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CORPORATE INCOME TAX

ADDENDUM TO
THE GUIDEBOOK
2009

ADDENDUM
ITEM EXPLANATION

A24 Permitted expenses under section 60F or 60H


- Determination of investment holding company status and
additional example on the computation of permitted
expenses under section 60F in relation to single tier
dividends

8 Julai 2010
Part I : Form C

PART A: STATUTORY INCOME, TOTAL INCOME AND CHARGEABLE INCOME

Item Subject Explanation Working Appendix


Sheet

A24 Permitted Additional explanation on Item A24 of the C 2009 - -


expenses Guidebook
under section
60F or 60H Investment Holding Company
In the determination of investment holding company
status, single tier dividend income has to be taken
into account [subsection 60F(2) of the Income Tax
Act (ITA) 1967].

However with effect from Year of Assessment 2008,


paragraph 12 B of Schedule 6 ITA 1967 does not
allow any expenses incurred in relation to single
tier dividend. Therefore with effect from Year of
Assessment 2008, permitted expenses related to
single tier dividend is not allowed as a deduction
from the aggregate income of an investment holding
company.

Additional Example:

Investments Cost of Investment (RM) Gross Income (RM)


Investment 1 800,000 Dividends 120,000 *

Investment 2 600,000 Single Tier Dividends 100,000 *


(not taxable)

Investment 3 500,000 Dividends (exempted) 80,000 *

Fixed deposits 100,000 Fixed deposit interest 15,000 *

Investment in 500,000 Distribution of income 90,000


Bintang REIT from Bintang REIT

- - Management service 35,000


fees

- - Profit on realisation of 150,000 *


investments

Expenses claimed Amount (RM)


Directors’ fees 20,000
Salaries and allowances 15,000
Management fees 7,000
Audit fees 5,000
TOTAL: 47,000

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Item Subject Explanation Working Appendix
Sheet

The amount of permitted expenses is determined


according to the formula in section 60F i.e.:
B
A x
4C
where,
A - EXCLUDING expenses incurred in relation
to single tier dividends.

Under paragraph 12 B of Schedule 6 of


ITA 1967, expenses incurred in relation
to single tier dividends are not allowed
as a deduction against taxable dividends
(‘franked dividends’).

B dan C - EXCLUDING gross income from single


tier dividends.

(a)(i) Determine amount A i.e. permitted expenses which


exclude the portion of permitted expenses incurred
with respect to single tier dividends

RM
Directors’ fees 20,000
Salaries and allowances 15,000
Management fees 7,000
Audit fees 5,000
Total expenses allowed: 47,000

A = Permitted
expenses
_
( expenses
Permitted
X
Single tier dividend income
Total income (marked * ) )
_
= 47,000
( 47,000 X 100,000
465,000 )
= 36,892

(ii) Determine amount B.


RM
Dividends 120,000
Fixed deposit interest 15,000
Total: 135,000 ( B )

(iii) Determine amount C.


RM
Dividends 120,000
Dividends (exempted) 80,000
Fixed deposit interest 15,000
Profit on realisation of investments 150,000
Total: 365,000 ( C )

2
Item Subject Explanation Working Appendix
Sheet

(b) Determine the amount of permitted expenses allowed


as a deduction based on formula:
B
A x
4C

= 36,892 X 135,000
4 x 365,000

= 3,411

and compare with 5% of gross income from dividends,


interest and rent,

( 135,000 x 5% ) = 6,750

whichever is lower.

Hence, the amount of permitted expenses allowed as


a deduction is RM3,411.