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Real Property Gain Tax
11/12/2011
Malaysian Real Property Gain Tax/ Real Property Gain Tax Act 1976 [Act 169]/ RPGT /
Real Property Gain Tax
11/04/2011
Badges of Trade
Note:
Content been Summarised from sources:-
Case summary:
There is few indicators or so call circumstances we might take considered to judge whether an activities could be considered as "business" under Section 4(a) by badges of trade :-
1) Profit seeking motive
• An intention to make a profit supports trading, but by itself is not conclusive.• Evidence that the sole object of acquiring an asset was to re-sell it at a profit, without any intention of holding it as an investment, is a pointer to the conclusion that a trade is being carried on. However, the presence of a profit-seeking motive is not necessarily a decisive pointer to the existence of a trade. It is only one factor to be weighed along with all the other relevant factors.
Cases reference:-
i. Salt v Chamberlain Ch D 1979 53 TC 143 [1979] STC 750
A research consultant made a loss on the Stock Exchange after trying to forecast the market. The loss was made after several years and over 200 transactions. This was not seen as a trade and capital in nature. It was concluded that share trading by a private individual can never have the badges of trade pinned to them. These transactions are subject to Capital Gains Tax.
ii. Rutledge v CIR CS 1929 14 TC 490
On a business trip to Germany a taxpayer purchased one million toilet rolls. On returning to the UK the sole consignment of toilet rolls were sold to one individual for a profit. The profit made on this large quantity single purchase and resale item was ‘an adventure in the nature of trade’. The case was decided on the fact that the purchase was not made for own use or investment purposes.
Further reading source: - BIM20210
2) Isolated transactions
• Verifying with the number of transactions
• Systematic and repeated transactions will support 'trade'.
• A single isolated transaction can amount to the carrying on of a trade for tax purposes, but it is generally not easy to show that that is the case. The transaction, if it is to be trading for CT purposes, has to be an adventure or concern in the nature of trade (ICTA88/S832 (1) for Corporation Tax or for Income Tax, a venture in the nature of trade (ITA/S989)
Cases reference:-
i) IRC v Fraser 1942 24 TC 498
In IRC v Fraser 1942 24 TC 498, an isolated transaction in the purchase and re-sale of whisky in bond was held to be an adventure in the nature of trade. The nature of the commodity and quantity purchased was such that it could not reasonably be considered to be for own consumption, and there was insufficient evidence to indicate an investment motive.
Sources from: [http://www.taxationweb.co.uk/tax-articles/business-tax/the-badges-of-trade.html]
ii) Marson v Morton and Others [1986] 59TC381
Some land was purchased with the intension to hold it as an investment. No income was generated by the land, however, it did have planning permission. The land was sold latter following an unsolicited offer. As the transaction was far removed from the taxpayers normal activity (potato merchant) and was similar to an investment, it was not a trading profit. The transaction was not an adventure in the nature of a trade.
Further reading source: - BIM20230
3) Nature of the asset
• Is the asset of such a type or amount that it can only be turned to advantage by a sale? Or did it yield an income or give 'pride of possession', for example, a picture for personal enjoyment?
• The nature of the asset can be of great, even decisive, importance. Some assets are generally realised by way of trade (for example chemicals) and for transactions in such assets the existence of a trade is rarely in doubt.
• The area of difficulty concerns assets that are generally bought:
- as an investment that usually, but not necessarily, yields income, for example shares, or
- for personal use or enjoyment, for example, paintings and classic cars, or
- as a fixed asset of an admitted trade, for example, plant and machinery.
Their very nature provides an initial presumption that these types of assets are acquired other than as a subject of trade.
Cases reference:-
i) IRC v Fraser 1942 24 TC 498
See the comments of the Lord President in CIR v Fraser [1942] 24TC498. That presumption can be overturned, but there is, in practice, a greater onus on those who assert that there is a trade, than is the case with assets that are commonly dealt with by way of trade.
=========================
In IRC v Fraser 1942 24 TC 498, an isolated transaction in the purchase and re-sale of whisky in bond was held to be an adventure in the nature of trade. The nature of the commodity and quantity purchased was such that it could not reasonably be considered to be for own consumption, and there was insufficient evidence to indicate an investment motive.
=========================
Further reading source: - BIM20245
4) Connection with existing trade
• Transactions that are similar to those of an existing trade may themselves be trading.
• If there is an existing trade, then a similarity to the transaction under consideration may be a pointer to that transaction having a trading character.
Cases reference:-
i) Harvey v Caulcott [1952] 33TC159
a builder claimed that certain properties that he had built and then sold many years later were investments and not part of his trading stock. On the facts of his case he succeeded but the court commented:
“Such a case as the present is always coloured by the fact that the man is a builder. That no doubt puts a peculiar onus on him, to show that the profit from the sale of some property is profit from an investment, or profit from something which is not trading stock. That onus is not incapable of discharge”.'
The courts in other cases have also considered possible connections with a person's main trade.
ii) In CIR v Fraser [1942] 24TC498 the court commented:
“It is in general more easy to hold that a single transaction entered into by an individual in the line of his own trade (although not part and parcel of his ordinary business) is an adventure in the nature of trade than to hold that a transaction entered into by an individual outside the line of his own trade or occupation is an adventure in the nature of trade”.'
=========================
In IRC v Fraser 1942 24 TC 498, an isolated transaction in the purchase and re-sale of whisky in bond was held to be an adventure in the nature of trade. The nature of the commodity and quantity purchased was such that it could not reasonably be considered to be for own consumption, and there was insufficient evidence to indicate an investment motive.
=========================
iii) Marson v Morton and Others [1986] 59TC381
=========================
Some land was purchased with the intension to hold it as an investment. No income was generated by the land, however, it did have planning permission. The land was sold latter following an unsolicited offer. As the transaction was far removed from the taxpayers normal activity (potato merchant) and was similar to an investment, it was not a trading profit. The transaction was not an adventure in the nature of a trade.
=========================
Further reading source: - BIM20270
5) Modification of the asset
• Changes to the asset• Was the asset repaired, modified or improved to make it more easily saleable or saleable at a greater profit?
• What happens to the asset pending resale may be a relevant factor. There may be modifications to the asset by way of processing or manufacture, or some kind of adaptation to make it more readily marketable. All these actions are typical of trading activities.
Cases reference:-
i) CIR v Livingston and Others [1926] 11TC538
a sea vessel was purchased as a joint venture by three individuals. The Lord President stated:
“The Respondents began by getting together a capital stock sufficient (1) to buy a second-hand vessel, and (2) to convert her into a marketable drifter. They bought the vessel and caused it to be converted at their expense with that object in view, and they successfully put her on the market. From beginning to end, these operations seem to me to be the same as those which characterise the trade of converting and refitting second-hand articles for sale… The profit made by the venture arose, not from the mere appreciation of the capital value of an isolated purchase for resale, but from the expenditure on the subject purchased of money laid out upon it for the purpose of making it marketable at a profit. That seems to me of the very essence of trade”.'
5.1 Breaking down of assets into smaller lots
ii) Cape Brandy Syndicate v CIR [1921] 12TC358 -
Members of a wine syndicate joined in a separate syndicate to purchase brandy from South Africa. Some was shipped to the East with the remainder being sent to London to be blended with French Brandy, re-cask it and sell it in numerous lots was all part of the evidence on which the Commissioners were entitled to find that a trade was carried on. The taxpayer tried to argue that the transaction was of a capital nature from the sale of an investment. It was held that a trade or business was carried on and was assessable as a trading profit.
5.2 Expenditure on an asset after purchase and before sale
Expenditure on an asset after purchase and before sale is not always strong evidence of a trading motive. You must have regard to the nature and scale of the expenditure.
For example, insurance against loss, normal maintenance to prevent deterioration, or the cost of repairing some fault, which prevents the asset carrying out its normal function, may have little or no relevance when considering a question of trading. This sort of expenditure is the type that any owner would incur. They are not coloured with a strong trading character.
5.3 No modifications to the asset
If an asset does not need any modification or other work, then absence of any modification etc is neutral.
Further reading source: - BIM20275
6) Organization of the activity
• Was the asset sold in a way that was typical of trading organisations? Alternatively, did it have to be sold to raise cash for an emergency?• It is a pointer towards trade that the transactions are carried out in the same manner as those of an undisputed trader.
Cases reference:-
i) CIR v Livingston and Others [1926] 11TC538
Lord Clyde stated:
“I think the test, which must be used to determine whether a venture such as we are now considering is, or is not, ”in the nature of “trade”, is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made”.'
==================
a sea vessel was purchased as a joint venture by three individuals. The Lord President stated:
“The Respondents began by getting together a capital stock sufficient (1) to buy a second-hand vessel, and (2) to convert her into a marketable drifter. They bought the vessel and caused it to be converted at their expense with that object in view, and they successfully put her on the market. From beginning to end, these operations seem to me to be the same as those which characterise the trade of converting and refitting second-hand articles for sale… The profit made by the venture arose, not from the mere appreciation of the capital value of an isolated purchase for resale, but from the expenditure on the subject purchased of money laid out upon it for the purpose of making it marketable at a profit. That seems to me of the very essence of trade”.'
==================
ii) CIR v Fraser [1942] 24TC498
the fact that the whisky was sold in exactly the same way as would be adopted in the course of an ordinary trade in that commodity was an important pointer in favour of a finding that Fraser was trading.
=========================
In IRC v Fraser 1942 24 TC 498, an isolated transaction in the purchase and re-sale of whisky in bond was held to be an adventure in the nature of trade. The nature of the commodity and quantity purchased was such that it could not reasonably be considered to be for own consumption, and there was insufficient evidence to indicate an investment motive.
=========================
Further reading source: - BIM20280
7) Method of finance
• Was money borrowed to buy the asset? Could the funds only be repaid by selling the asset?
• The method of financing should be examined. The purchaser of an asset may have to borrow money in circumstances that indicate that, from the first, he has to sell the asset to repay the loan. That is, the purchase is undertaken in the expectation that the asset will be paid for out of the proceeds of the sale.
Cases reference:-
i) Wisdom v Chamberlain CA 1968 45 TC 92 [1969] 1 WLR 275 [1969] 1 All ER 332
A taxpayer purchased two large quantities of silver bullion to counter the effects of the devaluation of the pound. His normal occupation was not in that sort of activity. The purchase of the bullion was financed by loans at a high rate of interest in circumstances that made it clear that it was necessary to sell the asset in the short term, to repay the loan and eliminate the interest obligation. As the purchase was done on a short term basis in order to realize profit. There was an adventure in the nature of trade and was therefore assessed as trading profit.
Further reading source: - BIM20300
8) Interval of time between purchase and sale
• Assets that are the subject of trade will normally, but not always, be sold quickly. Therefore, an intention to resell an asset shortly after purchase will support trading. However, an asset, which is to be held indefinitely, is much less likely to be a subject of trade.
• The interval of time between purchase and sale may be important. A person who buys an asset and holds it for many years before disposing of it may be in a stronger position to argue that this is the realisation of an investment, than if the sale follows very soon after purchase. Similarly if you can show an intention, at the time of purchase, to sell quickly, that supports the idea of trading because trading implies the idea of turning over assets for profit.
Cases reference:-
i) Wisdom v Chamberlain CA 1968 45 TC 92 [1969] 1 WLR 275 [1969] 1 All ER 332
-He sold the ingots within a year and made a profit in such transaction.
====================
A taxpayer purchased two large quantities of silver bullion to counter the effects of the devaluation of the pound. His normal occupation was not in that sort of activity. The purchase of the bullion was financed by loans at a high rate of interest in circumstances that made it clear that it was necessary to sell the asset in the short term, to repay the loan and eliminate the interest obligation. As the purchase was done on a short term basis in order to realize profit. There was an adventure in the nature of trade and was therefore assessed as trading profit.
====================
ii) Marson v Morton and Others [1986] 59TC381,
The vice chancellor said, when discussing the badges of trade:
“What were the purchasers’ intentions as to resale at the time of purchase? If there was an intention to hold the object indefinitely, albeit with an intention to make a capital profit at the end of the day, that is a pointer towards a pure investment as opposed to a trading deal. On the other hand, if before the contract of purchase is made a contract for resale is already in place, that is a very strong pointer towards a trading deal rather than an investment. Similarly, an intention to resell in the short term rather than the long term is some indication against concluding that the transaction was by way of investment rather than by way of a deal”.'
====================
Some land was purchased with the intension to hold it as an investment. No income was generated by the land, however, it did have planning permission. The land was sold latter following an unsolicited offer. As the transaction was far removed from the taxpayers normal activity (potato merchant) and was similar to an investment, it was not a trading profit. The transaction was not an adventure in the nature of a trade.
====================
Further reading source: - BIM20310
9) Supervening trading
• An asset that is acquired by inheritance, or as a gift, is less likely to be the subject of trade• The point is considered specifically in relation to land.
• The way in which an asset was acquired must be considered. If it is by gift or inheritance it will be difficult, although not impossible, to show that a subsequent sale is by way of trade.
If the asset were acquired by purchase the circumstance, for example the market in which it was bought or the correspondence leading up to purchase, may tend to show either that it was being bought for resale or that it was wanted for private use or as an investment.
If an asset acquired as a capital asset, for example by gift or inheritance, is later sold at a profit you can only succeed in taxing that profit under Case I if you can show that, at some point before sale, the asset became trading stock of a trade. This is the concept of supervening trading.
Cases reference:-
i) Taylor v Good CA 1974 49 TC 277 [1974] STC 148 [1974] 1 WLR 556 [1974] 1 All ER 1137
The taxpayer carried on two retail businesses and lived with his wife, who assisted him in his businesses, in a two-bedroom council flat over one of the shops. The taxpayer purchased at auction, a property with 17 rooms, and 9½ acres of land.
At the time of purchase, the property was in a bad state of repair and at the taxpayer had made no decision on what to do with the property what to do with it but had in mind possibly going to live there.
On inspecting the interior of the house his wife rejected that idea and the idea was abandoned. He subsequently applied for planning permission to develop the site by knocking-down the existing dwelling house and build 90 residential properties on the site.
He received offers from several developers for the site and subsequently accepted one of the offers. The Inland Revenue issued an assessment to income tax on the grounds that this was a venture in the nature of trade.
The Court of Appeal allowed the taxpayer’s appeal, holding that, on the facts found or conceded, there was no evidence of an adventure in the nature of trade and should, instead taxed as a capital gain.
Megarry J expressed the concept most clearly in Taylor v Good [1974] 49TC277:
“Even if the house was purchased with no thought of trading, I do not see why an intention to trade could not be formed later. What is bought or otherwise acquired (for example, under a will) with no thought of trading cannot thereby acquire an immunity so that, however filled with the desire and intention of trading the owner may later become, it can never be said that any transaction by him with the property constitutes trading. For the taxpayer a non-trading inception may be a valuable asset: but it is no palladium. The proposition that an initial intention not to trade may be displaced by a subsequent intention, in the course of the ownership of the property in question, is, I think, sufficiently established…”.
Further reading source: - BIM20315
==================
Further readings:-
http://www.malaysiaco.com/badges-of-trade/
Taylor v Good CA 1974 49 TC 277 [1974] STC 148 [1974] 1 WLR 556 [1974] 1 All ER 1137
The taxpayer carried on two retail businesses and lived with his wife, who assisted him in his businesses, in a two-bedroom council flat over one of the shops.
The taxpayer purchased at auction, a property with 17 rooms, and 9½ acres of land. At the time of purchase, the property was in a bad state of repair and at the taxpayer had made no decision on what to do with the property what to do with it but had in mind possibly going to live there.
On inspecting the interior of the house his wife rejected that idea and the idea was abandoned. He subsequently applied for planning permission to develop the site by knocking-down the existing dwelling house and build 90 residential properties on the site. He received offers from several developers for the site and subsequently accepted one of the offers.
The Inland Revenue issued an assessment to income tax on the grounds that this was a venture in the nature of trade.
The Court of Appeal allowed the taxpayer’s appeal, holding that, on the facts found or conceded, there was no evidence of an adventure in the nature of trade and should, instead taxed as a capital gain.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
The taxpayer purchased at auction, a property with 17 rooms, and 9½ acres of land. At the time of purchase, the property was in a bad state of repair and at the taxpayer had made no decision on what to do with the property what to do with it but had in mind possibly going to live there.
On inspecting the interior of the house his wife rejected that idea and the idea was abandoned. He subsequently applied for planning permission to develop the site by knocking-down the existing dwelling house and build 90 residential properties on the site. He received offers from several developers for the site and subsequently accepted one of the offers.
The Inland Revenue issued an assessment to income tax on the grounds that this was a venture in the nature of trade.
The Court of Appeal allowed the taxpayer’s appeal, holding that, on the facts found or conceded, there was no evidence of an adventure in the nature of trade and should, instead taxed as a capital gain.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Wisdom v Chamberlain CA 1968 45 TC 92 [1969] 1 WLR 275 [1969] 1 All ER 332
A taxpayer purchased two large quantities of silver bullion to counter the effects of the devaluation of the pound. His normal occupation was not in that sort of activity. The purchase of the bullion was financed by loans at a high rate of interest in circumstances that made it clear that it was necessary to sell the asset in the short term, to repay the loan and eliminate the interest obligation. As the purchase was done on a short term basis in order to realize profit. There was an adventure in the nature of trade and was therefore assessed as trading profit.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Cape Brandy Syndicate v CIR [1921] 12TC358
Members of a wine syndicate joined in a separate syndicate to purchase brandy from South Africa. Some was shipped to the East with the remainder being sent to London to be blended with French Brandy, re-cask it and sell it in numerous lots was all part of the evidence on which the Commissioners were entitled to find that a trade was carried on. The taxpayer tried to argue that the transaction was of a capital nature from the sale of an investment. It was held that a trade or business was carried on and was assessable as a trading profit.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
CIR v Livingston and Others [1926] 11TC538
A sea vessel was purchased as a joint venture by three individuals. The Lord President stated:
“The Respondents began by getting together a capital stock sufficient (1) to buy a second-hand vessel, and (2) to convert her into a marketable drifter. They bought the vessel and caused it to be converted at their expense with that object in view, and they successfully put her on the market. From beginning to end, these operations seem to me to be the same as those which characterise the trade of converting and refitting second-hand articles for sale… The profit made by the venture arose, not from the mere appreciation of the capital value of an isolated purchase for resale, but from the expenditure on the subject purchased of money laid out upon it for the purpose of making it marketable at a profit. That seems to me of the very essence of trade”.'
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
“The Respondents began by getting together a capital stock sufficient (1) to buy a second-hand vessel, and (2) to convert her into a marketable drifter. They bought the vessel and caused it to be converted at their expense with that object in view, and they successfully put her on the market. From beginning to end, these operations seem to me to be the same as those which characterise the trade of converting and refitting second-hand articles for sale… The profit made by the venture arose, not from the mere appreciation of the capital value of an isolated purchase for resale, but from the expenditure on the subject purchased of money laid out upon it for the purpose of making it marketable at a profit. That seems to me of the very essence of trade”.'
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Harvey v Caulcott [1952] 33TC159
A builder claimed that certain properties that he had built and then sold many years later were investments and not part of his trading stock. On the facts of his case he succeeded but the court commented:
“Such a case as the present is always coloured by the fact that the man is a builder. That no doubt puts a peculiar onus on him, to show that the profit from the sale of some property is profit from an investment, or profit from something which is not trading stock. That onus is not incapable of discharge”.'
The courts in other cases have also considered possible connections with a person's main trade.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
“Such a case as the present is always coloured by the fact that the man is a builder. That no doubt puts a peculiar onus on him, to show that the profit from the sale of some property is profit from an investment, or profit from something which is not trading stock. That onus is not incapable of discharge”.'
The courts in other cases have also considered possible connections with a person's main trade.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Marson v Morton and Others [1986] 59TC381
Some land was purchased with the intension to hold it as an investment. No income was generated by the land, however, it did have planning permission. The land was sold latter following an unsolicited offer. As the transaction was far removed from the taxpayers normal activity (potato merchant) and was similar to an investment, it was not a trading profit. The transaction was not an adventure in the nature of a trade.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
IRC v Fraser 1942 24 TC 498
In IRC v Fraser 1942 24 TC 498, an isolated transaction in the purchase and re-sale of whisky in bond was held to be an adventure in the nature of trade. The nature of the commodity and quantity purchased was such that it could not reasonably be considered to be for own consumption, and there was insufficient evidence to indicate an investment motive.
Sources from: [http://www.taxationweb.co.uk/tax-articles/business-tax/the-badges-of-trade.html]
Sources from: [http://www.taxationweb.co.uk/tax-articles/business-tax/the-badges-of-trade.html]
Rutledge v CIR CS 1929 14 TC 490
On a business trip to Germany a taxpayer purchased one million toilet rolls. On returning to the UK the sole consignment of toilet rolls were sold to one individual for a profit. The profit made on this large quantity single purchase and resale item was ‘an adventure in the nature of trade’. The case was decided on the fact that the purchase was not made for own use or investment purposes.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Salt v Chamberlain Ch D 1979 53 TC 143 [1979] STC 750
A research consultant made a loss on the Stock Exchange after trying to forecast the market. The loss was made after several years and over 200 transactions. This was not seen as a trade and capital in nature. It was concluded that share trading by a private individual can never have the badges of trade pinned to them. These transactions are subject to Capital Gains Tax.
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
Kindly noted that the above information sources from :
http://www.acca.co.uk/uk/members/technical/advice_support/tax/cases/
6/11/2011
Capital Allowance Schedulers
Partial from a set of Corporate Income Tax Computation (ITC) (or either an individual with business income who going to claim for their capital allowance), Capital Allowance Schedulers Analysis would be a large portion for most of the ITC with tangible assets. Here I going to standardize and analysis the procedures steps by steps to be apply on your Capital Allowance (CA) Schedulers.
Understanding on each particular for CA Schedulers:-
A. Pages may appear for CA Schedulers:
i. [FA] FIXED ASSETS LISTING - ADDITIONS/DISPOSALS
ii. [HP2] SCHEDULE OF HIRE PURCHASE PAYMENTS
iii. [CA3] COMPUTATION OF INDUSTRIAL BUILDING ALLOWANCE/ CAPITAL ALLOWANCE - PURCHASED ASSETS
iv. [HPCA4]COMPUTATION OF CAPITAL ALLOWANCE - HIRE-PURCHASE ASSETS
v. [BABC] WRITTEN OFF/ DISPOSAL OF PROPERTY, PLANT AND EQUIPMENT - BALANCING CHARGE AND ALLOWANCE
========================================================
From the above is the analysis of completed ITC arrangement, we may stating the explanation from (i) to (iii) &(v) , then Hire Purchase from (ii) to (iv).
========================================================
From i.[FA] - FIXED ASSETS LISTING - ADDITIONS/DISPOSALS
It would appear almost the particulars in the notes for Plant, Property and Equipment in the Financial Statement Notes (mostly note 3 in A/c or note 4 A/c) – Cost of assets
Which it would shows:-
What we can saw from this [FA] listing is that the company acquire a computer cost to RM2,010 during the financial year 2010 (says), where the computer may be listed under “Office Equipment” from the client’s Asset Listing or even an audited financial statement. To be act in good fair, we would still claim the office equipment (computer) as ITC for 20% Initial Allowance (IA) & 80% Annual Allowance (AA) for the Year of Assessment (YA) 2010 regardless whether they do disclosed in their financial statement.
========================================================
Steps to compound for [FA]:-
1. 1. Check the closing balance of previous year ITC (says YA2009 for this eg.) and match up with the current year financial statement (audited report would be preferable) opening balance.
- This to be done because there is sometimes auditors may reclassifying the assets into another categories like transferred “Property in process” into “Land and building” without notification or disclosure but showing with different balance from c/d to b/d
1. 2. Matching the total figure to be acquired (and also disposal) during the year (says RM2,010 in this eg.) to ensure your closing balance could match up to the audited financial statements.
- Says if there is reclassifying of assets from the starting balance, you can choose to bring in the previous year ITC (2009) closing balance and make the reclassifying amount to be disclosing in your ITC 2010.
- Says auditor found out an amount of RM 100,000 in Furniture and fitting should be reclassified in Office Equipment, but they do only adjust the opening balance in the financial statement with no other notification, you can make the disclosure only in your ITC as :-
From here we may understand that the Fixed Asset Listing become the primary indicator to justifying the qualifying expenditure to be allowed to claim for capital allowance instead of Client’s Asset Listing or Audited Financial Statement.
========================================================
From iii. [CA3] COMPUTATION OF INDUSTRIAL BUILDING ALLOWANCE/ CAPITAL ALLOWANCE - PURCHASED ASSETS
[CA3] view :
[Note: Please Click to Enlarge]
We can divide the schedule into 3 parts,
C1. Capital allowance balance brought forward
C2. Movement of assets during the year
C3. Calculation of Capital Allowance claim for the YA
Items (sources) we may need is
1. Previous year tax computation(for CA carrying balance purpose)
2. Audited financial statement (for matching the total ups amount of asset holdings)
3. Client’s assets listing (to know details of each asset, the date of purchase, purchase price, type of asset)
From the sources above,
[C1] – Copy and special paste all the Tax Written Down Value (Tax WDV) for each particular item, total amount for Tax WDV b/f must be equal to Tax WDV c/f from previous year. Says RM45,000 in this case. For new incorporate company without fixed asset before or domain previously, no Tax WDV to be carrying, means Tax WDV b/d = 0 is just fine.
[C2] - The new acquired assets during the year putting at the “Additions” column say Computer RM2010 acquired during the year in this case.
[C3] – Take calculates the Capital allowance claim for each asset during the year. Check on each asset the Initial Allowance (I.A.) & Annual Allowance (A.A.) for the year such as Accelerate Capital Allowance else normal rate to be claim. [Note: check on each item and condition from section to budget whether eligible to claim a higher rate for the YA, says Computer for YA2010 is I.A. 20%, A.A. 80%, but under certain condition (says) person has been granted any incentive under the Promotion of Investments Act 1986[Act 327], normal rate (20%, 40%) of computer would be claim according to PU(A)358 ]
For the rest of the column, formula on each introduce as below for your reference:-
1. Sub-Total = Tax WDV + Additions – Disposal @ Tax WDV
2. Cost =Cost b/f + Additions – Disposal @ Cost
3. Tax WDV c/f = Sub-Total – Initial Allowance – Annual Allowance
4. Rate of Allowance – Few sources is appreciable you may refer to :
5/19/2011
JsonDiary on Transfer Pricing
Transfer pricing is common tax planning scheme to place higher profit on subsidiary in lower tax country, where IRB has formulated a transfer pricing guideline in July 2003 to ensure all companies pay their fair share o tax based on prevailing market value of goods and services.
First may identify the definition of ARM’S LENGTH PRICE
Arm’s length price is the price, which would have been determined if such transactions were made between independent entities under the same or similar circumstances.
Then , THE CONCEPT OF COMPARABILITY
Transactions are deemed comparable if there are no material differences between the transactions being compared or, reasonably accurate adjustments can be made to eliminate any material differences in the transactions.
Where the indicator considered for conditional comparability would be:-
i. Product Feature (Characteristic/form of Services Provided)
ii. Whether good sold at the same points in the production chain
iii. Brand Name (Quality)
iv. Sales Volume (Liquidity)
v. Market Risk (Function carrying)
vi. Timing of Sales
vii. Mode of Transaction(Packaging, Marketing, CIF, FOB…)
viii. Economic Situation (Different country may have different Economic conditional)
7.1 The following methodologies can be used in determining arm’s length price:
Traditional Method
A. Comparable uncontrolled price method
B. Resale price method
C. Cost plus method
Transactional Profit Method
D. Profit split method Other
E. Transactional net margin method
Note : ‘Transactional profit methods’ be used only when traditional methods cannot be reliably applied or exceptionally cannot be applied at all.
In deciding the most appropriate method, the following must be considered:
i. the degree of actual comparability when making comparisons with transactions between independent parties;
ii. the completeness and accuracy of data in respect of the uncontrolled transaction;
iii. the reliability of any assumptions made; and
iv. the degree to which the adjustments are affected if the data is inaccurate or the assumptions incorrect.
A.Comparable Uncontrolled Price Method
Cases applicable: No specific, as long comparable transaction available.
The CUP method is ideal only if comparable products are available or if reasonably accurate adjustments can be made to eliminate material product differences. Other methods will have to be considered if material product differences cannot be adjusted to give a reliable measure of an arm’s length price.
The CUP method is the most direct way of ascertaining an arm’s length price. It involves the direct price comparison for the transaction of a similar product between independent parties.
An uncontrolled transaction is comparable to a controlled transaction for purposes of the CUP method if one of the following conditions is met:
i. None of the differences (if any) between the transactions being compared or between the enterprises undertaking those transactions could materially affect the price in the open market; or
ii. Reasonably accurate adjustments can be made to eliminate the material effects of such differences.
Weakness of method: What if there is no comparable transaction? [note: please refer indicator considered for comparable transaction definition]
Make the transaction to be unique(namely branded, functionally different or alternate product feature into non available in the current market)
B.Resale Price Method
Cases applicable: Only applied for end product distributor to [buy] and [selling] of product to different parties.
The usefulness of the method largely depends on how much added value or alteration the reseller has done on the product before it is resold, or the time lapse between purchase and onward sale.
The starting point in the resale price method is the price at which a product that has been purchased from an associated enterprise is then resold to an independent enterprise.
Formula, ==========================================================
Arm’s length price = Resale price – (Resale price x Resale price margin)
* Resale price margin = Sales price - Purchase price/Sales price
Note: * Resale price margin must be comparable to margins earned by other independent enterprises performing similar functions, bearing similar risks and employing similar assets.
Weakness of method: Can obviously saw that the Resale price margin is the only focus on this method, thus the focus would be the main weakness where no one could compare a unique product distributor. What if the distributor they themselves not to distribute the unique product to unrelated parties or distribute in “arm’s length price” to unrelated parties.
[Note: arm’s length price here is controllable factor to justified the comparable resale price margin]
C. Cost Plus Method
Cases applicable: Often useful for semi-finished goods sold between associated parties.
The appropriate mark-up should ideally be established by reference to the mark-up earned by the same supplier from comparable uncontrolled sales to independent parties, due to the fact that similar characteristics are more likely found among sales of product by the same supplier, than among sales by other suppliers.
Formula, ==========================================================
Arm’s length price = Costs + (Cost x Cost plus mark-up)
* *Cost plus mark-up = Sales price – Costs/ Cost
Note: *Cost plus mark-up must be comparable to mark-ups earned by independent parties performing comparable functions, bearing similar risks and using similar assets.
=========================================================================
Weakness of method: Similar to resale price method if the distributor (the manufacturer) they themselves not to distribute the unique product to unrelated parties or to distribute in “arm’s length price” to unrelated parties, there are no comparable determination would exist for each transaction they made.
[Note: arm’s length price here is controllable factor to justified the comparable cost plus mark-up]
E.Transactional Net Margin Method
Cases applicable: used only when traditional methods cannot be reliably applied or exceptionally cannot be applied at all
Similar to the cost plus and resale price methods in the sense that it uses the margin approach which examines the net profit margin relative to an appropriate base such as costs, sales or assets attained by the MNE from a controlled transaction.
Since net margins (unlike gross margins or prices) tend to be significantly influenced by various factors other than products and functions (e.g. competitive position, varying cost structures, differences in cost of capital etc), it is stressed that usage of TNMM be confined to cases where functions have a high degree of similarity, so as to eliminate the effects of these other factors.
Note: content been summarized from IRBM Transfer pricing guideline announced dated 2 July 2003
Further reading source please refer to:
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