Professional Documents
Culture Documents
UBAT2023 OUTLINE
TAXATION I 1. Definition of business
2. Badges of trade
3. Revenue receipt: gross income from business
4. Distinction between capital and revenue receipts
5. Derivation of business income
TOPIC 6 6. Commencement of business
BUSINESS INCOME 7. Basis period of business income
8. Adjusted income from business
9. Mutual and illegal transactions
Profession Trade
Using intellectual skill to earn income Buying & selling
Example: Engineering, legal & medical practice Intention to make profit
Vocation
Manufacture
Way of passing life
Original material undergo a transformation so that a new
Example: Placing bets systematically , attend races
and different article or product emerges
S4(A): BUSINESS INCOME
MAY 2017
S4(A): BUSINESS INCOME MAY 2017
Investment/ Self
Since Subsequent Enjoyment LONG TERM
or
acquisition Change to that
Extensive
advertisement Held for resale Held for long term
investment/own use
Setting up Employment
sales office of sales staff
Business income Capital gain
S4(A): BUSINESS INCOME MAY 2017 S4(A): BUSINESS INCOME MAY 2017
SUMMARY OF BADGES OF SMART Sdn Bhd has been engaged in general manufacturing industry since year 1980. In
2000, the company diversified into agricultural activities through the acquisition of a
TRADE rubber estate in Perak Malaysia. The estate was then, classified as a fixed asset in
companys balance sheet.
Business income Capital gain
In year 2014, smart Sdn Bhd applied to the relevant authorities for conversion of the estate
9 Method of Active (organized Passive (ad hoc)
for commercial use. After obtaining approval for the conversion in December 2014, the
disposal activities)
company applied for a housing developers license.
10 Accounting Current asset (stock Non current asset
treatment in trade) Before smart Sdn Bhd could commence development works on the land, it encountered
financial difficulties and sold the land in November 2015 for a profit of rm18 million. The
The badges/factors needs to be considered collectively to ascertain the company had no previous dealing in land.
nature of a transaction
No single badge is conclusive in itself Required:
Certain badges should be given more weight to ascertain the nature of a State your arguments for and against the taxability of the profit on sale of the land.
transaction
MAY 2017 Answer: MAY 2017
Answer: Not assessable to income tax
Argument against taxability
Argument for taxability Length/ period of ownership
Intention/ motive of taxpayer Long holding period from year 2000 till 2015.
The application for housing developers license indicates that the nature
of the estate land changed into stock-in-trade due to the change in Frequency of transactions
intention. There is no previous dealing in land. It is an isolated transaction.
Non-Malaysian
Malaysian source Malaysian source
source
Dividend income of share dealing business Release/waiver of debt by creditor pertaining to expense
[S 24(4), ITA 1967] previously been allowed as business deduction (eg rent
payable)
Interest income of investment dealing business/money [S 30(4), ITA 1967]
lending business (eg bank & finance company)
[S 24(5), ITA 1967] Recovery of bad debt which has previously been allowed as
business deduction
[S 30(1), ITA 1967]
The facts would indicate that the winning and losing of agencies is normal Receipt for substantial restriction on business activities
in the course of the companys business. In the year which the agency was (restrictive covenant)
lost, two new agencies were gained.
In the circumstances, it cannot be said that the entire structure of the Compensation for destruction of whole structure of profit-
companys business was affected. It is clear that the agency in question was making apparatus (eg termination of major business contract
just one of several agencies that the company held. joint venture)
MAY 2017
S4(A): BUSINESS INCOME MAY 2017
Receipts of subscription by members to a club do not form Tax on income, not only on legal income
part of the assessable income
OUTCOMES
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