Badges of Trade

In: Business and Management

Submitted By durex12
Words 4289
Pages 18
Section 4 of the Income Tax Act, 1967 set out the main classes of income on which tax is chargeable. Section 4(a) and Section 4(b) is discussed under Business Income and Employment Income respectively. Section 4 (c), Section 4(d), Section 4(e) and Section 4(f) is covered under this chapter as other sources of income.

Section 4(c) Dividend Income
Dividend is a distribution of company’s profit to its shareholders by way of cash or non-cash for example distribution of company’s assets or investment shares. The amount distributed to the shareholders will be in proportion to their existing holding.

Dividend received by shareholders is a taxable income by virtue of Section 4(c) Income Tax Act, 1967.

Dividend distributed, paid or credited by a company that was a Malaysian tax resident at the time the dividend distributed, paid or credited is deemed to be derived from Malaysia. [Section 14 Income Tax Act, 1967]

Example 1
Infinity International Sdn Bhd was tax resident in Malaysia since 25.10.2002 as the management and control was in Malaysia. On 31.12.2010, the management and control was started to be exercised in Hong Kong.
Is the income a Malaysian source?

Tax Imputation System (Section 108) – old system
All dividend (except for tax exempt dividend) distributed, paid or credited by a company resident in Malaysia are subjected to a deduction of tax at source at the company’s tax rate (25% as per year of assessment 2009).

Single Tier System – new system (Budget 2009)
- No deduction of income tax at source
- No tax credit for shareholders
- No tax liability for shareholders because the dividends are exempt from income tax
- No Section 108

Example 2
X Sdn Bhd has made chargeable income of RM100,000 and paid income tax of RM25000 for year of assessment 2009. X wanted to pay out its RM75000 cash…...

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