GBC0019 Personal Income Tax PDF

GBC0019 Personal Income Tax T2 Chargeable Income Framework By Dr. Hawa Chargeable Income Framework system used to determine the amount of taxable income : individuals businesses. crucial aspect of the Malaysian tax system governed primarily by the Inland R...

GBC0019 Personal Income Tax T2 Chargeable Income Framework By Dr. Hawa Chargeable Income Framework system used to determine the amount of taxable income : individuals businesses. crucial aspect of the Malaysian tax system governed primarily by the Inland Revenue Board of Malaysia (IRBM).  Objectives of framework structured approach to determining taxable income ensuring that individuals and businesses contribute their fair share of taxes to support government revenue and public services.  Overview of Chargeable Income Framework Taxable Income Income Sources: Deductions: Calculation: various sources Certain deductions Derived from and allowances are of income permitted under allowable employment Malaysian tax law expenses from business employment, total income, business operations the remaining investment education, healthcare amount is other forms contributions to approved known as the institutions or retirement of earnings. funds. "chargeable income."  Overview of Chargeable Income Framework…cont’ Tax Credits and Tax Rates and Bands Filing and Compliance Rebates Derived after eligible individuals Declare and claim any calculation of and entities deductions or credits chargeable income they are entitled to specific expenses subject to Malaysian IRBM oversees : medical expenses income tax rates tax compliance education enforcement, progressive in expenses, ensuring that nature senior citizens taxpayers adhere to higher levels of individuals with the regulations income are taxed disabilities. outlined at higher rates. Steps in ascertaining Chargeable income Ascertain basis period for each source (S.20 & S. 21) LO 4 Ascertain gross income from each source for the basis period S.22 & S. 32 Compute adjusted income from each source and/or adjusted loss from business source S.33 to S.41 Compute statutory income from each source S. 42 Compute aggregate income S. 43 Compute total income S. 44 Compute chargeable income (S. 45 & S. 51) Scope of Charge  Our Agenda Explain the scope of charge for Explain the year of Describe the assessment for individual Determine the taxation types and sources taxpayers residence status of an of income with regard individual to taxation Explain who a chargeable Differentiate general tax person is treatments for residents and non-residents 08  Section 3 of the Act which comprises : ❖ the year of assessment, ❖ types of income in general, ❖ sources of income ❖ chargeable persons. Discussion will also include : ❖ residence status, ❖ its determining factors ❖ its importance www.yourwebsite.com 9 TYPES AND INCOME SOURCES 4 (a) 4(d) Gains or profits from a Rents, royalties, and/or premiums business, for whatever period of time carried on 4(e) 4(b) Pensions, annuities, or other Gains or profits from periodical payments not falling under an employment any of the foregoing paragraphs 4(c) Dividends, interest, 4(f) and/or discounts Gains or profits not falling under any of the foregoing paragraphs www.yourwebsite.com 10 With regard to Section 4A, despite the provisions of Section 4 and subject to this Act, the income of a person who is not a resident of Malaysia for the basis year (for a YA) in respect of Section 4A: Amounts paid in consideration of services rendered by the person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus purchased from such person; Amounts paid in consideration of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; or Rent or other payments, made under any agreement or arrangement for the use of any moveable property. MEANING OF CHARGEABLE PERSON The examples of body of A person include : persons would be: (a) Such a person will be the chargeable person (a) Trust; assessable for tax on his income derived from such taxable activities; and (b) Clubs; (b) The tax rate applicable to each category of chargeable person varies – some are taxed at a flat rate while others are taxed at scaled or (a) Trade associations; and reduced rates. Cooperative societies. Section 2 of the Act : A person includes a company, a body of persons, and a sole corporation. Apart from that, body of persons is further defined as an unincorporated body of individuals (not a company), including a Hindu joint family but excluding a partnership. In line with this, in the case of partnerships, it is the individual partner who will be 12 assessed for tax  YEAR OF ASSESSMENT FOR INDIVIDUALS ❖ From 1 January 2000, Malaysia has moved to ❖ Self-assessment was fully implemented in YA 2004. current year assessment. ❖ With effect from YA 2004, the income source of a person other than a ❖ This resulted in the company, trust body, or cooperative society will be on calendar year basis. assessment of income tax ❖ This was done to facilitate the estimation of income tax, payment of tax being concurrent with the and submission of returns, which must be done by taxpayers not later than derivation of the income. 30 April or 30 June of the following year. ❖ The calendar year ❖ With effect from YA 2004, only a company, trust body, and cooperative coinciding with a year of society can have its basis period for a YA to be on a calendar year basis or non-calendar year basis. assessment (YA) shall constitute the basis year for that YA. 13  RESIDENCE STATUS a tax resident will pay income tax based on the gradual rate from 0% to the tax 26% non-tax treatment for Income Tax Act residents and entitled to claim relief resident status is resident is 1967 non-residents and rebates subjected to determined by are different reference to the pay income number of days an tax based on a individual is flat rate of present in 26%. Malaysia during a particular calendar 014 year  How to Determine the Residence Status? Section 7(1) of the Act lays down four circumstances whereby an individual can be regarded as a tax resident of Malaysia : 7(a) He/she is in Malaysia in that basis year for a period or periods amounting in all to 182 days or more; 7(b) He/she is in Malaysia in that basis year for a period of less than 182 days period is linked by or linked to another period of 182 or more consecutive days (hereafter referred to in this paragraph as such period) he is in Malaysia in the basis year for the YA immediately preceding that particular YA or in that basis year Provided that any temporary absence from Malaysia is: - Connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad; - ill health involving himself or a member of his immediate family; - In respect of social visits not exceeding 14 days in the aggregate; 015  How to Determine the Residence Status?...cont’ 7(c) He/she is in Malaysia in that basis year for a period or periods amounting in all to 90 days or more, having been with respect to each of any 3 of the basis years for the 4 year of 7(d) assessments immediately preceding that particular YA either: He/she is resident in Malaysia within the meaning of this Act for the basis year for the YA following that Resident in Malaysia within the meaning of this Act for the particular YA, having been so resident for each of the basis year in question; basis years for the 3 year of assessment immediately preceding that particular YA. In Malaysia for a period or periods amounting in all to 90 days or more in the basis year in question; 016  Example 1 Albert was in Malaysia for the following periods: Year Period of Stay Number of Days Thus, we can say that Albert has qualified as a tax resident for YA 2016 under Section 7(1) (a) as the number of YA 2016 01.01.2016–30.05.2016 150 days he was in Malaysia amounted to YA 2016 01.07.2016–31.08.2016 62 182 days or more in each YA. 17  Example 2 Adam has qualified as a tax resident for YA 2012 under Section 7(1) (b) linked to the following year of assessment 2013 because: Adam was in Malaysia for the following periods (a) He was present in Malaysia for less than 182 days for the Year Period of Stay Number year 2012; of Days 2012 01.10.2012–31.12.2012 92 (b) There is a physical-link presence of 31/12/2012 and 01/01/2013; and 2013 01.01.2013–31.08.2013 243 (c) He stayed in Malaysia for more than 182 consecutive days 2014 01.01.2014–28.02.2014 59 in 2013. 2015 01.01.2015–31.05.2015 151 2015 01.09.2015–31.12.2015 122 For the YA 2013 and 2015, Adam has qualified as a tax resident under Section 7(1) (a) as the number of days in 2016 01.08.2016–31.08.2016 31 Malaysia amounted to more than 182 days for both YAs. On the other hand, for the YAs 2014 and 2016, Adam is not considered as a Malaysian tax resident because the duration of stay for both was less than 182 days each. In addition, the duration is also not connected to or joined by a period of 182 consecutive days.  Example 3 Samsul was in Malaysia for the following periods: Samsul was a Malaysian tax resident for the YA 2012 Year Period of Stay Number of Days until 2016 except for YA 2013. 2012 01.04.2012–30.09.2012 183 2013 01.01.2013–30.03.2013 89 How about the YA 2013? Why was Samsul not 2014 01.02.2014–31.12.2014 334 considered as a resident on that particular year? 2015 01.04.2015–30.10.2015 214 2016 01.08.2016–31.10.2016 92 his status as a resident for the particular YA is as follows: On the other hand, for the YAs 2013, Samsul is not Year Resident Status Section considered as a Malaysian tax resident because the duration of stay for both was less than 182 days each. 2012 Yes 7(1)(a) 2013 No Not applicable In addition, the duration is also not connected to or 2014 Yes 7(1)(a) joined by a period of 182 consecutive days. 2015 Yes 7(1)(a) 2016 Yes 7(1)(c)  Example 4 Munirah was in Malaysia for the following periods On 1 January 2015, Munirah left Malaysia for good to work in Thailand. Year Period of Stay Number of Days 2011 01.01.2011–15.07.2011 196 Based on the information given, we can conclude that the 2012 16.12.2012–31.12.2012 16 residence status for Munirah is stated as follows 2013 01.01.2013–15.07.2013 196 Year Resident Status Section 2014 01.04.2014–15.07.2014 106 2011 Yes 7(1)(a) 2012 Yes 7(1)(b) 2015 No period of stay 2013 Yes 7(1)(a) 2016 01.05.2016–31.12.2016 245 2014 Yes 7(1)(c) 2015 Yes 7(1)(d) 2016 Yes 7(1)(a) Munirah was still a tax resident although she did not stay in Malaysia in the YA 2015. How ? Under Section 7(1) (d) you may be a resident as long as you were a tax resident for the immediate three preceding years and also a tax resident for the following year. No period of stay in Malaysia is required.  Importance of Residence Status Residence status determines whether an individual is a resident or not for the basis year for a year of assessment Non resident : Flat rate of 28% (w e f Year 2016 - 2019) not entitled to claim for reliefs Flat rate of 30% ( for Year of Assessment 2020) Tax Matters Resident Non-resident 1. Scope of charge Income accrued/derived in Malaysia, income Income accrued/ derived in received in Malaysia from outside Malaysia will Malaysia will be taxed be taxed (up to YA 2003) 2. Tax rate Progressive tax rate 0% to 26% Flat rate at 26% 3. Personal relief Yes No 4. Employment income derived in Taxable regardless of number of working days Exempted if it satisfies the Malaysia 60 days test 5. Rebate for chargeable income Can claim RM400 tax rebate No rebate less than RM35,000 6. Royalties from literacy work Exemption No exemption 7. Withholding tax on contract Not applicable Withholding tax between payment, interest, royalty 10% to 15% 8. Interest from financial Taxed at 5% Exemption institution and banks 21 9. Dividend income from approved Exemption No exemption unit trust Exercise ! 1 Describe Section 3 of Income Tax Act 1967. Subject to and in accordance with this Section 3 sets out two circumstances where income tax act, a tax to be known as income tax shall liability arises: be charged for each YA upon the income of any person accruing in or derived from malaysia or received in malaysia from (a) The transaction must be „income in nature and outside Malaysia such income is accrued in or derived from malaysia; or (b) The transaction must be income in nature and it is received in malaysia from outside malaysia (foreign source income). Income tax would be imposed by reference to a upon a personês income. Such person is known as a chargeable person. 2 What are the categories of income according to Section 4(a) and 4A of ITA 1967? Section 4 Types of Income (a) Gains or profits from a business, for whatever period of time carried on (b) Gains or profits from an employment (c) Dividends, interest or discounts (d) Rents, royalties or premiums (e) Pensions, annuities or other periodical payments not falling under any of the foregoing paragraphs (f) Gains or profits not falling under any of the foregoing paragraphs 3 For each year of assessment, please identify whether Michael is a resident or not, and which section is applicable to his case Michael was in Malaysia for the following periods : Year Period of Stay Number of Days Michael qualifies as a tax resident for YA 2015 01.01.2015–17.10.2015 290 2015 – Section 7(1)(a) but not in 2016 as his 2016 01.01.2016–30.05.2016 150 number of days in Malaysia amounted to 165 2016 01.07.2016–15.07.2016 15 days only.  Siti qualifies as a 4 Siti was in Malaysia on the following periods: tax resident for YA 2012 under Section 7(1)(b). Year Period of Stay Number of Days 2012 01.12.2012–31.12.2012 31 2013 01.01.2013–31.08.2013 243 For YA 2013, YA 2014 2014 01.01.2014–01.07.2014 183 and YA 2015, Siti qualifies as a tax 2015 01.01.2015–31.05.2015 151 resident under 2015 01.09.2015–31.12.2015 122 Section 7(1)(a) as the 2016 01.08.2016–31.08.2016 31 number of days in Malaysia is more than For each year of assessment, please identify 182 days for both whether Siti is a resident or not, and which periods. section is applicable in her case : For YA 2016, Siti is not a Malaysian resident as the number of days of her stay is less than 182 days and is not connected to or joined by a period of 182 consecutive days. 5 Muthusamy was in Malaysia for the following periods: Year Period of Stay Determine the Number of Days 31 number of 2012 01.12.2012–31.12.2012 days he 190 2013 01.01.2013–08.07.2013 stayed in Malaysia and 334 2014 01.02.2014–31.12.2014 his residence 214 2015 01.04.2015–30.10.2015 status for 2016 01.08.2016–31.10.2016 each year of 92 assessment. YA Resident? Section Resident statuses for the particular year of 2012 Yes 7(1)(b) assessments are: 2013 Yes 7(1)(a) 2014 Yes 7(1)(a) 2015 Yes 7(1)(a) 2016 Yes 7(1)(c) End of Topic Stay In Touch