NON-BUSINESS INCOME
By:
Associate Professor Dr. GholamReza Zandi
zandi@segi.edu.my
Introduction
This session we discuss about unearned income (i.e. income
other than business income and employment income).
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Dividends
 Definition – Profit generated by a company (whether capital or
revenue in nature) which is distributed to its shareholders. It is
taxable in shareholders’ hands as dividends under sec 4(c).
 Dividend distributed by a company resident in Malaysia is deemed
derived from Malaysia (sec 14).
 Basis of assessment – Calendar year basis for individuals; and
accounting year basis for companies).
 Recognition – Dividend (whether cash or non-cash) is treated as
paid or distributed on the day when cash or equivalent is posted or
delivered [sec 23(b)].
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Imputation System
•
Malaysia practiced the imputation system for several years and replaced it
with the single tier system in 2008.
•
Under the imputation system, tax was deducted at source. Dividends paid by
Malaysian resident companies are subject to 25% tax deduction at source [sec
108(1)].
•
Gross amount of dividend is brought to tax in shareholder’s hands and credit
for tax deducted is then given to shareholder (sec 26).
•
This system imposed tax at companies’ and shareholders’ level but took into
account the tax imposed at company level by giving the shareholder tax
credits.
•
Involves significant administrative costs to ensure compliance.
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Single Tier System
 Single tier system (STS)was introduced to simplify and enhance efficiency
of tax administration.
 Tax on companies’ profits is final, at 25% corporate tax.
 Thus, dividends distributed to shareholders are not taxed in the hands of
the shareholders.
 All companies automatically move to STS on 1.1.2014.
 There is a 6 year transitional period from 1.1.2008 to 31.12.2013.
o Companies with no credit balance in Sec. 108 account on 1.1.2008 or
any time thereafter, automatically move to STS;
o Companies with sec 108 balance can elect to switch to STS;
o Otherwise imputation system applies to them until 1.1.2014.
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Interest Income
• Definition – Interest is payable for the use of another party’s sum of
money, i.e. the principal. Interest is taxable under sec 4 (c).
• Sec. 15 – Interest or royalty income is deemed derived from
Malaysia if any of the conditions under sections 15 (a) or (b) or (c) is
present.
• Basis of assessment is the calendar year basis for individuals and
accounting year basis for companies.
• Recognition – Date when interest is received (sec 27) i.e. when it
becomes due and payable or taxpayer is entitled to receive it on
demand (sec 29).
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Exemptions
• Tax Exemption on interest from deposits with Malaysian Banks and
financial institutions by resident individuals - Income Tax
(Exemption) (No.7) Order 2008 .
• Tax Exemption on interest from deposits with Malaysian banks/
finance companies by non-resident individuals & companies (para
33 Schedule 6).
• Individuals and unit trusts exempt from interest and discount income
derived from investment in bonds and securities issued by
Government, Securities Commission and Bank Negara Malaysia
(Para 35 Schedule 6).
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Discounts
 The definition only covers discount derived from treasury bills,
discounting of bills of exchange and promissory notes.
 Taxable under sec 4 (c) unless recipient of discount is carrying
on a regular business of discounting, i.e. financial institutions,
then it is taxable under sec 4 (a) as a business income.
 Basis of assessment is calendar year basis for individuals; and
accounting year basis for companies.
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Rents
 Definition – Includes any sum paid for the use or occupation of any
premises or part thereof or for the hire of anything (i.e. movable &
immovable). It is taxable under sec 4(d) ITA
 Basis of assessment is calendar year basis for individuals and
accounting year basis for companies.
 The mere renting of property is not in itself carrying on a business and so
is not sec 4 (a) income.
 If number of properties are owned or a company properties are rented
out, it may be a business income taxable under sec 4(a).
 Recognition: Rent is treated as being received if it is payable on demand
(sec 29).
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Royalties
• Royalties: Taxable under sec 4(d) ITA
• Sec.15- deemed derived from Malaysia
• Basis of assessment is a calendar basis for individuals; and
accounting year basis for companies.
• Exemptions given to resident individuals under paragraphs
32, 32A, 32B , 32C, 32D and 32E, Schedule 6.
• Royalties paid to non-residents are subject to withholding tax
under sec 109.
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Premium
 The word premium is defined as a “once and for all payment”
made by the lessee as a consideration for the right to enter
into a lease agreement or for the grant of a lease.
 Premium is taxable under sec 4(d) ITA if received by a person
renting properties.
 Basis of assessment is on a calendar year basis if received
by individuals; and financial year for companies,
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Pensions
 A pension is a contractual or voluntary payments made to a
an individual who has retired or ceased to hold an office or
employment
 Pensions – Taxable under sec 4(e) ITA
 Basis of assessment: calendar year basis
 Exempted pensions Certain pensions are exempted from
income tax under paragraphs 30 and 30A Schedule 6
 Deemed derivation of pension (sec 17 ITA)
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Annuities
• An annuity is defined as a definite sum of money payable on a
regular basis, annually or by installments, either in perpetuity for life
or a fixed term under a contract, will or settlement .
• Annuities: Taxable under sec 4(e) ITA
• Annuity paid by Malaysian life insurers is exempted para 36 of
Schedule 6 ITA.
• With effect from YA 2012 , income from annuity scheme funds have
been streamlined with other retirement scheme funds and are tax
exempt (before 2012, there was an 8% tax on income from such
annuity funds).
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The End