TAX 667

ADVANCED TAXATION
Chapter 1

ESTATE UNDER ADMINISTRATION

CKF Chapter 8
 Learning Outcomes

• At the end of this chapter, students should be able to:

– Apportion the income between deceased person and
executor
– Explain the meaning of domicile status of the deceased
and its implication on tax liabilities
– Compute the income tax liability of the deceased and the
executor

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 Chapter’s Outline

Tax
Computation
Treatment
Deceased of Income
Person &
& Executor
Expenditures

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 Introduction
• An individual cannot escape from paying income tax even
when he has passed away.
• Where a deceased person leaves a will, the person
authorized to deal with his affairs (including payment of all
outstanding income taxes) in accordance with the provision
of the will is known as executor or administrator.
• The wealth that a person beneficially owned at the time of
his death is known as his ‘estate’.
• The executor’s duties include the settlement of any debts,
payment of income tax and distribution of the residue of
estate to the beneficiaries.
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 Executor

Who is executor?

The executor, the

administrator or other person
administering or managing the
estate of a deceased person.
(Section 2 ITA 1967)

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 Executor

What is the responsibility of

an executor?

To provide for any income tax which is

known to be payable, or can reasonably be
foreseen to be payable, before making any
distribution to beneficiaries.

Failure to do so will render an executor

jointly and severally liable to pay a penalty
equal to the amount of tax payable.
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 Executor

• Basis of Assessment
– Where an individual dies in the basis year for a YA, the
executor is assessable and chargeable to tax on the
chargeable income of the deceased:
• For the basis year in which he died
• For the next succeeding basis year
• For the previous years (if necessary)

– The chargeable income refers to any income accruing to

him (as if he had not died).

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 Executor

• Period of Administration
– An executor would commence his duties to ascertain the
wealth of the deceased, settle any liabilities involved and
lastly distribute the wealth in accordance with the will.
– Period of administration  The period commencing on
the date of death to the date of last distribution of assets
to the beneficiaries.
– During this period, the executor would continue liable for
the income tax liability on income accrued or derived from
Malaysia or received in Malaysia from outside Malaysia on
behalf of the deceased person.

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 Treatment of Income

Any source formingBusiness Income

part of the estate of a deceased individual
and any income from that source arising after the day of the
death of that individual shall be treated as the source and
income of the executor

Business income/ (loss) is thus apportioned on time

basis at statutory income

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 Treatment of Income

Dividend
Any income paid, credited or Income
Any income paid, credited or
distributed in the basis period
distributed after the date of
when the individual was alive
death is assessed on the
is to be treated as the
executor
deceased’s income

Dividend income will be assess on a receipt basis

** Exemption:
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 Treatment of Income

Interest
Any income which matures in theIncome
Any income which matures
basis period when the individual after the date of death is
was alive is to be treated as the treated as income of the
deceased’s income estate

Interest income will be assess on a receipt basis

** Exemption:
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 Treatment of Income

Rental Income

The appointment, including both the

receivables and outgoings, is on time basis

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 Treatment of Income (Summary)

Business • Apportion on time basis at statutory

Income / Loss income

Interest and • Assessed on a receipt basis

Dividend

• The appointment is on time basis at

Rental Income net rental income

Foreign Source • Tax exempt wef from YA 2004

Income

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 Deduction of Expenses

Annuity
• If the executor is obliged to pay any annuity
from the income of the estate under
administration, the annuity payable is allowed
as a deduction against aggregate income in
arriving at total income.

• Annuity Payable = Deductible

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 Deduction of Expenses

Administration expenses
• Administration expenses relate to the estate is
not deductible because such an expense is
either incurred after the production of income
or related to the assets held by the executor.
• It is a private and domestic expense, prohibited
by s39(1)(a) of the Act.

• Administration Exp = Not Deductible

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 Deduction of Expenses

Executor’s remuneration
• In computing the chargeable income of the estate, any
remuneration paid to the executor for the
administrative work is not allowed as a deduction.
• Executor’s fee for managing the estate = Not Deductible
• However, where the executor is giving the authority to
carry on the business of the deceased individual, the
remuneration paid would be deductible if it is direct
incidental to the production of business income.
• Executor’s fee for managing the business of the
deceased = Deductible against Business Income

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 Tax Treatment (s 64)
Deceased Individual
All sources of income
derived by the deceased to
the date of death is taxed
on the deceased individual.
Personal reliefs and rebate
would continue to be given.
Executor
All sources of income
arising after the death
of individual is treated
as sources and income
of the executor of the
deceased individual.
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 Tax Treatment (s 64)
The rate of tax applicable to DECEASED PERSON
would depend on his/her residency status

Is deceased person resident?

YES NO

Reliefs and No reliefs and

Scaled rate Flat rate of 28%
rebate rebate

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 Tax Treatment (s 64)
The rate of tax applicable to EXECUTOR would
depend on the domicile of the deceased individual.

Deceased person died domiciled in Malaysia?

YES NO

RM 9,000
Scaled rate Flat rate of 24%
special relief

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 Tax Treatment (s 64)

DOMICILE

The country in which the person has his permanent home, i.e
the country in which the person has been habitually and
physically present and that person has the intention to reside
in that country permanently.
For tax purposes, once a person is said to be domiciled in
Malaysia, there is a presumption of continuity.

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Tax Computation for Deceased Person & Executor
Deceased Executor
(1 Jan – DOD) (DOD – 31 Dec)
Business Income
Interest / Dividend
Rent
Foreign source income
AGGREGATE INCOME
Less: Current year business loss
Less: Annuity payable
Less: Approved donations
TOTAL INCOME
Less: Reliefs
CHARGEABLE INCOME

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 Tax Administration
• The executor or administrator has to file in Form B for the
deceased individual.
• It covers the period from 1 January to the date of death.
• The Form T will be filed in the same year to account for the
income of the deceased from the date of death to 31
December.
• It will be assessed on the executor on behalf of the
deceased.

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 Chapter 1 Tutorial
• Homework:
1. TAX667 , Jan 2018, Q1.
2. TAX667, July 2017, Q1.
3. TAX667, June 2016, Q1.
4. TAX490, June 2015, Q1

Daripada Abu Hurairah RA katanya, Rasulullah SAW telah bersabda :

Jika anak Adam meninggal, maka amalnya terputus kecuali dari tiga
perkara, sedekah jariah (wakaf), ilmu yang bermanfaat, dan anak soleh
yang berdoa kepadanya.'' (HR Muslim).

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