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Lecture 7 Tax Planning: Concept, Planning and Calculation LEGISLATION Income Tax Act 1967 Real Property Gains Tax Act 1976 Lembaga Hasil Dalam Negeri (LHDN) Inland Revenue Board (IRB) Corporatised on March 1, 1995 PERSONAL TAXATION Employment Sole Proprietorship Partnership

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Lecture 7 l.jpg
Lecture 7

Tax Planning:

Concept, Planning and Calculation


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LEGISLATION

  • Income Tax Act 1967

  • Real Property Gains Tax Act 1976

  • Lembaga Hasil Dalam Negeri (LHDN)

  • Inland Revenue Board (IRB)

    • Corporatised on March 1, 1995


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PERSONAL TAXATION

  • Employment

  • Sole Proprietorship

  • Partnership


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SCOPE OF CHARGE

  • Territorial concept

  • Income of any person

    • Accruing in (right to receive)

    • Deriving from (who pays you – government and state government, payment from tax resident, charged as outgoing expenses)

    • Received in Malaysia

    • From outside Malaysia


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DEFINITION OF PERSON

  • Individual

  • Company

  • Body of persons

  • Corporation sole

  • Excluding partnership – only on personal income


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INCOME RECEIVED IN MALAYSIA FROM OUTSIDE MALAYSIA

  • Taxable Income

    • Resident individual/body of persons/corporation

    • Resident companies involving 4 specific industries: banking, insurance, shipping and air transport

  • Tax Exempted

    • Non-resident (under Schedule 6 para. 28)

    • Resident company - income tax (exemption)

    • Unit Trusts

    • Offshore Companies (LOBATA 1990)


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RECENT TAX DEVELOPMENTS

  • Historically

    • Preceding year basis (PYB)

    • 1/1/98 to 31/12/98

    • Year of assessment 1999


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CHANGE OF ASSESSMENT SYSTEM

  • Preceding year basis (PYB) to current year basis (CYB)

  • Effective date

    • Year ended 31/12/2000

    • Financial year in 2000


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BASIS PERIOD

  • Current year basis

  • Calendar year 1/1/2000 to 31/12/2000

    • Year of assessment 2000

  • Financial year 1/7/1999 to 30/6/2000

    • Year of assessment 2000


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BASIS YEAR 2000

  • Current year basis (CYB)

  • 1/1/1999 to 31/12/2000

    • Year of assessment 2000

  • 1/1/2000 to 31/12/2000

    • Year of assessment 2000


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TAX IMPLICATIONS – SHIFT TO CYB

  • Year of assessment 2000

    • 2 basis periods

  • Basis period in 1999

    • Tax waiver year

    • Income tax (amendment) Act 1999


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TAX WAIVER YEAR

  • Income earned in 1999

    • No tax payable

  • Exceptions

    • Dividend

    • Payment subject to withholding tax

    • Non-citizen/non-resident individuals who commence or cease employment in 1999


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SELF- ASSESSMENT

  • Effective Date

    • 1 January 2000

    • Year of assessment (YA) 2001

  • YA 2001 - Companies (220,000)

  • YA 2004 - Business, partnership and cooperatives (800,000)

  • YA 2004 – Employment (1,800,000)


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CLASSES OF INCOME – SECTION 4 (RESIDENTS OR NON-RESIDENTS)

  • Business

  • Employment

  • Dividends, interest or discounts

  • Rents, royalties or premium

  • Pensions, annuities or other periodical payments

  • Gains or profit outside of (a) to (e)


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SPECIAL CLASSES OF INCOME – SECTION 4A

  • Recipients: Non-residents

  • Withholding tax – payment/credit

  • Services

    • use of property/rights

    • Installation/operation of plant + machinery

  • Technical advice/services/assistance/management/ administration

  • Rent – movable property




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* self, spouse + child

# self, spouse, child + parent


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COMPUTATION OF TAX PAYABLE

  • Tax Payable

    = Chargeable Income X Relevant Tax Rate

  • Tax Rates

    • Resident individual/club/trade association/

      co-operative society

      • Scale rates : 0% to 28 %

    • Company Trust – 28 %

    • Non-resident individual – 28 %

      (total income = chargeable income)


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TAX COMPUTATION FORMAT

Business X TOTAL INCOME XX

Employment X Less: Personal Reliefs (X)

Investment Income X Chargeable Income XX

Other Sources X TAX PAYABLE XX

Aggregate Income XX Less: Rebates (X)

Less: XX

Basis Year Loss (XX) Less: DTA Reliefs (X)

Approved Donation/ Sec 110 Set-off (X)

Subscription (X) TAX PAYABLE/REPAYABLE XX

TOTAL INCOME XX


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PERSONAL REBATES

  • Set-off against tax payable

  • Chargeable income < RM35,000

  • Single (RM350)

  • Separate Assessment

    • Husband (RM350)

    • Wife (RM350)


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PERSONAL REBATES

  • Combined assessment

    • Husband (RM350)

    • Wife (RM350)

  • Personal Computer

    • RM400 (every 5 years)

  • Employment Levy

  • Religious Payments

    • Zakat/Fitrah


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DERIVATION – SECTION 13(2)

  • Exercised in Malaysia

  • Leave attributable to employment in Malaysia

  • Overseas duties incidental to employment in Malaysia

  • Director of resident company

  • Employment aboard ship/aircraft


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TYPES OF EMPLOYMENT INCOME

  • Salary, wages, fee, bonus, remuneration, leave pay, commission, gratuity, perquisite, allowance

  • Benefits-in-kind

  • Living accommodation

  • Non-approved pension scheme/provident fund

  • Compensation payment


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GRATUITY

  • Tax exempt

    • ill health

    • 55 years + 10 years of service

  • Taxable

    • Period of employment

    • 6 years of assessment

    • Whichever is shorter


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ASSESSMENT - GRATUITY

  • Gratuity – RM60,000

  • Employment period

    • 5 years

    • RM12,000/ for each YA

  • Employment period

    • 7 years

    • RM10,000 for each YA


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SHARE OPTIONS

  • Not-Taxable

    • Option not exercised

  • Taxable

    • Option exercised

    • Option date

    • Difference between market value and option market


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BENEFITS-IN-KIND

  • Motor vehicle

    • Private usage - RM1,200 to RM25,000

    • Fuel – RM600 to RM3,000

  • Driver – RM3,600

  • Accommodation (30% of actual)

  • Household furnishings

    • Barely-furnished, semi-furnished, fully-furnished, service charges, utilities payment etc.


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LIVING ACCOMMODATION

  • Job requirement

    • Tax exempt

  • Hotel/hostel

    • 3% X Sec 13 (1) (a)

  • Apartment/house

    • Lower of

      • 30% Sec 13(1)(a) or

      • Actual rental (unfurnished accommodation)

  • Mobile phone, gardener, servants, school/tuition fees, club membership, staff loan


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LIVING ACCOMMODATION

  • Salary RM100K

  • Defined value – unfurnished : RM36K/24K

    Assessability of Benefits

  • Salary RM100K

    Lower of

    • 30% X RM100K or

    • RM36K/24K RM30K/24K

      Gross Income RM130K/124K


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TAX EXEMPT - BIK

  • Discounted goods and services

  • Subsidised food and drinks

  • Free transport

  • Child care benefits

  • Medical/dental

  • Leave passage

  • Group insurance policy


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APPROVED FUND/SCHEME

  • EPF Contributions

    • 11% (Employee)

    • 12% (Employer)

    • Tax deductibility – 19%

  • Reduction in Cash Remuneration

    • Lower tax liability

    • Cash flow

    • Time value of money


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RESIDENT STATUS – INDIVIDUAL :SECTION 7

  • > 182 days

  • <182 days but linked to another period of 182 days or more

    • Temporary absence

      • Incidental to employment, conference/study/seminar, ill health, social visits (<14 days)

  • 90 days – immediately preceding 3 years

  • < 90 days

    • immediately following year – resident

    • Immediately preceding 3 years - resident


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SECTION 7(1)(B)

Aug.1999 Aug. 2000

A B

Period A - < 182 days

Period B - > 182 days

Period A link to Period B

Link - 31 Dec. to 1 Jan. in Malaysia

Period A qualifies as resident


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SECTION 7(1)(B)

  • April 1999 March 2000

  • A B

  • Period A - > 182 days

  • Period B - < 182 days

  • Period A link to Period B

  • Link - 31 Dec. to 1 Jan. in Malaysia

  • Period B qualifies as resident


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SECTION 7(1)(C)

YA

1999 150 days

1998 92 days

1997 RESIDENT

1996 15 days

1995 138 days

Qualifies as resident


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SECTION 7(1)(D)

YA

1999 Resident

1998 63 days

1997 Resident

1996 Resident

1995 Resident

Qualifies as resident


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CAPITAL GAINS

  • Real Property Gains Tax (RPGT) Act, 1976

  • Effective date – 7/11/1975

  • Disposal of real property or shares in a real property company

  • Replaced Land Speculation Tax Act 1974


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ACQUISITION/DISPOSAL DATE

  • Acquisition date = disposal date

  • Written agreement (S & P)

  • Completion date

    • Asset transferred

    • Full consideration paid or received

  • Conditional contract


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CHARGEABLE GAIN OR ALLOWABLE LOSS

  • Disposal Price > Acquisition Price

    = Chargeable Gain

  • Disposal Price < Acquisition Price

    = Allowable Loss



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