Chapter 4:Chargeable Income

Part Two

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Aggregate Income – Mathematical Formula - COMPANYRM

Statutory IncomeBiz 1 - trading xBiz 2 - manufacturing x_

xxLess: unabsorbed biz loss b/f (x)

xxStatutory income

Interest xRental x x

xxAdd: recoveries of:

Abortive prospecting expenditure * xAggregate income xx

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Aggregate Income – Mathematical Formula - INDIVIDUALRM

Statutory IncomeBiz 1 - trading xBiz 2 - manufacturing x_

xxLess: unabsorbed biz loss b/f (x)

xxStatutory incomeDividend xInterest xRental x x

xxAdd: recoveries of:

Abortive prospecting expenditure * xAggregate income xx

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Total Income – Mathematical FormulaRM

Aggregate Income XXXLess: Current Year business loss (x)

Abortive prospecting operation Sch 4 (x)Pre-operational business exp Sch 4B (x)

xxApproved donations (x) Excess

cannotc/f

Total income XX

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Excess c/f to next YA

9.1: Prospecting expenditure• In order to promote the searching for and discovering or

winning access to deposits of minerals, prospecting expenditure is given a “deduction against aggregate income”. [Bagi mengalakan penerekoaan bahan galian, prospecting expenditure dibenarkan ditolak dari pendapatan aggregate (pendapatan aggregate – prospecting expenditure)

• Expenditure which include the cost of plant and machinery used in the prospecting activities would qualify for deduction.(Perbelanjaan terdiri daripada kos loji dan mesin yang digunakan dalam akitiviti penerokaan)

• In order to qualify for prospecting expenditure deduction, the prospector must declare that the prospecting is abortive.[untuk melayakkan penolakkan prospecting expenditure, syarikat perlu menyatakan perbelanjaan itu penerokaan tidak berjaya (abortive)]

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9.1: Prospecting expenditure• When mineral deposits are subsequently found, the area would

be designated for mining. Then all prospecting expenditure which has been claimed as deduction in the previous YAs must be added back as “recoveries” in ascertaining the prospector’s aggregate income. (Example 4.17 & 4.22)[bila mineral tu diperolehi, maka yang ditolak sebagai abortive prospecting expenditure, perlu ditambah semula, di mana kedudukannya pendapatan berkanun + recoveries of abortive prospecting expenditure = pendapatan majmuk]

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9.3 Qualifying pre-operating biz expenditure (Sch 4B) – deduct from aggregate income

• In order to promote overseas investment in countries designated by the MOF the following pre-operational biz expenses are deductible against aggregate income:[bagi mengalakkan pelaburan dari luar negara, ke Malaysia perbelanjaan berikut sebelum membuka perniagaan di M’sia dipanggil perbelanjaan pra operasi ditolak dari pendapatan aggregate)a) feasibility study. (Kajian kemunasabahan)b) Market research (Kajian pasaran)c) Travelling expenses in connection (a) & (b), accommodation and sustenance (F&B) max. RM400 perday.

• IBM Call Centre – Open in Cyberjaya.

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9.5 Approved donation (sumbangan yang dibenarkan)

• Donations are not revenue expenses and therefore not deductible against gross income; (sumbangan bukan perbelanjaan hasil jadi ia tidak boleh ditolak dari pendapatan kasar)

• These are social responsibility expenses. (ini adalah perbelanjaan tanggungjawab sosial syarikat)

• Approved donations in cash to- approved institutions; (institusi yang diluluskan)- government; (kerajaan pusat)- state government; (kerajaan negeri)

• Approved donations are allowed to deduct against aggregate income; (sumbangan yang diluluskan dibenarkan tolak dari pendapatan aggregate);

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9.5 Approved donation (sumbangan yang dibenarkan)

• Unabsorbed donations are not allowed to be carried forward for the following YAs in the case donations more than aggregate income; (sumbangan yang tidak boleh diserap, tidak boleh dibawa ke masa hadapan bila mana sumbangan melebihan pendapatan aggregate)sumbangan = RM50,000 ; pendapatan aggregate = RM40,000 sumbangan yang tidak boleh diserap = RM10,000RM10,000 tidak boleh bawa ke masa hadapan (automatik rugi)

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List of donations (pages 55-61)

• Donations of artefact, manuscript, or painting to government - S44(6A) .

• Donations to approved library - S44(8)• Donations for public facilities by individual – S44(9)• Donations for healthcare facilities by individual – S44(10)• Donations of painting of National or State Art Gallery –

S44(11)• Zakat perniagaan – S44(11A)• Contribution to approved sport activity – S44 (11B)• Contributions to project of national interest – S44(11C)

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Summary of donations – company, individual and others

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Sections Description Comp Ind Others

44(6)(i) CASH DONATION-To government, state government, local authority- No Limit

√ √ √

44(6)(ii)* CASH DONATION-Approved institution or organisation [proviso to S44(6)]- Have restriction (10%, 7%, 7%)

√10%

√7%

√7%

44(6A) NOT CASH-Donations of artefact, manuscript, or painting to government - No limit

√ √ √

44(8) CASH DONATION-To public or school libraries, institutions of higher education libraries- Have restriction to RM20,000***S 34(6)(g) – Provision of library facilities – maximum RM100,000 ***

√ √ √

Summary of donations – company, individual and others

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Sections Description Comp Ind Others

44(9) CASH OR KIND DONATION-Provision of facilities in public places for disabled person- Amount/value determine by local authority

- √ -

44(10) CASH OR KIND DONATION-Medical equipment to approved healthcare facility- Amount – restricted to RM20,000

- √ -

44(11) -Donation painting to national or state art gallery- Amount/value determine by national/state art gallery

√ √ √

44(11A) CASH OR OTHERS DONATION- Zakat perniagaan- Have restriction to 2.5% of aggregate

√ √ √

Summary of donations – company, individual and others

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Sections Description Comp Ind Others

44(11B)* CASH OR KIND DONATION- For approved sports activity- Approved by Minister/ Commissioners of Sports-- Restriction to % of aggregate

√10%

√7%

√7%

44(11C)* CASH OR KIND DONATION- For Project of National Interest- Restriction to % of aggregate

√10%

√7%

√7%

9.5.3 : Donations to approved libraries

• Special deduction section 34 (6) [page 46] – (v)contribution to school, public libraries, college or universities (restricted to RM100,000)

• Advantage if gross income insufficient to cover special deduction, the deficit can carried forward

Gross income 1,000,000less:Special deduction [S34(6)]- donation library (RM500,000) (100,000)Adjusted incomeStatutory incomeAggregate incomeless:Approved donations [S 44(8)]

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9.5.3 : Donations to approved libraries

• S44 (6) : permits an amount of cash (restricted to Company 10% from agg. Income; Individual & Others 7% from agg. income) for approved institutions (library of national university)

• Need to check “AGGREGATE INCOME”1) Aggregate income 5,000,000less:Approved donations RM500,000 (10% X RM5,000,000 = RM500,000) (500,000) [S44(6)]

2) Aggregate income 500,000less:Approved donations RM500,000 (10% X RM500,000 = RM50,000) (50,000) [S44(6)]

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9.5.3 : Donations to approved libraries

• S44 (8) : permits an amount of cash (restricted to RM20,000) for the provision of library facilities to public or school libraries, institutions of higher education such as university or colleges as a deduction against aggregate income;

Gross incomeAdjusted incomeStatutory incomeAggregate income 100,000less:Approved donations RM500,000 (20,000) [S44 (8)]

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Eg 4.18 – study this

• CEO of Smartco (company) to make cash gift of RM500,000 to the library of a national Malaysia.

• You as an Accountant or Tax Consultant, advice Smartco the nature and extent on tax relief.

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FE

Advise 1 Smartco can uses S34(6) the deduction from gross income to special deduction but limit to RM100,000 per YA, so Smartco adviseable- to donate maximum RM100,000 for 5 years;- otherwise if Smartco decided to donate all RM500,000 in one year, and gross income not sufficient to cover donation, the balance can carried forward

Smartco boleh guna S34(6) yang sumbangan boleh ditolak dari pendapatan kasar tetapi terhad pada RM100,000 setahun, jadi Smartco dinasihatkan- untuk buat sumbangan maksimum RM100,000 selama 5 tahun- Jika Smartco bertegas untuk sumbang RM500,000 dlm tahun yang sama, tetapi pendapatan kasar tidak cukup, dan ada baki sumbangan boleh dibawa ke masa hadapan.

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Answer:Advise 2• Smartco can uses S44(6) the deduction from aggregate income to

approved donation for approved institution. (restricted to Company 10% from agg. Income; Individual & Others 7% from agg. income) for approved institutions (library of national university)

• Need to check “AGGREGATE INCOME”1) Aggregate income 5,000,000less:Approved donations RM500,000 (10% X RM5,000,000 = RM500,000) (500,000) [S44(6)]Utilised All

2) Aggregate income 500,000less:Approved donations RM500,000 (10% X RM500,000 = RM50,000) (50,000) [S44(6)][RM500,000 – RM50,000 = loss RM450,000] S44 (6) can not carried forward

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Answer:Advise 3• Smartco can uses S44(8) the deduction up to RM20,000;• The balance RM480,000 becomes permanent loss

Choose either Advise 1 or 2; up to you to defense your option.

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Eg 4.19 • LY a wealthy but old frail business who wish this upon his

demise (death).a) Wealth tied up in 4 million shares in LY Sdn Bhd – received dividend. - Jan 2013 net dividend RM1.5 million expecting same year

2014b) His will containing those provisions:

1) a GIFT national archives of manuscripts brought in China estimated RM250,000.2) a cash GIFT of RM2 million to a local authority for endowment purpose.

Comment on the tax implication on his wishes – suggest that you think would be more tax – efficient for him.

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Eg 4.19 – answerDon’t give as a will – donate while still alive.As a will “NO TAX ADVANTAGE”While alive enjoy TAX ADVANTAGE

a) Gift of manuscriptsRM250,000 in value, record as donation under SS44(6A), so can get deduction RM250,000 before arrived total income.

Aggregate income XXXXXXless:Gift of manuscript (determined by National 250,000Archives)

How much that deduction RM250,000 can save tax LY Tax?(Tax saving - 26% x RM250,000 = RM65,000)

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Eg 4.19 – answerDon’t give as a will – donate while still alive.As a will “NO TAX ADVANTAGE”

b) donation – RM2 million to local authorityNow LY has RM1.5 million aggregate income (net dividend) yearlySuggestion: Split into 2 years

i) Local authority 2013 (RM) 2014 (RM)Aggregate income 1,500,000 1,500,000Less:donation university 1,500,000 500,000Tax saving 390,000 130,000

(26% x RM1.5 mil) (26%x 500,000)

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Eg 4.20 Koi (M) Sdn Bhd (company) deals with installation of pumps for construction works. For the year ended 30 June 2013, the company provides you with the following information: RM

Aggregate income 300,000

Cash donation to University Hospital, an approved organisation* 60,000Cash donation to Selangor State Government [take 100%] 10,000Sponsor 40 shoes to Formula 1, an approved sport activity by MOF* 12,000Cash donation to “Cintai Negaraku”, a project of national interestapproved by the Minister of Finance (MOF)* 18,000

Question:Computed the chargeable income for Koh (M) Sdn Bhd for YA 2013.

*have restriction [company - 10%, individual – 7%) from aggregateincome

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Eg 4.20 Koi (M) Sdn Bhd

Computation of chargeable income for YA 2013RM RM RM

Aggregate income300,000

Cash donation to state government (take all) 10,000Cash donation to approved institution* 60,000Cash donation to project of national interest* 18,000Donation in kind of sport activity 12,000

90,000

Restricted 10% x RM300,0000 30,000 (40,000)*10% x aggregate income*

CHARGEABLE INCOME 260,000

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Eg 4.21 • Wan Wan (individulal) is engaged in the production of

chocolate product.• For YA 2013, her aggregate income is RM200,000. She

incurred the following donations: RMa) cash donation to approved institution 12,000b) donation of t’shirt to M’sia Basketball Association, a body approved by Commissioner of Sports 9,000c) cash donation to Rakan Muda, a project of 10,000 national interest approved by Minister of Finance

• Compute the total income of Wan Wan for YA 2013

*have restriction [company - 10%, individual – 7%) from aggregate income

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Eg 4.21 Computation of total income for YA 2013

RMAgg. Income 200,000Less: donationa) Cash donation to approved inst. 12,000b) Approved sport body 9,000c) Project national interest 10,000

31,000

Restricted to 7% of agg. Income7% x 200,000 = 14,000 (14,000)

Total income 186,000

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Eg 4.17 – pg 53The following information was submitted by Clarissa Sdn Bhd

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2012 2013

2012

2012

2013

2012

2013

2011]

Eg 4.17 – pg 53The following information was submitted by Clarissa Sdn BhdHint:Do NOT include dividend in your aggregate income in this

example.

Q2:Compute chargeable income for the TWO YAs

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Eg 4.17 – pg 53The following information was submitted by Clarissa Sdn Bhd

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2012 2013

In 2012

In 2013

YAs 2012 YAs 2013

Eg 4.17 – pg 54 - AnswerThe following information was submitted by Clarissa Sdn Bhd

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Eg 4.17 – pg 54 - AnswerThe following information was submitted by Clarissa Sdn Bhd

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(2000)

(2000)

12,150

32,150

Eg 4.22 – pg 62 - Answer

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Using example 4.17YA 2012

YA 2013RM RM

Aggregate income 8,000 32,150Less: current year business loss [10,000]* (8,000) (12,000) Abortive prospecting expenditure b/f - (20,000) (N1- supposed in 2011, why carried forward) Approved donation - N2 - (150)Total income - -Dividend income (deemed total income)[1,350 x 100/75) 1,800 -

1,800 1,4501.Unabsorbed abortive expenditure b/f 20,0002.Unabsorbed loss c/f 2,000Note1. The unutilised abortive prospecting expenditure in YA 2012 can be carried forward to YA 20132. The unutilised approved donation in YA 2011 (RM1,000) and YA 2012 (RM350) is a permanent loss. It cannot be c/f to YA 2012 & YA 2013.

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move to

Chapter 5