Student of KLMUC

1. CHAPTER 7
DIVIDEND,
INTEREST,RENTAL,ROYALTY
AND
OTHER SOURCES OF INCOME

2. SECTION 4 (c)
• Dividend Income
• Interest Income
• Discount

3. DIVIDEND INCOME
 ITA 1967 does not define the meaning of dividend.
 it is an amount distributed to shareholders by company.
 normally in the form of cash,in also be in kind.
 derived from Malaysia if paid by a Malaysian resident company (sec
14).
 taxed in the financial year that it was paid depending upon type of
taxable person (sec 26).
 Malaysia is replacing its imputation system to single tier syatem
commencing from year 2008.
 the profit will be taxed at the company level.
 the dividend received by shareholders would be exempted from tax.
 the basis period of assessment is calendar year (1/1-31/12).

4. DIFFERENCES BETWEEN
IMPUTATION SYSTEM SINGLE TIER SYSTEM
•tax paid by company is not a
final tax.
•tax paid is final tax.
•tax is deducted from dividend
paid,credited / distributed to
shareholders.
•no tax is being deducted from
dividend paid,credited / distributed
to shareholder.
•shareholders are taxed on gross
dividends received & entitled to claim
section 110 set off.
•dividends are exempt in hands of
shareholders.
•tracking mechanism through section
108 account.
•no tracking mechanism is required.
-meaning company & shareholders
pay tax.
-meaning only company covers and
pays tax.

5.  deduction of expenses:
 when shareholder are assesed on the dividend income,he can only deduct
expenses that are "wholly & exclusively" incurred in the production of the
dividend income.
 eg. interest expenses,management charges.
 agent commission,brokerage fees,custodial fees are non-deductible
expenses.
**stated under section 33 & 39**

6.  dividends received by a person that are exempted from income
tax:
 dividend income paid out of tax exempt accounts.
 dividend distributed by co-operative societies to members.
 dividend income received from unit trust.
 dividend received from offshore company distributed out of
income derived from an offshore business activity /income
exempt from tax.
 dividend income received from foreign company and remitted to
Malaysia.

7. INTEREST INCOME
 ITA 1967 does not define the meaning of interest.
 can be defined as the premium / consideration paid for the use of
sum of money / property to the lender / from the settlement of debt.
 eg. interest from financial institution,dividend from Tabung
Haji,Provident Fund & profit from Bank Islam Malaysia.
 interest income received by individuals from money deposited in any
financial institution has been exempted from tax effective from year
30 August 2008.
 if non resident choose to charge the interest expense against the
Malaysia business income,the interest is deemed to be derived from
Malaysia (sec 15 (c)).
 the basis period of assessment is calendar year.

8.  it is chargeable to tax under section 4(c) of the act as investment
income.
 it would be assessed under section 4(a) of the act as business
income if:
 it is received from trading debts.
 it is received in the ordinary course of business (includes
adventure in the nature of trade).
 it is earned by specialised industries like bank / insurance
company.
 any person receiving interest income will be subjected to tax in
Malaysia if :
 it is derived from Malaysia.
 it is received in Malaysia from outside Malaysia (applied only to
resident,trust,co-operative / specialised industries companies).

9.  can only deduct expenses that are "wholly & exclusively" incurred in
the production of the dividend income. (section 33 & 39)
 interests paid by a person that are exempted from income tax:
 interest of any savings certificate issued by the government.
 interest of Bon Simpanan Malaysia and Merdeka Bonds issued
by Central Bank of Malaysia.
 interest from bond & securities issued by Pengurusan Danaharta
Nasional Berhad within and outside Malaysia.
 interest of debentures other than convertible loan stock
approved by the Securities Commission.
 interest of non-convertible loan stock paid by any listed company
in Malaysian Exchange of Securities Dealings.
 interest of investment in premium savings certificate under the
scheme of Bank Simpanan Nasional.
 interest / bonus from Bank Simpanan Nasional / Lembaga
Tabung Haji.

10.  interest upon saving deposits up to RM100,000 with Bank
Pertanian,Malaysia Building Society Bhd,Borneo Housing Mortgage
Finance Bhd & other approved by the minister.
 interest upon saving deposits up to RM100,000 with banks /
finance companies registered under the Banking and
Financial Institution Act 1989.
 interest upon fixed deposits / money deposits in any
investment account up to RM100,000 and not exceeding 12
months with banks and financial institutions.
 interest upon fixed deposits with tenures(have the right to
maintain) more than 12 months with banks and financial
institutions.

11. DISCOUNT
 ITA 1967 does not define the meaning of discount.
 it is the deduction made from the amount of a bill of exchange /
promissory notes by one who gave value for it before it was due.
 it would be assessed under section 4(c) of the act as profits arising
from discounts received from discounting transaction.
 it would not include:
 discounts allowed by the traders on the purchase of goods.
 discounts received from the creditors for earlier payment.
**(because it is known as cash discounts / bulk discounts)**
 the basis period of assessment is calendar year.
 it is said to be derived from Malaysia if the bill of exchange is
transacted in Malaysia and gives rise to profit.
 the profits from discounts are taxed only when it is on the maturity
date of the bills / the date of sale,whichever is the earlier.

12. SECTION 4 (d)
• Rental Income
• Royalties Income
• Premiums

13. RENTAL INCOME
 ITA 1967 (sec 2) defined rent as sum received for the letting out of
premises / hiring of assets.
 it is chargeable to tax under section 4(d) of the act as investment
income.
 it would be assessed under section 4(a) of the act as business
income.
 derivation of rental income:
 immovable property
-if the property located in Malaysia,the rental income is deemed
to derived from Malaysia although the owner is outside Malaysia
& the tenancy agreement is concluded outside Malaysia.
 movable property
-if the lessor(people who give rent) carries on business in
Malaysia,the rental income is deemed to derived from Malaysia.

14.  basis for assessing:
 rent from each property is treated as a separate source of income.
 properties are grouped into categories like residential,commercial &
vacant land.
 each category is a separate source.
 it is assessed based on calendar year basis (except for companies
which are on accounting basis)
 rental income = gross income - allowable deductions
 it is treated as income when it is received.
 if the rental is accrued on the date payable,it is still treated as gross
income received.
 if the rental paid in advance,it is also treated as rental income for the
particular year when it is received.
Mr Jason received rental income from Mr Lim amounting to RM8500 for
the period of July to December 2012. In addition,he also received an
advance rental for the month of Jan to Feb 2013,amounting to RM3500.
Compute his gross rental income for YA2012.
RM8500+RM3500=RM12000

15.  expenses that can be deducted from gross rental income (allowable
expenses):
 repairs and maintenance of property (renovation & alteration are not
allowed).
 fire insurance premium on rented property.
 interest on loan borrowed for purchase of property.
 assessment and quit rent of property.
 cost of advertsing to obtain the following tenant (not applicable for first
tenant as it is initial cost).
 sewage charge.
 cost of renewing rental agreement and other miscellaneous expenses.
 cost of supervision and rental collection.
 expenses that cannot be deducted from gross rental income
(disallowed expenses):
 initial expenses like advertising,commission & legal expenses on first
rental agreement to get first tenant.
-because these are to create source of income.

16.  losses on rented property:
 loss from rented property is not allowed to be carried forward to
the following years.
 it cannot be off-set against other income.
 is considered as a permanent loss unless the rental income fall
under section 4 (a) as loss is allowed to be claimed for the
following year.

17. ROYALTIES INCOME
 ITA 1967 (sec 2) defines royalty to include any sum paid as
consideration for publications / for the use of / the right to use
the following:
 copyright,artistic / scientific works,patents,designs /
models,plan,secret processes,trademark / tapes for radio / TV
broadcasting / other like property /rights.
 know-how / information concerning
technical,industrial,commercial / scientific knowledge,experience
& skill.
 any person receiving royalty income will be subjected to tax in
Malaysia if:
 the royalty income is derived from Malaysia.
 received in Malaysia from outside Malaysia (applied to
resident,specialised industries like banking,shipping,insurance &
air transport companies,trusts & cooperative societies).

18.  deduction of expenses stated under section 33 & 39.
 it is assessed on a calendar year basis.
 Double Taxation Agreement (DTA)
 In malay - Perjanjian Pengelakan Pencukaian Dua Kali.
 is an agreement regarding avoidance of double taxation.
 when a foreign company derives royalty income from Malaysia
and if there is a treaty between Malaysia and the treaty
country,the definition of royalty would refer to the definition in the
DTA.
 meaning the foreign company will be charged tax twice in both
Malaysia and its own country.
 hence,the tax rates will be referred to DTA table made between
both countries.

19. EXEMPTION OF ROYALTYEXEMPTION OF ROYALTY
INCOME FROM TAX RECEIVED BYINCOME FROM TAX RECEIVED BY
RESIDENT INDIVIDUALRESIDENT INDIVIDUAL
PARAGRAPH 32
Royalty
from publication,use /
right to use any artistic
work.
from recording discs /
tapes.
exemption limit:
RM10,000
PARAGRAPH 32A
Royalty from translation
of books / literary work
at the request of
Minister of Education.
exemption limit:
RM12,000
PARAGRAPH 32B
Royalty from
publication,use / right to
use any literary work /
original painting.
exemption limit:
RM20,000
PARAGRAPH 32C
Royalty income in respect of
cultural performances
approved by the Minister.
exemption limit: full exemption
PARAGRAPH 32D
Royalty income in respect of any
musical composition.
exemption limit: RM20,000

20. PREMIUMS
 is an one off payment.
 is defined as the consideration (price) connecting with the granting
of a lease on immovable properties such as land,building /
shophouses.
 the landlord / lessor would be assessed under section 4 (d) on the
premium received,together with any rental income.
 the basis period of assessment is calendar year.

21. SECTION 4 (e)
• Pension
• Annuities
• Other Periodical Payments

22. PENSION
 is a periodical payment made in respect to an individual who has
permanently ceased to exercise an employment.
 the payment may be contractual / voluntary.
 is made from employer to the employee,his wife,children /
dependent.
 Malaysia derived pension as taxable.
 will be assessed on a calendar year basis.

23. EXEMPTION OF PENSION INCOMEEXEMPTION OF PENSION INCOME
FROM TAXFROM TAX
PARAGRAPH 30
pension is derived from
Malaysia.
the recipient has
reached the age of 55 /
the compulsory age of
retirement / retired due
to ill health.
the pension is paid out
from an approved
fund,scheme / society.
pension paid in respect
of services rendered as
former employee in
Malaysia.
PARAGRAPH 30A
(for member of
parliament)
pension is derived
from Malaysia.
the recipient is a
resident for the calendar
year.
the person reached 55
years old / DG is
satisfied that the
retirement due to ill
health.
the excemption is
restricted to only 1
highest pension.
SCHEDULE 6
wounds & disability
pensions granted for
person in respect of
service in the arm force of
Malaysia / Commonwealth
countries on,before / after
Merdeka Day.
disability pensions
granted in respect of war
service injuries.
pension paid to any
person under written law
relating to widows' &
orphans' pension.

24. ANNUITIES
 is a definite sum of money payable on a regular basis (annually / by
installments) either in perpetuity for life / a fixed term under a
contract,will / settlement.
 assessable on a receivable basis.
 it would be exempted from income tax if the sums received by the
way of annuities granted under annuity contracts issued by Malaysia
life insurers & takaful operators.
 meaning a contract by which a life insurer / takaful operator agrees
to make a series of income payments (annuity) to an annuitant is
exempted from tax,but a contract by which an annuitant agrees to
make a series of payments in exchange of the annuity income to a
life insurer / takaful operator is not exempted from tax.

25. OTHER PERIODICAL PAYMENTS
 is other payments received from time to time which does not fall in
any of the above categories (dividend / interest / discount / rental /
royalty / premium / pension / annuity income).
 alimony is one of the periodical payment.
 it is money that a man / woman has been ordered to pay regularly to
his / her former partner after they have been legally separated /
divorced.
 it is usually the man who is ordered to pay alimony to the woman to
help her support their children until they are old enough to leave
home.

26.  deductible alimony payments that are subject to specific
contingency & the specific period stated under the law is 10
years / less:
 the death of spouse.
 the remarriage of the spouse.
 a change in the economic status of spouse.
**meaning if the spouse dies,the payment can be deducted.**
 if the alimony payments are subject to specific contingency & the
specific period stated under the law is more than 10 years,it can be
deducted in full.
 if the alimony payments are not subject to specific contingency & the
specific period stated under the law is more than 10 years,it is also
can be deducted.

27. SECTION 4 (f)
• Other Profits

28. OTHER PROFITS
 is gains / profits that derived from Malaysia & paid to a non resident
persons.
 criterias that can be considered as other profits which may be
chargeable to tax regardless it is in the form of cash / in kind:
 the payment is revenue and not capital in nature.
 the payment is not income that falls under section 4(a) to section
4(e).
 the payments received by non resident person is in nature of a
miscellaneous income / casual in nature (means an occasional
income,received outside the business trade).
 the payment is for an isolated (separated) trasaction.
 there is an absence of repetition of transaction.
 it is derived from Malaysia.