TOPIC

MUTUAL CONCERN 1-
CLUBS & SOCIETIES
 1. Taxation of clubs and societies
• Clubs and societies falls within the meaning of ‘bodies of
person’ for tax purposes
• It is an unincorporated body of person not being a company
• Formed not for commercial purposes but for social,
recreational, sports for interests and benefits of members.
• Registered under the Society Act 1966.
• The existence not for financial advantage of its members.
 1. Taxation of clubs
• The taxation of clubs are within the concept of mutuality
• Mutuality incorporates the concept that a ‘man cannot make
a profit by trading with himself’.
• Any contribution or subscriptions by its members are exempt
from tax in the hands of the club. Any surplus of contributions
over expenditure is not income.
• Basis period = calendar year
• Taxed at graduated rates applicable to individuals without
personal reliefs.
 2. Mutuality
• Where a number of people have associated themselves for the
common purpose and have contributed to a common fund in
which all the contributors are interested, the surplus remaining
after the fund has been applied to the common purpose is a
return on their own money.
• Social Credit Savings and Loan Society Ltd v FCT
 3. Mutuality – dealing with members
• When the mutuality principle applies, the any dealings with the
members contributions or subscriptions will not give rise to a
liability to tax.
• Eg: mutual receipts are entrance and subscription fees, drinks
and food sold at clubs, amount paid by members to attend
dinners, talks, sale of goods to members. Any expenses or CA or
loss shall be disregarded.
• Principle of mutuality only applies to dealings with members
contributions or subscriptions.
4. Taxation of clubs-income from non
members
• Where a club deals or trades with non-members the mutuality
principle is broken and all income from the non-members is
subject to income tax and treated as business income.
• The followings are income from non- members:
i. Fund arising activities/events open to public
ii. Rental received from hiring out the club’s facilities/equipment
to public
iii. Amounts paid by non-members to attend dinner, talks etc
iv. Proceeds from non-members on charitable event

2018 6
5. Taxation of clubs – investment income
• Investment income (rent and interest) is taxable on the club.
• As dividends are single tier, it would be excluded in computing
the club liability

2018 7
6. Taxation of clubs
• Trading activities eg restaurant, entertainment outlets,
gymnasium, proceeds form vending machine etc derived from
members and non-members are profit in nature and subjected
to tax.
• Revenue expenses: deduction be only allowed on expenses
incurred in the production of chargeable income and only
limited to the portion attributable to non-members.
• The expenses need to be apportioned using ‘gross income’ basis
and known as common expenses eg salaries, administrative,
postage, stationery & printing.

2018 8
6. Taxation of clubs
• Capital allowance: be apportioned using ‘gross income’ basis.
• Approved donation: be apportioned using ‘aggregate income’
basis with inclusion of investment income into statutory income
of non-members.
GxH/I
G: cash donation under s44(6)
H: Aggregate income from transactions with non-members
I : Aggregate income from transactions with members + non-
members

2018 9
6. Taxation of clubs
• Non-members
S4(a) Business source xx
(-) direct revenue expense (xx)
(-) common revenue expenses (xx)
Adjusted income XX
(-) common capital allowance (xx)
Statutory income XX
(+) Investment income xx
Aggregate income XX
(-) approved donation (xx)
Chargeable income XX

2018 10
WORKED EXAMPLE
AB Club has prepared the following income and expenditure statement
for the year ended 31 December 2019.

Income RM RM
Members
Entrance fees 40,000
Subscription 140,000 180,000

Non-members
Fund rising activities 70,000
Seminar fees 50,000 120,000

Rental from shoplots 200,000

Gross income 500,000

(-) Expenditures
Salaries and wages 100,000
Administrative expense 60,000
Postage, stationery & printing 20,000
Hotel hall rental for seminar 28,000
Repairs & maintenance on shoplots 24,000
Cash donation to approved institution 10,000 (242,000)
Net income 258,000

The club is eligible to claim capital allowance amounting to RM15,000

Answer
Non-members RM RM
s4(a)

:
Fund rising activities 70,000
Seminar fees 50,000 120,000

(-) Wholly & exclusively expense

common expense (72,000)
(180,000 x 120,000/300,000)

Hotel hall rental for seminar (28,000) (100,000)

Adjusted income 20,000

(-) capital allowance (6,000)

(15,000 x 120,000/300,000)
Statutory income 14,000

s4(d) Rental from shoplots 200,000

Repairs & maintenance on shoplots (24,000) 176,000
Aggregate income 190,000
(-) Cash donation (7,510)
(10,000 x 190,000/253,000*)
Chargeable income 182,490

* 190,000 + members' statutory income

members' statutory income:

Members' income 180,000
(-) common expense (108,000)
Adjusted income 72,000
(-) capital allowance (9,000)
Statutory income 63,000
- END-