Gain on disposal of land – RPGT or Income Tax??

Let’s understand from a Real tax case: KST vs KETUA PENGARAH HASIL DALAM NEGERI

What is this case study?

KST sold a land to a developer company, amounting to RM1,520,000.00.  IRB argued the disposal of land is subject to Income Tax Act 1967 (ITA).

 
KST did not agree

• Initial intention is to distribute land to 9 siblings and no intention for trade purpose.
• After that, KST dispose the land when KST received an offer from developer.

So, the gain from disposal of land is not subject to ITA1967.

What is IRB argument?

• The initial intention has changed.
• The holding period is short.
• KST is one of the director of land acquired company.
• Improvement on land is done before the disposal.

So, the gain from disposal of land is subject to Income Tax Act 1967 (ITA1967).

Decision by Special Commissioners of Income Tax:

Special Commissioner agreed with IRB tax treatment. Gain from disposal of land is subject to Section 4(a) ITA 1967.

What is the difference between RPGT and ITA?

The main difference is the “tax rate”. Let’s see the comparison as follows (tax rate for year of assessment 2020):

For individual (resident):

Income tax : Graduated rate from 0% to 30%

RPGT

• Disposal within 3 years from date of acquisition - 30%
• Disposal in the 4th years from date of acquisition - 20%
• Disposal in the 5th years from date of acquisition - 15%
• Disposal in the 6th years from date of acquisition - 5%

For company (resident)

Income tax

• 17% on the first RM600,000.00 of chargeable income*
• 24% on the subsequent balance of chargeable income

 *Resident company with paid up capital of RM2.5 million and below at the beginning of the basis period and having gross income from source or sources consisting of a business not more than RM50 million for the basis period for a year of assessment.

RPGT

• Disposal within 3 years from date of acquisition - 30%
• Disposal in the 4th years from date of acquisition - 20%
• Disposal in the 5th years from date of acquisition- 15%
• Disposal in the 6th years from date of acquisition - 10%

How to determine the disposal is subject to RPGT or ITA?

The badges of trade should be considered:

1. Method of acquisition of real property - How was the property acquired? For example, inheritance, through open market or auction.
2. Nature of the real property - Whether the property is generating rental income or left for vacant?
3. Number of transactions - Frequent transaction is likely to indicate trading of properties and subject to income tax.
4. Profit seeking motive - Intention of making profit will be subject to income tax.
5. The period of ownership - How long was the property held before disposal?
6. Alteration, modification or improvement made to the real property - Renovation or improvement of property before disposal may be viewed as effort to enhance the value of the property, it may subject to income tax.
7. Source of financing - How was the purchase of property financed? Short-term or long term borrowing?
8. Circumstances surrounding the sale - What were the circumstances leading to the sales of property?  Was the property sold because of realise profit or emergency need of funds?

𝐕𝐢𝐬𝐢𝐭 𝐮𝐬 :

• Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

• Wisma 𝐓𝐇𝐊, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

𝐊𝐓𝐏

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Latest development on filing CP 21 & CP 22A online.

Following our first sharing of E-SPC on CP forms on 19/1/2021, it appear some LHDN's branches in Malaysia

1️⃣Stop submission via E-SPC online

2️⃣Stop submission via email.

What is your current practice in your location? Care to share?

Look like LHDN mandatory choice of CP form submission over the counter physically.

𝐕𝐢𝐬𝐢𝐭 𝐮𝐬 :

Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

Wisma 𝐓𝐇𝐊, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

𝐊𝐓𝐏

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• Instagram 

• Linkedin 

• Telegram 

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𝐓𝐇𝐊 (Our associate in secretarial & accounting services)

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Reinvestment Allowance (RA) - Part 1

What is reinvestment allowance?

Reinvestment allowance (RA), as the name suggests, is an incentive to encourage companies to reinvest and expand their businesses. It is only granted after the company has been in business for a certain period of time, and only to companies resident in Malaysia.

How good is reinvestment allowance?

The allowance is given for 15 years from the first year of claim. The allowance is computed at 60% of QCE incurred and can be utilised against 70% of statutory income

Latest development in reinvestment allowance

Budget 2021 has announced that a special Reinvestment Allowance (RA) will be given for eligible manufacturing and agricultural projects in Years of assessment (YA) 2020 to YA 2022.

This means that eligible companies that have fully utilized their 15-years RA can enjoy additional RA claims for 3 years (YA2020 to YA2022).

Key takeaways:

1. What is Reinvestment Allowance (RA)?

2. Period of Eligibility

3. Conditions of Eligibility

What is Reinvestment Allowance (RA) for manufacturing?

Reinvestment Allowance (RA) is an incentive for manufacturing companies to encourage reinvestment or continued investment by foreign and domestic investors. 

Period of Eligibility

The eligible company is entitled to claim RA for 15 continuous years.

Conditions of Eligibility 

Manufacturing company has to meet the following criteria to be eligible for this allowance:

1. Operates in manufacturing business for at least 36 months.

2. Definition of manufacturing for the purpose of RA as follows:-

              i.      Conversion of organic or inorganic materials into a new product;

             ii.      Assembly parts into pieces of machine or products; or

            iii.      Mixing of materials by chemical reaction processes

This means that activities such as installation of machinery or simple operations that does not requires special skills or equipment are not considered as manufacturing in the context RA.

3.     Company is a Malaysia resident (at least held one meeting of Board of Directors in Malaysia in the year).

1. Company has incurred capital expenditure on a factory, plant or machinery used in Malaysia for the purposes of a qualifying project in the year of tax claim.

So what are the projects that are qualified for this allowance?

Stay tuned to next week e-KTP for Reinvestment Allowance Part 2

Source LHDN Public Ruling 10/20 Reinvestment Allowance : PR10/2020

𝐕𝐢𝐬𝐢𝐭 𝐮𝐬 :

• Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

• Wisma 𝐓𝐇𝐊, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

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We are not happy with Wages Subsidy Program (WSP) 3.0

𝐎𝐮𝐫 𝐚𝐩𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐖𝐒𝐏 𝟑.𝟎 𝐢𝐬 𝐫𝐞𝐣𝐞𝐜𝐭𝐞𝐝 because staffs have 𝐫𝐞𝐬𝐢𝐠𝐧𝐞𝐝 (𝐧𝐨𝐭 𝐭𝐞𝐫𝐦𝐢𝐧𝐚𝐭𝐞𝐝) since WSP 1.0 and WSP 2.0

We understand one of conditions is to 𝐦𝐚𝐢𝐧𝐭𝐚𝐢𝐧/𝐤𝐞𝐞𝐩 𝐚𝐥𝐥 𝐬𝐭𝐚𝐟𝐟𝐬 𝐮𝐧𝐝𝐞𝐫 𝐖𝐒𝐏? But...If staff want to resign, what can we do?

𝐇𝐚𝐯𝐞 𝐲𝐨𝐮 𝐞𝐱𝐩𝐞𝐫𝐢𝐞𝐧𝐜𝐞𝐝 𝐬𝐮𝐜𝐡 𝐢𝐧𝐜𝐢𝐝𝐞𝐧𝐭? 𝐂𝐚𝐧 𝐰𝐞 𝐚𝐩𝐩𝐞𝐚𝐥?

Background of WSP 3.0

WSP is back, are you eligible to apply?

Budget 2021:

1. Tourism and retail industries only
2. Date of application: 1st Jan 2021 - 30th June 2021
3. Period of subsidy:
   - Existing applicant 3 months
   - New applicant: 6 months
4. Subsidise amount: RM600 per employee with salary under RM4,000

PERMAI:

1. Open to all industries in states in MCO
2. Date of application: 19th Jan 2021 - 30th June 2021
3. Period of subsidy: One month
4. Subsidise amount: RM600 per employee with salary under RM4,000

Condition of WSP 3.0:

1. Company have to apply thru SOCSO website
2. Only for Company with revenue reduced by 30%
3. Company is registered with SOCSO or PERKESO before 1/1/2021
4. Up to 500 employees (based on size of entity) can be claimed for WSP3.0
5. If employees resign voluntarily, Company only need to update the list of employee before 15th of the month

Entity size under WSP 3.0

1. Below 75 employees (Number of limit which can claimed : 75 employees)

2. 76 to 200 employees (Number of limit which can claimed : 200 employees)

3. More than 200 employees (Number of limit which can claimed : 500 employees)

Source of WSP 3.0

𝐕𝐢𝐬𝐢𝐭 𝐮𝐬 :

• Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

• Wisma 𝐓𝐇𝐊, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

𝐊𝐓𝐏

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The development on accounting for lease

Effective from 1 January 2019, IAS 17 Leases will be replaced by MFRS 16 with the following changes.

• The leases are no longer classified into operating leases or finance leases
• All leases are capitalised by recognising a lease liability and the right to use of assets on balance sheet.

 This means that the Company which takes up leases that only allows the right of use of asset, and not the ownership of assets, will also need to recognise its right to use the assets (Asset) first, and later on expense off to the interest (Expenses) and depreciation of the assets (Expenses).

This affects the balance sheet of the company as the old accounting standards only requires Company to disclose these leases on the profit and loss.

The new standard on MFRS 16 and the effect on financial statements are as follows:-

• A ‘right-of-use’ model replaces the ‘risks and rewards’ model.
• Lessees should recognise an “right-of-use” asset and lease liability based on the payment under lease
• The lease liabilities must be measured to the lease term (optional lease period)
• Lessees should reassess the lease term only upon the occurrence of a significant event or a significant change in circumstances that are within the control of the lessee
   

Double entry of accounting for leasing

For leases that allows right of use but the lessee does not have ownership at the end of the lease(i.e. renting an asset), the new accounting standard requires Company to recognise the lease on the assets and liability on balance sheet. So, at the commencement of lease, based on the contract of rental, the lessee will need to present the contracted rental payment as follows:

• Dr Right of use of asset
• Cr Lease liability

The asset and liability will be slowly reduced when the payment are made, as the company will expense off these expenses to profit and loss (i.e. interest paid, rental expenses/depreciation).

• Dr Lease liability
• Dr Interest paid
• Dr Rental expenses paid
• Cr Cash at bank paid
• Cr Right of use of assets

Recognition of lease

To recognize the right of use and lease liability by:

 Right of use – measured by cost /fair value/ revaluation method

• obtain substantially all of the economic benefits from the use of the identified asset throughout the period of use
• direct the use of the identified asset throughout that period

Lease liability – Lessee needs to recognize on interest of lease liability

• there is an identified asset
• has the rights to all of the economic benefits from that asset
• directs the use of that asset, including how and for what purpose

Exemption

There has two specific exemptions where leases do not need to be reported on balance sheets:

• Leases with a term of 12 months or less with no purchase option
• A lease where the value of the item is low value.

Sources

𝐕𝐢𝐬𝐢𝐭 𝐮𝐬 :

• Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

• Wisma 𝐓𝐇𝐊, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

𝐊𝐓𝐏

• Website 
• Instagram 
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𝐊𝐓𝐏 𝐂𝐚𝐫𝐞𝐞𝐫 (Our job platform for interns, graduates & experienced candidates )

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𝐓𝐇𝐊 (Our associate in secretarial & accounting services)

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We are one-stop (20 years+ history) audit, tax, secretarial, accounting and payroll firms which commit to help and grow our clients business.

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What is MyTax App? 你知道什么是“MyTax”吗？

 Ms C (Tax Agent):

我知道！这是一个方便纳税人查看税务的软件。你就可以查询并使用更多相关的税务服务。只要点击分类账， 你就可以查询自己有没有拖欠的税务. 并查询有关的税务估算表（CP500）。

I know! This apps is for taxpayer to check on their tax details.  Click the “Favourite Service” to get more functions.

You can check any tax overdue by clicking on the “ledger” or check on your CP500 details.

 Question : 这个软件有什么好处呢? Is this app good to use?

• 纳税人能更方便的查询个人的税收信息。
  Easy for taxpayer to check on their own tax details
   
• 节省时间，成本和交通，无需去LHDNM柜台询问税收信息，因为一切都触手可及
  Save time, cost and movement as taxpayer no need to visit LHDNM office to check the tax information
   
• 允许用户使用一个用户名（ID）和密码登录到多个相关软件系统，并使用LHDNM所提供的其他服务。
  Allows taxpayer to use single ID and password to login and access difference LHDNM systems and services provided

 Question : 怎样下载MyTax？How to download MyTax？

• 安卓用户可以通过 google play store下载 + 苹果用户可以在 app store下载
  Android or IOS user can download the apps from either google play store or app store

Source: MyTax official website

𝐕𝐢𝐬𝐢𝐭 𝐮𝐬 :

• Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

• Wisma 𝐓𝐇𝐊, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

𝐊𝐓𝐏

• Website 
• Instagram 
• Linkedin 
• Telegram 

𝐊𝐓𝐏 𝐋𝐢𝐟𝐞𝐬𝐭𝐲𝐥𝐞 (Our internal community for our colleagues)

• Tiktok 
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𝐓𝐇𝐊 (Our associate in secretarial & accounting services)

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We are one-stop (20 years+ history) audit, tax, secretarial, accounting and payroll firms which commit to help and grow our clients business.

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Form EA 有什么?

Part A - 雇员的资料

• 姓名

• 工作职位

• 工作编号

• IC号码

• EPF 号码

• 加入日期和辞职日期（如果少于一年）

Part B - 就业收入，福利，住宿

• 收入

• 拖欠收入 (payment in arrears)

• 福利价值

• 住宿价值

• 未经’批准’的EPF或退休金退款

• 失业赔偿

Part C - 退休金

• 退休金

• 年金 (annuity)

Part D - 扣除总额

• 预扣税金

• 年金 (annuity)

• CP 38 扣款 (税收局向积欠税款的纳税人雇主，发出“扣除工资令)

• 伊斯兰援助金 (Zakat)

• 员工通过表格TP1扣除的回扣金额

• 孩子回扣金额

Part E ：Approved 退休金或公积金、基金或社团的缴纳总额

• EPF

• Sosco

Visit US

• Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

• Wisma 𝐓𝐇𝐊, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP

• Website www.ktp.com.my

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We are one-stop (20 years+ history) audit, tax, secretarial, accounting and payroll firms which commit to help and grow our clients business.

1. Director of the control company = an employee of company for tax purpose?
2. Does the exemption extend to directors of a controlled company like for any other employees of the company?

1. The holding of shares or
2. The possession of voting power in or
3. By  virtue  of  powers conferred  by  the  articles  of  association  or  other  document.

Overview of CP 500:

Every February or March of the year, the taxpayer shall receive the CP500 from LHDNM through post or email notification.

CP500 is a tax instalment scheme issued by LHDNM to individual taxpayer who carrying business income. For example, sole-proprietor, self-employed, partnership, person who received rental income or royalties.

Key takeaway:

You will understand:

a)    What is CP500?

b)    What is the due date for CP500?

c)    What is the penalty for late payment on CP500?

d)    Can taxpayer do revision for CP500?

e)    Any penalty for revising CP500?

Summary of Learning

 a)    What is CP500?

This is the tax instalment issued by LHDNM for individual taxpayer who has income other than employment income such as business income, rental income and royalties.

 If you not yet receive the letter by end of March, you may visit the tax office or contact LHDNM for more details.

 However, taxpayer may not receive the CP500 if the taxpayer is making losses in last two years or just commenced the business.

b)    What is the due date for CP500?

The tax estimate has to be paid bi-monthly in 6 instalments and the payment for each instalment should be made within 30 days from the date of payable (March, May, July, September, November and January).

c)    What is the penalty for late payment?

If the taxpayer fail to make the tax instalment on time, LHDNM will impose a 10% penalty on the outstanding balance. The penalty is to be self-assessed and paid to the LHDNM.

 d)    Can taxpayer do revision for CP500?

Taxpayer is allowed to revise the CP500 by submitting Form CP502 to respective LHDNM Branch if they have any valid reason.

However, the revision must be submitted on or before 30 June of current year of assessment. LHDNM will issue the CP503X once they have approved for the revision.

 e)    Any penalty imposed for the revision?

If the revised tax payable (CP502) is 30% lower than actual tax payable, the difference will subject to a 10% penalty.

[(Actual tax payable – Estimated tax payable) – (30% x Actual tax payable)] x 10%

Sources:

CP502 Explanation Notes:

http://phl.hasil.gov.my/pdf/pdfam/CP502_NOTA_PENERANGAN_2.pdf
 

𝐕𝐢𝐬𝐢𝐭 𝐮𝐬 :

• Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

• Wisma 𝐓𝐇𝐊, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

𝐊𝐓𝐏

• Website 
• Instagram 
• Linkedin 
• Telegram 

𝐊𝐓𝐏 𝐋𝐢𝐟𝐞𝐬𝐭𝐲𝐥𝐞 (Our internal community for our colleagues)

• Tiktok 
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𝐓𝐇𝐊 (Our associate in secretarial & accounting services)

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We are one-stop (20 years+ history) audit, tax, secretarial, accounting and payroll firm which commit to help and grow our clients business.

How to compute PCB on BIK or perquisites?

实物利益和额外津贴如何计算PCB?

Situation 1: Benefit-In-Kind (情况1：实物利益)
 

• ABC Sdn Bhd provided motorcar with petrol to his employee – Mr X.
  ABC Sdn Bhd 提供一辆汽车和汽油给员工- Mr X.
   
• The motorcar cost is RM 120,000.00.
  那辆汽车价值是RM 120,000.00.
   
• According to prescribed value method the BIK value is RM 5,000.00 (motorcar) + RM 1,500.00 (petrol) = RM 6,500.00 per annum.
  根据规定的价值方法，实物利益的价值是RM6,500一年 （RM 5,000.00 – 汽车 + RM 1,500.00 – 汽油）
   
• Therefore, we must include the BIK value in monthly PCB calculation. The monthly BIK value is RM 6,500.00 / 12 months = RM 541.67. Then the BIK value of RM 541.67 required to fill under “benefit-in-kind” during the monthly PCB calculation
  因此，我们必须在计算每月的预扣税中填写实物利益的价值。每月实物利益的价值是RM541.67 (RM6,500.00除12个月)

 Situation 2: Perquisites 情况2：额外津贴

• Ms Y received gift from her employer on her birthday.
  Y小姐在生日当天收到老板送的一份礼物。
   
• The gift is LV handbag.
  那份礼物是LV包包。
   
• LV handbag cost RM 6,550.00
  LV包包价值 RM 6,550.00。
  
   
• In this situation, the LV handbag value – RM 6,550.00 should include in the monthly PCB calculation (please refer to diagram 2).
  在这种情况下，LV包包的价值- RM 6,550.00需要填写在每月计算的预扣税中。

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𝐁𝐨𝐧𝐮𝐬 𝐄𝐱𝐚𝐦𝐩𝐥𝐞 : 𝐖𝐡𝐞𝐧 𝐭𝐨 𝐝𝐞𝐜𝐥𝐚𝐫𝐞 𝐛𝐨𝐧𝐮𝐬 𝐢𝐧𝐭𝐨 𝐅𝐨𝐫𝐦 𝐄𝐀? 花红几时需要报进Form EA?

Situation 1: 情况 1：

• ABC Sdn Bhd financial year ended is 31/12/2020.

ABC Sdn Bhd 年度财务报表截至于31/12/2020。

• Ms Account had accrued the bonus dated 31/12/2020 and paid out on 20/01/2021.

Account小姐姐应计花红在31/12/2020然后支出于20/01/2021。

• EPF and PCB submit under the month of January 2021.

公积金和每月预扣税申报于1月2021年。

In this case, the bonus should be filled under Form EA 2021.

在这情况下这笔花红需填写进2021年的Form EA。

Situation 2: 情况2：

• ABC Sdn Bhd financial year ended is 31/12/2020.

ABC Sdn Bhd 年度财务报表截至于31/12/2020。

• Ms Account had accrued bonus dated 31/12/2020 and paid out on 05/01/2021.

Account小姐姐应计花红在31/12/2020然后支出于05/01/2021。

• EPF and PCB submit under the month of December 2020.

公积金和每月预扣税申报于12月2020年。

Conclusion (结论)

• The declaration of bonus is according to the payment date.

• 花红申报是根据付款日期。

• In this case, the bonus should be filled under Form EA 2020.

• 在这情况下这笔花红需填写进2020年的Form EA。

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公司给顾客或供应商的红包可以扣税吗？

根据业务招待费中的第10条的第6项中提到的“给现金”是不能扣税的，例如赞助顾客年度晚宴的现金。

但是在业务招待费中的第7.7(c)条文中有提到，如果公司是因为推广新的产品时给予顾客的现金礼券，购物券等等就可以享有一百巴仙的扣税。

Supporting information

Public Ruling 4/2015 Entertainment Expense

7.7 The provision of entertainment related wholly to sales arising from the business - proviso (vii) to paragraph 39(1)(l) of the ITA. 

Expenditure incurred on entertainment which is related wholly to sales arising from the business.

c) cash vouchers, discount vouchers, shopping vouchers, meal vouchers, concert or movie tickets;

10.6 Cash contribution for customer’s annual dinner

10.6 赞助顾客年度晚宴的现金

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