Chapter 7 Approved Donations
Approved Donations • Cash donation to approved institution, Government, State Government and local authority. • Donations to approved institutions restricted to 5% of aggregate income (in the case of companies). • Donation of artifact, manuscripts or painting (value as determined by Department of Museums and Antiquities) to Government. • Donations of painting (value to be determined by National or State Art Gallery) to National or State Art Gallery.
Example 1 On Hari Raya Haji, Abdullah donated two desktop computers worth RM1,000 each (market value) to an orphanage (approved institution). In addition, each orphan received “duit raya” of RM20. The total “duit raya” distributed was RM1,000. Issue: Determine the deductibility of the donations made. Discussion: The donation of desktop computers is not deductible as it is in kind. As for the “duit raya” given it is also not deductible as it was given to the orphans directly and not to the orphanage (approved institution).
Example 2 During the year 2005, a company made cash donations of RM50,000. Details are as follows: RM Cash donation to an orphanage (approved institution) 18,000 Cash donation to the government for the tsunami disaster 32,000 The company’s aggregate income 200,000. Issue: Determine the amount of donations deductible from aggregate income.
Discussion: Cash donation to an orphanage (approved institution) Actual: RM18,000 Restricted: RM10,000 (5% x 200,000) Cash donation to the government for the tsunami disaster Actual: RM32,000 Restriction: None The amount of donation deductible is RM42,000 [32,000 + 10,000]
Example 3 Aini Mutalib, Malaysia’s own “Lara Croft” donated Hang Tuah’s lost “keris” to the Federal Government. The Department of Museums & Antiques valued the donation at RM1 million. Issue: Determine whether the donation is deductible. Discussion: The donation is deductible from aggregate income as per section 44(6A) of the Income Tax Act 1967. However, if Aini Mutalib’s aggregate income is less than RM1 million, the “excess donation” will be a permanent loss.
Approved Donations • Cash donation to approved libraries. • Restricted to RM20,000. • For the provision of library facilities to public or school libraries, university or colleges. • Donations of cash or goods (value to be determined by local authority) for the provision of facilities in public places for the benefit of disabled persons. • Available only to individuals. • Donations of cash or in kind of medical equipment (value to be certified by Ministry of Finance) for the healthcare facility approved by the Ministry. • Restricted to RM20,000 cash.
Tax Treatment of Donations • In the case of an individual without a business source the approved donation is deducted from aggregate income. • In the event that the individual’s aggregate income is not adequate to absorb the approved donation, the excess becomes a permanent loss. • As for an individual with a business source where donations has been expensed off in the profit and loss account of the business, the donations should first be added back to net profits from the business to arrive at adjusted business income. Thereafter, approved donations should be deducted from aggregate income of the individual.
Example 4 Chew Mun Kee has several sources of income for the year 2005. Details are as follows: RM Net profits from a florist shop 200,000 Statutory employment income 100,000 Included in the net profits (before taxation) of the florist shop are donations amounting to RM20,000 (of which only RM5,000 is approved) and disallowed deductions of RM80,000.
RM Net profits before taxation 200,000 Add: Donations 20,000 Add: Disallowed deductions 80,000 ---------------- Statutory income from business 300,000 Statutory employment income 100,000 ----------------- Aggregate income 400,000 Less: Approved donations (5,000) ----------------- Total income 395,000 =======