1. NON BUSINESS INCOME

2. Income Chargeable to Tax
Section 4, ITA 1967
S 4 (a) – Business
S 4 (b) – Employment
S 4 (c) – Dividends, Interest or Discounts
S 4 (d) – Rents, Royalties or Premium
S 4 (e) – Pensions, Annuities or Other Periodical Payments
S 4 (f) – Others 2 2

3. WHAT DISTINGUISHES BUSINESS AND NON BUSINESS INCOME

4. Section 4 Income categories Not always distinguishable
American Leaf Blending
There is scope for overlapping between the paragraphs.
ONE COMPANY
Many Income streams

5. DIVIDEND INCOME

6. DIVIDEND
WHERE IS IT DEFINED
Companies Act?
ITA?

7. DIVIDEND
WHAT EXACTLY IS A DIVIDEND-
In Accounting

8. Accounting Accounting can yeild the wrong result for tax purposes
Where the accounts are based on an analysis of the facts that is wrong in law -CIR v Gardner Mountain & D’ Abrumenil Ltd
Where accounts prepared in accordance with GAAP are found to be based on factual assumptions which are insufficiently reliable -Owen v Southern Railway of Peru Ltd
Where accounts prepared in accordance with GAAP are simply inconsistent with the true facts -BSC Footwear Ltd v Ridgway

9. Dividends distribution/payment out of profits/undistributed profits
Cash
Property
Shares

10. CASES CONSIDERED

11. HILL V PERMAMENT TRUSTEE CO
A company sold its land, livestock and all other assets and ceased trading. The profits from the sale of assets not acquired for resale were not assessed to tax and were divided among shareholders.
Q. Was the sum received income or capital (corpus)
Lord Russell “ moneys paid in respect of shares in a limited company may be income or corpus…… A limited company not in liquidation can make no payment by way of return of capital to its shareholders except as a step in an authorised reduction of capital. Any other payment made by it by means of which it parts with moneys to its shareholders must and can only be made by way of dividing profits. Whether the payment is called “dividend” or “bonus” or any other name, it still must remain a payment on division of profits.”

12. CIR V TRUSTEES OF JOHN REID
The trustees held shares in a trading company incorporated in South Africa and had received a dividend which stated that it was “payable out of capital profits” i.e “ the excess of the sale price over the cost of the warehouses and offices”
Held: the dividend is “income” and accordingly assessable on the trustees. It was not competent for the court to look beyond the dividend and examine the source of the profits out of which it was paid.

13. TPT V DGIR
The Company sold its rubber estate for Rm. 2,200 in Dec The proceeds were placed in FD. On 3 Feb 1974, the company resolved to make “an advance payment of Rm.3.50 to shareholders for every Rm.1 share. The appellant received Rm 35,000. On Sept 1974, another resolution was made to give Rm2.50 for every Rm1.The appellant received Rm 25,000.
In Sept 1978, the Company resoiled to be wound up voluntarily and a liquidator was appointed.
Liquidator demanded repayment of “loans”.
Revenue Department declared it was not “loan” but dividend
Taxpayer contended that it was “Loans”
Held: It was dividends

14. SO when can a “capital” payment be made to a shareholder?

15. CIR V BURREL
Rowlatt J. “… you cannot distinguish a thing after liquidation; that in liquidation there is neither capital nor profits…when the liquidation begins all distinction disappears, and there are only surplus assets, and the shareholders only get this money in that character and you can no longer affect it with the character of profits which have borne Income Tax.

16. Hilton International Ltd v Hilton (1988, 4NZ CLC96)
Hilton International Ltd v Hilton (1988, 4NZ CLC96)
Dividends may not be declared if this would be result in the company being unable to pay its debts as the debts fall due.

17. CAN unrealized capital profits (book value profits) be distributed as dividends.
Scotland,
Westburn Sugar Refineries v IRC (1960) SLT 297
Held : no cash dividend can be paid out of unrealized capital profits but a bonus issue of the shares maybe made.
England,
Dimbula Valley (Ceylon) Tea Co Ltd v Laurie(1961) Ch 353

18. SO WHATS THE POSITION OF
BONUS ISSUE
RIGHTS ISSUE
SHARE BUY BACK

19. DIVIDEND INVESTMENT INCOME- 4(c) TRADING INCOME- 4 (a)
TIE BREAKER- Section 60F

20. Derivation of Dividend Income-section 14
RESIDENT Company- Dividends paid,credited or distributed is deemed derived from Malaysia
NON RESIDENT company- only dividends paid,credited or distributed up to the date it becomes non resident is deemed derived from Malaysia

21. INTEREST INCOME

22. RICHES V WESTMINISTER
Lord Wright “The essence of interest is that it is a payment which becomes due because the creditor has not had his money at the due date. It may be regarded either as representing the profit he might have made if he had the use of the money, or conversely the loss he suffered because he had not that use. The general idea is that he is entitled to compensation for the deprivation…”

23. Interest Investment income – S 4(c) Business income – S 4(a)
trading debts
ordinary course of business
earned by bank / insurance company

24. Derivation of Interest Income
Paid by the Government / State Government
Paid by resident person
Asset
Used in the production of Malaysian income or
Debt
Secured by property/asset situated in Malaysia
Interest expense is deductible against any income accruing in/derived from Malaysia

25. Basis Period of Interest Income
Gross income consists of any interest when it first becomes receivable in the relevant period shall be treated as gross income of the relevant person for the relevant period when it has been received.

26. Basis Period of Interest Income
S 27(2) Overlapping Period
Where the gross interest income receivable overlaps two or more basis periods, then the interest will be apportioned to the relevant period and it is deemed accrued evenly.

27. Basis Period of Interest Income
S 27(2) Overlapping Period (cont’d)
Where part of an overlapping period for which interest is receivable elapsed more than 5 years before the day on which the receipt of that interest income first become known to the Director General, then the interest income is deemed to have accrued evenly over the part of the overlapping period which did not so elapse.
[Proviso (b) of S 27(2)]

28. Basis Period of Interest Income
S 27(3) Overlapping Period (cont’d)
Where the interest income receivable wholly elapsed more than 5 years before the Director General first knew about the receipt, the interest income shall be treated as gross income which began 5 years before the beginning of the Y/A.
[Proviso (c) of S 27(2)]

29. Basis Period of Interest Income
Where the gross interest income is received in advance for more than a basis period, the interest income would not be apportioned but instead be treated as gross income of the period in which it is received.

30. Exempt Interest Interest on
Securities/bonds issued/guaranteed by the Government
Debentures (other than convertible loan stock) approved by the Securities Commission
Bon Simpanan Malaysia issued by Bank Negara Malaysia
Individual
Unit trust
Listed
closed-end
fund
Savings certificates issued by the Government

31. Exempt Interest from bank / finance company ≤ RM100,000
savings / fixed deposit (< 1 year)
from bank / finance company
≤ RM100,000
Resident
Individual

32. Interest Net of Tax RM xx (x) Gross interest Less: 5% tax (S 109C)
Net interest received
Final tax
Resident
Individual

33. RENTAL NCOME

34. Sources of Rent Moveable properties Immoveable properties ship car
machinery
land
shophouse
apartment

35. Rent as Business Source
Where the property concerned is managed & let in such a systematic/organized manner that the letting can be regarded as carrying on a business
Actively provides ancillary or support services/facilities
Public Ruling No. 1/2004

36. Rent as Business Source
Minimum unit owned 1 4
4 Floors
Factory
Warehouse
Office / shopping complex
whole complex
standard lot
Shophouse
Residential property
Mixture of properties
Public Ruling No. 1/2004

37. Derivation of Rental Income
Landed properties
Situated in Malaysia
Assets
Being used in Malaysia

38. Basis Period of Rental Income
Rental income is assessed on receipt basis but it will be treated as gross income for the period when it first becomes receivable.

39. Basis Period of Rental Income
Rental received in advance are assessable in the year of receipt, notwithstanding that it may be subject to refund.

40. Deductible Expenses Quit rent Assessment rate
Cost of repairs & maintenance of property
Insurance premium on fire/burglary
Cost of supervision & rental collection
Cost of obtaining tenant to replace the old tenant
Interest to finance the property
Cost of renewing rental agreement

41. Non Deductible Expenses
Cost of obtaining the first tenant (initial expenses), eg
advertising
commission
legal expenses on the first rental agreement

42. ROYALTY NCOME

43. Derivation of Royalty Income
Paid by the Government / State Government
Paid by resident person
Royalty is deductible against any income accruing in/derived from Malaysia

44. Exemption of Royalty Income
Sch 6
Exemption
Artistic work
Recording disc/tapes
Para 32
Para 32A
Para 32B
Para 32C
Para 32D
RM6,000
RM12,000
RM20,000
Full amount
Translation
Literary work
Original painting
Cultural performance
Musical composition
Resident Individual

45. references

46. text CHAPTER 4-Non business income
CHAPTER 16- investment holding, investment dealing company, venture capital company, leasing income.

47. Question
Sam Co Pte. Ltd, entered into distributorships agreements with several countries including Malaysia, Korea, & S’pore. The bulk of the agreements were with Malaysia.
The Company had a computer system in Hong Kong whereby orders could be taken and relayed to the supplier in UK. In fact orders could be processed from anywhere the officers of the Company were in, doing promotions, through a laptop.
The goods will be shipped from UK to Malaysia or Korea as required.
Invoices to the customer were issued by Sam Co Pte. Ltd and they obtained payments.
Where should the profits be taxed. Are there alternatives. What are the considerations you should take into account. Substantiate with legal cases and articles. Minimum cases 47 47

48. Question Minimum 10-15 cases
Express Bus Co. operated its service for several routes in Malaysia and S’pore
Also sold tickets in S’pore through an agent.
In accounts Malaysian tickets were shown separately from tickets sold in S’pore.
Return tickets were also sold in Malaysia to people who resided in S’pore
Where are the profits derived from. What are the issues you should consider. Support your contention with legal cases and a critical analysis.
Minimum cases 48 48

49. LIBRARY PROJECT Make a digital compilation of all tax cases
From the commencement to 2009.
Malaysia
Singapore
Hong Kong
Each case must include the:
Full text case and hyperlinked to
A Fully illustrated summary with annimation of each case
The cases must be divided into chapters
according to topics Eg.Tax administration,Business Income,Non Business Income,Employment Income,Capital allowances,Deductions....
There must be one section for Tax cases on Financial instruments-eg derivaties.
(Marks to be allocated 20)