investment holding company

1. INVESTMENT HOLDING
COMPANY
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2.  Definition of Investment Holding Company
(IHC)
To identify distinction between
investment holding company and
investment dealing company
To be able to compute permitted fraction
of expenses
To be able to compute chargeable income
for investment holding company
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3.  An investment holding company is incorporated with
the object of holding investments and deriving
income from the holding of such investments.
 YA2006: A company which derives at least 80% of its
gross income (whether exempt or not) from holding of
investments
 The income tax provisions differentiate investment
income in the form of rent, dividend and interest.
 Such income are referred as unearned income and
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assessed based on calendar year.

4.  For the shares bought by the company, it were held
until growth has been achieved or in the case of poor
growth, the shares can be sold and the sale proceeds
re-invested in other growth shares.
 The important features of investment in shares are:
Purchase with a view of holding shares over a long
period;
Deriving steady income in the form of dividends;
Selling shares that have matured in value and
employing funds on other growth shares.
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5. The ascertainment of whether a company is an
IHC (amended s 60F) would now be:
Where A/B >= 80%, the company will be an IHC
IHC status
•Can only have investment income under s4(c)
and s4(d)
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IHC Cont….

6. Gross investment income: Taxable Exempt
Dividend [s4(c)] xx xx
Interest[s4(c)] xx xx
Rental Income [s4(d)]
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(without maintenance/support
services)
xx xx = A
Business Income:
Rental income[s4(a)]
(with maintenance/support
services)
Management income [s4(a)]
xx
xx
xx
xx
= xxx
TOTAL GROSS INCOME B

7. An investment dealing company is one that
has been incorporated with object of buying
and selling investment and to make profit
from such dealing activities.
Shares acquired are not bought with the view
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of holding for their dividend yield.

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 Features of share dealing are:
Speculative shares that provide greater
opportunities for a quick resale in short term;
High and continuous turnover;
Systematically done, employing skilled personnel
and established organisation.

9. Example 1(80% criterion)
MyInvest SB was incorporated in 2012 to carry on the
business of letting of properties. Personnel are
employed to provide maintenance/support service in
respect of the properties. For the year ended
30/6/2012, the gross income from the various source
are as follows:
Determine whether the company would be as an IHC?
Show the workings.
Interest RM35,000
Dividend – Malaysia RM45,000
Dividend – Singapore (received) RM35,000
Rental income RM25,000
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10. Taxable Exempt
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Interest
Dividend
Investment income (A)
Rental income (with
maintenance/support
service)
(B)
Answer:

11. Example 2 (IHC status)
A. Kiki and Lila wishes to transfer a shop house
and a factory owned by them respectively to Kino
Sdn Bhd on 1 January 2012. The company will
begin to receive rents from 1 January and close its
account to 31 Dec every year. Advise whether the
company is an IHC under s60F.
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Answer:

12. B. If the company providing maintenance &
support services to the tenants for the
derivation of rental income. Advise whether
the company is an IHC under s60F.
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Answer:

13. Tax Treatment for IHC
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14. Income of an investment holding company
is assessed as non-business income.
Examples of such income include interest
and dividend.
 For this company, the deductibility of
expenses incurred is severely restricted
under ITA – only expenses that directly
responsible for the generation of
investment income can be allowed.
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15. When this company incurred the general
expenses. Merely a fraction of such
permitted expenses are deductible in
arriving at the total income of the company.
 ‘Permitted fraction’ [Sec. 60F]
Directors’ fees;
Management fees;
Wages, salaries & allowances;
Secretarial, audit & accounting fees;
Telephone charges, printing & stationery cost,
postage;
Rent & other expenses incidental to the
maintenance of an office
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16. Example (permitted fraction of expenses)
Gemini Lee is an expert in fund management. He
has been appointed as Director for Guarantee
Save SB (GSSB) to solely monitor the share
investment. GSSB is an IHC under s60F. Would the
director’s fee deductible?
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Answer:

17. The deductible portion is calculated as
follows:
Where:
 A x B/4C
 A: total permitted expenses incurred for that basis period
reduced by any receipts of a similar kind;
 B: gross income consisting of dividend, interest and rent
chargeable to tax for that basis period;
 C: aggregate of gross income consisting of dividend (exempt
or not), interest and rent, and the gains made from the
realisation of investments for that basis period.
OR 5% of the total taxable gross income – whichever
lower.
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18.  The tax position of investment dealing companies are
that of normal trading concerns and the income from
dealing in investment activities is assessable to tax as
business income [Sec. 4(a)].
 The deduction of expenses wholly and exclusively
incurred in the production of its income are
permitted.
 Comparisons between IHC & IDC:
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Tax Treatment for IDC

19. IHC IDC
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Definition A company whose
activities consist wholly
of making of
investments and
whose income is
derived there from. S
60F
A company which is
actively involved in
buying and selling
investments & making
profit from dealing
activities.
Section 4(c) dividends, interest
4(d) rent
4(e) annuity
4(f) other income
4(a) - business
Deduction
test
i) each source – W & E
ii) at aggregate income
level – deduct
fraction of
permitted expense
Wholly & exclusively
incurred (100%
deductible)

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Basis of
assessment
Financial year Financial year
Unabsorbed
losses
No utilization against
other sources
No carry forward to
future years =
permanent loss
Utilization – yes
Carry forward - yes
Capital
allowance
No Yes
Gain on sale
of investment
Capital gain at
company level
Gain will paid as
dividends to
shareholders (single
tier system)
Revenue profit –
taxable
Tax credit is given
Distributing dividends
is not a problem but
subject to availability
accounting profit.

21. RM
Aggregate Income xxx
Less: fraction of permitted expenses (x)
Less: approved donation (x)
Chargeable Income
xx
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22. Example 4 (Source of income)
Justin Swift SB, an IHC has the following income and
expenses for the YE 31/12/2012.
Compute the aggregate income of the IHC for YA2012.
Income: RM
Dividend (gross) 100,000
Interest 80,000
Rental income 250,000
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Expenses
Interest – share acquired 60,000
Interest – deposit placed 120,000
Interest – properties acquired 65,000
Fund management expenses ( share
20,000
acquired)
Rates & assessment 20,000
Repair& maintenance on properties 42,000

23. 1 RM RM Remarks
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24. Example 5
The profit and loss account for the year ended 31
December 2012 of Ammir Holdings Sdn Bhd whose sole
activity is in making of investments, is as follow:
RM RM
Gross income:
Interest from fixed deposit 60,000
Rental income – shop house (Note 1) 55,000
Dividend income – ABC Bhd (Note 1) - net 144,000
Dividend income – XYZ Bhd (Note 1) - net 72,000
Gain from realization of investment 86,000
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417,000

25. Expenses:
Directors’ remuneration 50,000
Employees’ salaries 30,000
Accounting and secretarial fees 10,000
Audit fees 20,000
Interest expenses (Note 2) 40,000
Printing and stationery 2,000
Management expenses 28,000
Rent expenses (for office) 50,000
Quit rent & assessment (shop houses) 2,000
Entertainment 3,000
Depreciation 5,000
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240,000
Net profit 177,000

26. Notes:
1. Income from rental and dividend:
Investment Cost (RM) Rental (RM) Dividend
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(RM)
Shop house 500,000 55,000 -
ABC Bhd 2,000,000 - 144,000
(net)
XYZ Bhd 1,000,000 - 72,000 (net)
2. Interest of RM40, 000 was incurred on loans for
the investment in shop house and shares.
3. Paid up capital of the company as at 1/1/2012 is
RM2 million
Required:
Calculate the chargeable income and tax payable for
Ammir Holdings Bhd for YA 2012.

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