BUSINESS INCOME By: Associate Professor Dr. GholamReza Zandi

Introduction 2 Business income is taxed under sec 4 (a)ITA. Business income of individual has calendar year as the basis period [Sec.21] & business income of company has accounting year as basis period [sec 21A(2)]. Business income arises on the day it becomes due and payable to a recipient.

Introduction (Cont’d) 3 Sec. 3 – Territorial jurisdiction of ITA’67 – covers income accruing in and derived from Malaysia and received in Malaysia from outside Malaysia. Sec. 12 – Business income deemed derived in Malaysia under certain conditions (widens tax net).

Definitions 4 Business in sec. 2(1) includes profession, vocation, trade and every manufacture, adventure or concern in the nature of trade but excludes employment. Profession – Indicates an occupation requiring exercise of intellectual skill, i.e. doctor, painter. Vocation – The way in which a man passes his life or calling, i.e. musician, racing bookie, etc.

Definitions (Cont’d) 5 Trade – Every trade is a business but not vice versa. Connotes operations of a commercial nature by which a trader provides goods and services to customers for reward. Adventure in the Nature of a Trade – Wider than trade and can cover one-off transactions that are in the nature of a trade.

Badges of Trade 6 Six badges of trade are used for ascertaining whether a taxpayer’s profits or gains were from a trade or business or capital receipt. The Badges of Trade are as follows: (1)Nature of The Subject Matter Property like commodities or manufactured articles which are normally the subject of trading

Badges of Trade (Cont’d) 7 (2)Period of Ownership The longer the property is held onto, the less likely it was purchased with a trade motive. (3) Frequency of Similar Transactions by Taxpayer Part of a series of such transactions and systematic and methodical activity may constitute an adventure in the nature of trade

Badges of Trade (Cont’d) 8 (4) Supplementary Work Done Prior To Sale Subject matter is enhanced to increase its value / marketability. (5)Organization set-up to dispose goods

Badges of Trade (Cont’d) 9 (6)Motive of Sale The courts will examine schemes designed to disguise the taxpayer’s intentions. The bonus is on the taxpayer to prove that the asset was an investment and not for resale and profit. If there are mixed motives, the dominant purpose will be the relevant one.

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