Income Statement Type Eg

1.Management Account

2. Income Statement as per Audited Financial Report

ABC Sdn Bhd
INCOME STATEMENT
FOR THE FINANCIAL YEAR ENDED 31ST DECEMBER 2010
3.Detail Income Statement

ABC Sdn Bhd
Detail Income Statement

From the Income Statement type above,
- we would normally 1st getting the [1.management account],
Then [2] + [3](Optional),
- Audited Financial Statement(else draft report)could get the [2],
[3] May be included in [2],
 - if audit report not showing [3] in [2],
it would be shown[3] in your Tax Computation for such basis period.

General Adjusted Income (Sec 33)

In any tax jurisdiction, there are legislations that prescribe the conditions for expenses to qualify for tax deduction. In Malaysia, the deductibility of expenses is governed by Section 33 of the Income Tax Act, 1967 (ITA) and the general rule for deduction of an expense is contained in Subsection 1.

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The phrase "expenses wholly and exclusively incurred… in the production of gross income" incorporates the basic rule which spells out the conditions for allowing a tax deduction. For an expense that is incurred in the course of operating a business to be allowed as a deduction from income of the business, it must be:

(a) Incurred;
(b) Wholly and exclusively; and
(c) In the production of gross income (from the business).

Underlying each of these conditions is a comprehensive library of case laws, which defines the meaning of the words and delineates the boundaries for their applications. Some guiding principles established in cases brought before the courts include:-

(a)     Only "revenue" expenses are deductible while "capital" expenditures are not.

(b)     In general, an expense has been "incurred" when a legal liability has arisen for the sum to be paid (for example, when goods have been delivered to the purchaser and an invoice issued for the price of the goods delivered). Hence, an expense is deductible even though the bill has not been paid, so long as the debt is due to be paid.

(c)      An expense must be incurred for the sole purpose (exclusively) of producing income from the business. A dual-purpose expenditure is one which is incurred for more than one reason. Expenses incurred for both a business and private purpose would fail the 'exclusively incurred' test. However, if an incidental personal benefit arises as a result of an expense incurred to achieve a business objective, it does not mean that the expense is disallowed simply because of the personal benefit.

(d)     "Wholly" refers to the quantum of the expense. If a definite proportion of an expense was laid out wholly and exclusively in the production of income from the business, that proportion should not be disallowed merely because the expense was not entirely laid out wholly and exclusively in producing income from that source.

(e)      There must be a nexus between the expenditure and income which is assessed, so that the expenditure is "incidental and relevant" (Ronpibon Tin NL versus CIT(1949) 78 CLR 47) to producing the income that is assessed. In other words, it is not sufficient for the expense to be incurred for any business related purpose, but it must be incurred for the purpose of producing income from that business. A connection must be established between the expenditure and the process of earning income.

===========================================================

Summarize from [Tax deductibility of business expenses]

(you can also refer to: Section 33. Adjusted income generally.)

8.Malaysian Tax Return (For Corporate Taxation)

Corporate(or company) is require to submit tax return to IRB before the end of 7th month after closing of each financial year end (Basis period [N1]). Corporate Tax Return considered the most challenging part (to me) from any other topic, which this is also a topic that never can be stand confidently. Instead of explaining technically, its better for me to record step by step what we could do.

N1: Basis period further refer for:-

1.A Non-Business Source (Individuals & Persons other than Companies)

2.A Business Source (Co-Operatives)

3.A Business Source (Individuals & Persons other than Companies / Co-Operatives) 

4.Business & Non-Business Sources (Companies) 

For brief content,

Step 1  Reminder of request info

Duration  :About 3 months before - Filling

Subject   :To get the information you may need to prepare your Income Tax Computation(ITC) which they are : 

• Audited Account / Final Draft Audited Account       (1st Preference:Signed Audit Report, 2nd: Finallized, 3rd: Draft - note: The draft report[including audit file] normally applicable only in mid~small firm which cases audit by same firm)
• Management account       (mainly Detail Income Statement)
• Form 49 - Optional      (For directors detail) or other related statutory records
• Significant Vouchers / Receipts / Certificate    (such as dividend vouchers, dividend bonus certificates, capital payments and etc.)

Step 2 Income Statement 

Duration : Respond as soon as possible when get the required information - Filling

Subject   : Extract  taxable/non-taxable income, deductible/non-deductible expenses

Revised income statement will be do from the draft audit report at first to stated the account details by necessary. Mostly the expenses part will be revised for tax comp purposes with the management account to clarify the capital expenditure and the revenue expenditure. Further, Section 33 of would be the main consideration test on each allowable/non allowable expense on business deduction for income tax purpose. (Further detail please refer to topic: 8.1.1.General Adjusted Income (Sec 33))

Income statement (Converted into ITC) generally can be divide into few types:-

• Non income producing - (dormant/ inactive)
• Investment holding - (charge under 60F/ 60FA)
• Business income generate - (common case)

<Please click on each corporation type for further explanation >

Step 3 Further Info Request (or so call tax queries) 

Duration :>~1~2 months before - Filling
Subject   :Gets confirmation/ clarification on not clear point of accounts,[ask for detail] 


Most of the time, management account would occur many unclear issue or terminology which different from client who have headquarter from country to country. For example, the wording “Travelling expenses” may possible a transportation cost for a firm, it may possible a leave passage for another firm. Email, phone call, event a courier document service might be used to get the necessary information we needed.


<Please click here for detail :8.1.2 Step 3 Further Info Request (or so call tax queries)>



Step 4 Draft tax computations

Duration :>~3weeks before - Filling
Subject   :Finalized of ITC documents to client


With most of the information ready and confirmed by the client, draft ITC could be BORN together with draft filling of Form-C/e-C & Form-R/e-R.


Mainly item to be prepare for the 1st draft would be:-

1. Cover Letter (client approval letter)
2. Draft Income Tax Computation
3. Draft Form C/e-C & Form R/e-R
4. Bill (applicable for certain firm only)
5. CP-55 (authority to file return electronically)

 [Detail will updated soon...]



Step 5  Final Approval of tax return

Duration :~1weeks before - Filling
Subject   :Checking of audited report telly with referred accounts


From this process (once getting the signed letter and draft form), you should have almost done your job, but few more you may take further attention if you are draft ITC based on draft account. You must check through which the signed audited account is tally with your sets of account.


Once confirms, filling(of form C/e-C & form R/e-R) could be done and check(Payment) can be sent.

For your information, 


1.Payment to settle tax payable should be send together with form CP207,
2. Where endorsement of check should include:
   a.Name of Tax payer
   b.Tax reference number
   c.Year of assessment under review
   d.Correspondent address

What you may do is:-

1.Prepare a cover letter for such payment
2.Do type on/fill ups required info on CP207
3.Check/ Write the endorsement for client as:-
   a.Client's name (name of tax payer)
   b.Tax reference number
   c.Year of assessment under review
   d.A c/o stamp (stamp which enclose your firm's name and address)





Step 6 - Bound Copy (or submitted record for client)

On simple, only 4 items you may need to prepare :-
1. Cover letter
2. Confirmation submission of  form C/e-C & form R/e-R
3. Final submitted copy of form C/e-C & form R/e-R
4. The signed pages(from your client) of form C/e-C & form R/e-R
For Comprehensive, you may need :-
1. Bill
2. Duplicate of acknowledgment
============================
3. [hard cover for booklet/ binding cover]
4. Cover letter
5. Signed approval letter
6. Confirmation submission of  form C/e-C & form R/e-R
7. Final submitted copy of form C/e-C & form R/e-R
8. Signed draft form C/e-C & form R/e-R
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[Item between double line (3-8) is binding to be a booklet]

Tax return - Introduction

A tax return generally define as a documents that can be filed with a government body declaring liability for taxation [Wikipedia]

In Malaysia, tax return being one of the significant milestone for every tax payer on each year of assessment. Government body tax in charge of Malaysian tax return is Inland Revenue Board (Lembaga Hasil Dalam Negeri) .

Income of any person [legalized person] including a company, accruing in or derived from Malaysia or received in Malaysia from outside Malaysia is subject to income tax. The law governing income taxation is the Income Tax Act 1967 (ITA 1967 Act53). A transaction must fall within the ambit of ‘scope of charge’ as provided in Section 3 of the Act in order to be liable to income tax. Income tax in Malaysia is imposed on income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.

Section 3. Charge of income tax.

“Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each YA upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.”

 Therefore, income tax liability arises when: 

i. the transaction is ‘income’ in nature and such income is accrued in or derived from Malaysia; or
ii. the transaction is ‘income’ in nature and it is received in Malaysia from outside Malaysia.

Income tax would be imposed by reference to a YA upon a person’s income. Such person is known as chargeable person.
However, income received in Malaysia by any person other than a resident company carrying on business of banking, insurance or sea or air transport for a year of assessment derived from sources outside Malaysia is exempted from tax. 

Whereby, Capital gain[N1] is not subject to income tax charge in Malaysia, only Revenue[N2] is subject to tax.

N1: Capital gain is a profit that results from investments into a capital assets, such as stocks, bonds or real estate, which exceeds the purchase price.

N2: Revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers.

Income vs. Capital receipts

 

6.Installment Payment (CP 207)

           With the preprinted Form CP 207 of organization detail, we do forwarding the form together with a cover letter which attach with the detail payment scheme for the clients.

            For existing companies, the estimated tax payable has to be paid in equal monthly instalments beginning from the second month of the basis period for a year of assessment.

Example 1
'

Number of months in basis period = 12 months

Estimated tax payable = RM120,000

Therefore, monthly installment = RM120,000

= RM120,000/12 months = RM10,000

Example 2:

For new companies, instalment payments must commence in the 6th month of the basis period for the year of assessment i.e. payable in the 6th month after the company commences operations. A company is required to pay the instalment of the estimated tax by the 10th day of each month.

With the detail amount and the date, we would analysis a table as below.

(Note: Example is for December year end clients for the year of assessment 2010)

Payment By Installments

            The estimated tax payable has to be paid in equal monthly installments beginning from the second month of the basis period for a year of assessment.

Example

Number of months in basis period = 12 months

Estimated tax payable = RM120,000

Therefore, monthly installment = RM120,000

= RM120,000/12 months = RM10,000

            Each installment is payable by the 10th of the second month. Similarly, for new tax payers, installment payments must commence in the sixth month of the basis period for the year of assessment i.e. payable in the sixth month after the tax payer commence operation.

            All payments of tax to the IRBM must be made using the Remittance Slip (CP 207). Tax payer is required to indicate the Year of Assessment that the payment is made for on the remittance slip.

Late Payment Penalty:

            Any installment not paid by the due date will be increased by 10 % on the amount unpaid. Thus, we would caution in our letter to the clients and do necessary follow up with the clients.  

[Note: Form CP207 can be download HERE] 

5.Revise Estimation of Tax Payable (CP204A)

Submission of CP204 Form within the Stipulated Time

            A company can revise the tax estimate on the 6th and 9th month of the basis period using CP204A Form.

Example:

            The basis period for ABC Sdn. Bhd. is from 01/01/2012 to 31/12/2012 for the year of assessment 2012. The due date for CP204 form submission should be not later than 01/12/2011. The company can revise the tax estimate in June and September 2012 using CP204A form.

            However, if a company plans to revise their tax estimate other than on the 6th and 9th month of the basis period, the company has to furnish an appeal letter, subject to IRBM approval.

A company can revise the tax estimate on the 6th and 9th month of the basis period using CP204A Form. [Note: Form CP204A can be download here]

i)          A company/co-operative society/trust body/unit trust is allowed to revise its original estimate, in the sixth or ninth month or both months of the basis period for a year of assessment) If the tax payer revised its estimated tax payable and the amount exceeds the installment payments that have been made during the year, the difference has to be paid in the remaining installments in equal proportions.

Example

Initial Estimate = RM120,000

Revised Estimate = RM190,000

Installment paid for the year = RM10,000 X 5 = RM50,000

Remaining installment = (RM190,000-RM50,000)/7 months

= RM 20,000 for 7 months

ii)         If the instalment payments that have been made during the year exceed the revised estimated tax payable, the tax payer may discontinue the balance of instalment payments. The balance of the tax payable for the year must be settled within 7 months after the closing of accounts.

Example

Tax payable (computed in Return Form) = RM100,000

Instalment paid = RM70,000

Balance of tax payable = RM30,000

            The balance of the tax payable for the year of RM30,000.00 must be paid within 7 months after the closing of accounts

4.2.Change In Accounting Period

The company has to notify IRBM on the changes using the CP204B Form. The form can be downloaded from IRBM’s website or obtained from Information Processing Department, Pandan Indah, Kuala Lumpur.

            The form must be submitted to the following address:

Inland Revenue Board of Malaysia,
Information Processing Department, Level 10-18, Tower C,
Persiaran MPAJ, Jalan Pandan Utama Pandan Indah
P.O. Box 11055,
50990 Kuala Lumpur.

            Date lines for CP204B submission is stated at the back of the form.

(Note: The Form CP204B can be download HERE)

4.1Late Furnish of CP 204

            If a company fails to submit CP204 Form within the stipulated time, the company cannot make a revision on the 6th and 9th month of the basis period using CP204A Form. If a company plans to revise their tax estimate, the company has to submit an appeal letter which is subject to IRBM (LHDN) approval.

Example:

            DEF Sdn. Bhd. is an existing company which year ended 30th June. Therefore the due date for CP204 submission is on or before 31st May every year. For the year assessment 2009 the company late submits their CP204 tax estimation on 15/06/2008.

            The basis period for DEF Sdn. Bhd. is from 01/07/2008 to 30/06/2009 for the year of assessment 2009. The due date for CP204 Form submission should be not later than 31/05/2008. The company submitted CP204 Form on 15/06/2008, which is after the due date.

            In the above situation, revision on the 6th and 9th month of the basis period cannot be made using CP204A Form. Instead, an appeal letter has to be submitted to Information Processing Department, Pandan Indah, Kuala Lumpur stating the reasons for the delay.

4.Estimation of Tax Payable (CP 204)

Estimation of tax payable

            Under the Self Assessment System, every company/co-operative society/trust body/unit trust is required to furnish an estimate of it's tax payable for a year of assessment. This has to be done not later than 30 days before the beginning of the basis period.

            In respect of a company/co-operative society/trust body/unit trust that has just commenced operation, the estimate of tax payable for the current year may be furnish within 3 months from the date of commencement of operation.

            The estimate of the tax payable for the current year of assessment should not be less than the estimate of tax to be paid for the immediate preceding year of assessment.

            With effect from the year of assessment 2006, the estimate of tax payable for a current year by the company should not be less than 85% of the revised estimate of tax payable for the immediate preceding year of assessment. If there is no revised estimate furnished, current year tax estimate should not be less than 85% of the estimated tax payable for the immediate preceding year of assessment.

A company which has just commenced business can estimate the tax payable for the first year of assessment based on estimated company profits. The estimated tax payable for the first year will be the basis for the tax estimate for the next year of assessment.

Example

 

            ABC Sdn Bhd has furnished estimate for the year of assessment 2009 amounting to RM50,000. In the 6th / 9th month, the company revises the tax estimate to     RM100,000. The revision is agreed by IRB. Therefore for year assessment 2010, ABC Sdn Bhd has to furnish a tax estimate of at least RM85,000 (85% from the revised estimate of the year assessment 2009).

 

Submission of Tax Estimation (CP204 Form)

            An existing company is required to furnish estimation of tax payable not later than 30 days before the beginning of the basis period for a year of assessment. However, a company that has just commenced business has to furnish the estimate of tax payable within 3 months from the date the company commences business.

Example 1:

            The basis period for company ABC Sdn. Bhd. is from 01/07/2008 to 30/06/2009 for the year of assessment 2009.

            The company has to submit CP204 form not later than 31/05/2008 (30 days before the beginning of the basis period).

Example 2:

            DEF Sdn. Bhd was incorporated on 25/02/2009. The company commenced its business on 01/04/2009 and the first financial accounts were prepared up to 31/12/2010.

           

            The company has to submit CP204 form not later than 30/06/2009 (3 months from the date the company commenced its business).

(Note: The Form CP204 can be download HERE)

3.Corporate Tax Time Line

Time line for whole year of assessment (Y/A) 2009 

Please click link below for the above topic:-
CP204  - 4.Estimation of Tax Payable (CP 204)
            - 4.1.Late Furnish of CP204
            - 4.2.Change In Accounting Period
CP204A  - 5.Revise Estimation of Tax Payable (CP204A)
Installment Payments   - 6.Installment Payment (CP 207)
Submission of Form C/e-C & Form R/e-R  - 8.Tax Return
                                                               - 8.1.Tax Return (For Corporate Taxation)




Time line for tax return (for June year end clients)

2.Analysis activities time table of tax officers

Introduction of time table

For a tax services providing firm, due dates for task is one of the most important elements for each of the assigned job. Thus, similar table will paste on each of the tax officers’ desk. With the table, we can briefly determine the activities and job should complete before the due dates. For example,

In January 2010 :–

1. We would prepared a CP 204 remind letter to the March year end clients submission of form CP 204 for the year of assessment 2011.
2. We would call and ask for the February year end clients to return the signed Form CP 204 together with the approval to do the submissions of Form CP 204 for the year of assessment 2011.
3. Meanwhile, each instalment is payable by the 10th of the month. Similarly, for new tax payers, instalment payments must commence in the sixth month of the basis period for the year of assessment i.e. payable in the sixth month after the tax payer commence operation. Thus, we would do follow ups with the November year end clients to make the instalment payments. 
4. At the same time, we do remind and ask whether the clients would like to do the revised estimation of tax payable (Form CP 204A) for April (9^th month revise) and July (6^th month revise) year end client
5. For the most part of activities which for filling purposes, we do send reminder to request information from the clients for September year end clients, further information request for August year end clients, prepare the draft tax computations for July year end clients, and get the final approval of tax return for Jun year end clients, and prepare the bound copy of tax return for the May year end clients.

1.Starting words

This is a diary written by a tax associate 2 (tax junior) who have just join an accounting firm for 3 months period(since Jan2011) while graduating from 4 years study on Bachelor of Accounting (Including 26 weeks industrial training experience in a well known tax firm D). 

The main objective for me to create this media here is hope that I could learn more regarding my job related matters, hope I would never forget what I have learned as well sharing my knowledge with you who reading my words here. 

Moreover, I hope that you could give a comment, amendment, even a negative criticism to my article here so that I could learn more and improve my technique skills boundlessly. Likewise, hopes we could build up a new media for us to discuss the taxation matters here.

Aside from my career, wish you could found what you needs here regarding Malaysian Taxation including filling your Form B/ e-B, Form BE/ e- BE, Form M/ e-M for individual; Form C & R / e-C & e-R for your company if you are responsible for your business or working responsibilities. 

Finally thank you for your time to be here and reading through my words. You are always welcome especially tax officer from any others firm. Thanks very much.