Aggregate Statutory Business Income for that  year of assessment.
f. Net Aggregate Statutory Business Income, which is Aggregate Statutory Business Income reduced by business loss brought forward for that year of assessment.
g. Aggregate Income for that year of assessment, which is the aggregation of Net Aggregate Statutory Business Income and non-business income.
h. Total Income for that year of assessment.
i. Chargeable Income for that year of assessment.

Tax Residence of Company - "Management and Control"

The expression "management and control" has not been defined under the Income Tax Act 1967. Certain case law decisions may be relied upon as to what actually constitutes "management and control".

Directors' action and not shareholders' action
As a general rule, the management and control of a company are normally exercised by its directors. Therefore, the place where the board of directors meet, would determine whether the management and control are exercised in malaysia. -De Beers Consolidated Mines Ltd v Howe.

Place of Incorporation
The place of registration and the registered office of the company would not determine its residence status. In Malayan Shipping Co. Ltd v FC of T, it was held that a company incorporated in Singapore has been held to be resident in Australia for tax purposes because the company was completely managed and controlled by its Australian directors in Australia.

Place Where AGM and Book of Accounts
In Egyptian Delta Land & Investment Co. Ltd v Todd, it was held that a company incorporated in South Africa, which held its general meetings and kept its book of accounts there was held to be resident in the United kingdom as the company was controlled by a majority of directos resident in London.

Dual Residence
A company may have dual residence, that is, it may be considered to be tax resident in both countries. In Swedish Central Railway Co Ltd v Thompson, the court held that "a company incorporated in Lonndon to construct and operate a railway in Sweden was found to be resident in both the Unied Kingdom and Sweden for that purpose".

Can Residence Status Change
In Bullock v Unit Construction Co Ltd, it was held that a company may change its residence status, that is, a company may be tax resident in one year and non-resident in another year. In Malaysia, once a company is established to be tax resident for a basis year for a year of assessment, it shall be deemed to be tax resident for the subsequent basis year unless the company could prove otherwise to the satisfaction of the Director General.

Tax Residence of Limited Liability Partnership

The 2013 Budget introduced various amendments to treat the above as a chargeable person similar to that of a company under the Act.

A limited liability partnership carrying on a business is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its business or of any one of its business are exercised in Malaysia.

Any other limited liability partnership is resident in Malaysia for the basis year for a year of assessment if at any time during thath basis year the management and control of it affairs are exercised in Malaysia by its partners.

Tax Residence of Company

A company or a body of persons carrying on a business or businesses is resident in Malaysia for the basis year for a yaer of assessment if at any time during that basis year the management and control of its business or of any one its businesses, are exercised in Malaysia.

A company or a body of persons is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year, the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority.

Example.
Abaxia Ltd, a foreign company has business in Hong Kong, Singapore and Malaysia. All the businesses of the company are managed and controlled in Hong Kong except a board of directors meeting was held in Johor on 11 May 2010 where important policy decision were made.

Abaxia Ltd is resident for YA 2010. where there is no businessess carried on in Malaysia, a company can still be regarded to be tax resident where the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority, for example to a board of management/directors. For an investment holding company, the management and control of its affair includes the management and importanty decisions in respect of finance and investments made.

Tax Residence of Persons

Deemed Resident under Section 7(1B)

Effective from Y/A 2009, where an individual who is a citizen and

a. is employed in the public services or service of a statutory authority; and
b. is not in Malaysia at any day in the basis year for a year of assessment by reason of:-
   i) having and exercising his employment outside Malaysia; or
   ii) attending any course of study in any institution or professional body outside Malaysia which is fully sponsored by the employer.

that individual is deemed to be a resident for that particular year of assessment and for any subsequent basis years when he is not in Malaysia.

Example,
Chandra is appointed as a High Commissioner by the Government to India for a period of five (5) years. He left Malaysia on 1 January 2009 and would return to Malaysia in December 2013.

Chandra is deemed to be a tax resident from YA 2009 to YA 2013 under section 7(1B).

Tax Residence of Individuals

The Malaysian Income Tax Act 1967 uses a quantitative test of residence to determine the position of individuals, but for companies the deciding factor is to determine where control and management are exercised.

To qualify as a tax resident, an individual must satisfy the various test under Income Tax Act (ITA) 1967, which uses the Malaysia of days the individual is present in Malaysia.

Section 7(1A) ITA 1967 provides that an individual shall be deemed to be in Malaysia for a day if he is present in malaysia for part or parts of that day.

1. Section 7(1)(a)
He/She is in Malaysia in that basis year for a total of 182 days or more in a calendar year.
For example, Khalir was in Malaysia from 01-01-2010 to 31-08-2010.
Total days is 243 days.

Khalir qualifies as a tax resident for Year of Assessment 2010 as the number of days in Malaysia amounted more than 182 in a basis year.

2. Section 7(1)(b)
If he/she unable satisfy s7(1)(a), then he may qualify to be a tax resident if he is in Malaysian for a period of less than 182 days and that period is linked by or to another period of 182 days consecutive days or more either immediately preceding or ommediately following that particular year of assessment.

Certain temporary absences are ignored for ascertaining the period of less than 182 days or the period of 182 consecutive days or more. These are:
a. connected with his service in Malaysia and owing to service matters or attending conferences or seminar or study abroad.

b. owing to ill health involving himself or a member of his immediate family.

c. in respect of social visits not exceeding 14 days in aggregate. Socialvisit includeany form of vacation outside Malaysia beside vacation to home country.

3. Section 7(1)(c)
He was in Malaysia for a total 90 days or more in the calendar year and had also met certain conditions for any 3 out of the 4 immediately preceding years. These conditions are:
a. that he had been a tax resident
b. that he was present in Malaysia for a total period of 90 days or more.

4. Section 7(1)(d)
If he is in Malaysia for less than 90 days or even if he is entirely absent from Malaysia for the whole of the calendar year. This arises when the individual has been a tax resident in Malaysia for the 3 immediately preceding years and is also a tax resident in the following year.