BUDGET 2016 PROPOSALS – COMPANIES

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CHANGES AFFECTING COMPANIES

a)     TAX TREATMENT OF DEFERRED INCOME/ADVANCE RECEIPTS AND THE RELATED REFUNDS

CURRENT PRACTICE – Pursuant to Section 24(1) of the Income Tax Act, income from a business should be taxable in the basis period in which the debt has arisen. For there to be a debt owing, services must be rendered or property must be dealt with.

PROPOSED – Whether or not there is any debt owing in respect of the services of property, any sum received by a person in a relevant period in the course of carrying on a business from any services to be rendered or the use or enjoyment of any property to be dealt with subsequent to that relevant period, the sum shall be treated as the gross income of that person from the person in the relevant period that the sum is received. In short, deferred income/advance receipts will be taxable in the year of receipt even if there is no debt arises.

Where the deferred income/advance receipts brought to tax is refunded in a basis period for a year of assessment, the said amount shall be deducted from the relevant gross income of the relevant person in the basis period for that year of assessment.

The proposal is effective from YA2016.

 b)    NOTIFY INLAND REVENUE BOARD WHEN INTEREST PAYABLE IS DUE TO BE PAID

CURRENT PRACTICE – Interest payable for a basis period is deductible only if the interest is due to be paid and the deduction would be given in the year the interest is payable.

PROPOSED – A person shall notify the Inland Revenue Board in writing for a tax deduction on the sum payable which is due to be paid not later than 12 months from the end of the basis period for the year of assessment when the said sum is due to be paid. Upon receipt of the notice, the IRB may reduce the assessment that has been made in respect of such sum.

The proposal is effective from YA2016.

 c)     REDEFINITION OF SME FOR SPECIAL ALLOWANCE ON SMALL VALUE ASSETS

In order to enjoy the above incentive without limit, the resident SME must also be incorporated in Malaysia.

The proposal is effective from YA2016.

d)     ENTITLEMENT TO INDUSTRIAL BUILDING ALLOWANCE (IBA)

A person who owned and used the following buildings for the purpose of letting of property (including business of letting property) would not be entitled to (IBA) even if the building that he leases out is used as an industrial building as defined in Schedule 3 of the ITA.

    • Licensed private hospital, maternity home and nursing home;
    • Building used for research;
    • Warehouse;
    • Building used for approved service project;
    • Hotel;
    • Airport;
    • Motor racing circuit;
    • Building for the provision of living accommodation for employees employed in the business of manufacturing, hotel or tourism project, approved service project, child care facilities for employees; and
    • School/education institution.

The proposal is effective from YA2016.

 e)     TAX ADJUSTMENT IN RESPECT OF ANY PART OF AN ASSET WHICH HAS CEASED TO BE USED FOR THE PURPOSES OF A BUSINESS DUE TO REPLACEMENT OF A NEW PART

Any part of an asset which ceases to be used for purposes of a business due to its replacement with a new part of an asset shall be deemed to have been disposed of under Schedule 3 of the ITA if the part is depreciated separately in accordance with generally accepted accounting principles (GAAP). The qualifying expenditure of the part of the asset shall be determined in accordance with the GAAP and the residual expenditure shall be determined in accordance with Schedule 3.

The proposal is effective from YA2016.

 f)     IMPLICATION ARISING FROM GST INPUT TAX TREATMENT ON CAPITAL ALLOWANCE (CA), REINVESTMENT ALLOWANCE (RA), INVESTMENT ALLOWANCE (IA) AND

          INVESTMENT TAX ALLOWANCE (ITA)

A) Exclusion of GST input tax from qualifying expenditure

GST input tax paid or to be paid by a person to be excluded from the amount of qualifying expenditure for the purpose of CA under Schedule 3, RA under Schedule 7A, IA for service sector under Section 7B and ITA under Promotion of Investment Act 1986 (PIA), if the person is:

i.    Liable to be registered under the GSTA and has failed to do so; or

ii.   Entitled under GSTA to credit on that amount as input tax.

B)   Adjustment to input tax under the GST Act

Any adjustment to the qualifying expenditure of an asset as a result of any adjustment to input tax under GSTA shall only be made in the basis period for a year of assessment in which the period of adjustment related to the asset as provided under the GSTA ends except in the case of a disposal of asset. In the latter situation, the adjustment shall be made in the year of assessment of disposal has been made. Relevant provisions are inserted in Schedule 3, Schedule 7A & Schedule 7B of the ITA and PIA.

 If the above adjustment results in:

i.        Additional amount – the relevant amount shall be deemed to be part of the qualifying expenditure for the purpose of CA under Schedule 3, RA under Schedule 7A, IA for service sector under Section 7B and ITA under PIA

ii.      Reduced amount – for the purpose of CA, the relevant amount shall be reduced from the qualifying and residual expenditure and if the reduced amount exceeds the residual expenditure the excess shall be treated as part of the

          statutory business income. For the purpose of RA, IA an ITA, the relevant amount shall be deemed to be part of the statutory business income.

C)  Computation or recomputation of ITA under PIA

The IRB is empowered to make a computation or recomputation of ITA under PIA or the amount of statutory business income for a year of assessment with regard to adjustment made on input tax under the GSTA, in the basis period for the year of assessment the adjustment is made or at any time as may be necessary to give effect to such adjustment.

           The proposal is effective from YA2015.

 g)      DEDUCTIBILITY OF GOODS AND SERVICES TAX

No deduction for input tax if the person who is liable to be registered under the Goods and Services Tax Act 2014 (GSTA) fails to do so or if he is entitled to credit that amount as input tax. Please exercise care when using the BL, OP, EP and NR tax codes as it will affect your tax computation.

           No deduction for output tax which is borne by a person who is registered or liable to be registered under the GSTA.

           The proposal is effective from YA2015.

 

 

 

 

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