Basis Periods
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Taxation 1 / BAC 2674 / Tutorial 3 Basis period and change of accounting date QUESTION 1 What do you understand by the term calendar year, basis year and the year of ass in relation to the relevant taxable entities? ANSWER Malaysia moves into the current year assessment basis with effect from the year #nder the current year assessment system, the year of assessment in relation to of a com$any, trust body or a co%o$erative society shall consist of the basis $e year of assessment" &his will a$$ly to all sources of income of the relevant ent Exam$le 'omathi (hansi Sdn )hd carries a business of tradin* in construction materials" its accounts to (une each year" -or the year 2.2, it closed its accounts to 2.2" +n this case/ &he financial $eriod is . (uly 2.. to (une2.2 &he basis $eriod is . (uly 2.. to (une2.2 &he assessment year is 2.2 +n the case of an individual, the calendar year coincidin* with a year of assess constitute the basis year for a year of assessment" +f the individual has any ot of income, includin* business income, the year ended has to be . 0ecember 1sec Exam$le Mr )arath Ra3a commenced em$loyment on . A$ril 2.." -or the year of assessment 2.. &he basis $eriod is . A$ril 2.. to . 0ecember 2.. &he assessment year is 2.. -or the year of assessment 2.2 &he basis year is . (anuary 2.2 to . 0ecember 2.2 &he assessment year is 2.2 QUESTION 2 What is the basis $eriod for determinin* the em$loyment income? Will it ma4e any difference if the tax$ayer has any non%business income other than em$loyment inc ANSWER &he basis $eriod is the calendar year for determinin* the em$loyment income" .
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Taxation 1
Transcript of Basis Periods
Tutorial 2
Taxation 1 / BAC 2674 / Tutorial 3 Basis period and change of accounting dateQUESTION 1
What do you understand by the term calendar year, basis year and the year of assessment in relation to the relevant taxable entities?ANSWER
Malaysia moves into the current year assessment basis with effect from the year 2004.
Under the current year assessment system, the year of assessment in relation to a source of a company, trust body or a co-operative society shall consist of the basis period for the year of assessment. This will apply to all sources of income of the relevant entity. Example
Komathi Jhansi Sdn Bhd carries a business of trading in construction materials. It closes its accounts to 30 June each year. For the year 2012, it closed its accounts to 30 June 2012. In this case:
The financial period is 1 July 2011 to 30 June2012
The basis period is 1 July 2011 to 30 June2012
The assessment year is 2012
In the case of an individual, the calendar year coinciding with a year of assessment shall constitute the basis year for a year of assessment. If the individual has any other sources of income, including business income, the year ended has to be 31 December (sec 20)Example
Mr Barath Raja commenced employment on 1 April 2011.
For the year of assessment 2011
The basis period is 1 April 2011 to 31 December 2011
The assessment year is 2011
For the year of assessment 2012
The basis year is 1 January 2012 to 31 December 2012
The assessment year is 2012QUESTION 2What is the basis period for determining the employment income? Will it make any difference if the taxpayer has any non-business income other than employment income?
ANSWERThe basis period is the calendar year for determining the employment income.
The same applies if the taxpayer has other non-business income like dividend or rent.QUESTION 3JK Sdn Bhd commenced business on 1 October 2010. It closes its accounts to 31 December each year.
Required:
a) What is the basis period for the year of assessment 2010, 2011, and 2012?
b) What is the basis period for the year of assessment 2010, 2011, and 2012 if the accounts are closed to 30th September each year?
ANSWER
a) Year ended 31 Dec
Year of assessment 2010
1 Oct 2010 to 31 Dec 2010Year of assessment 2011
1 Jan 2011 to 31 Dec 2011
Year of assessment 2012
1 Jan 2012 to 31 Dec 2012
b) Year ended 30 September
Year of assessment 2011
1 Oct 2010 to 30 Sept 2011
Year of assessment 2012
1 Oct 2011 to 30 Sept 2012Year of assessment 2013
1 Oct 2012 to 30 Sept 2013QUESTION 4Vijay Motor Industries Sdn Bhd is a subsidiary of an Indian firm Vijay Motor Industries Plc. (the Indian firm). The Indian firm is required to close the accounts to 30th September each under the Indian company law. Vijay Motor Industries Sdn Bhd commenced business in Malaysia on 1 January 2010.
Required:a) What is the basis period for the years of assessment 2010, 2011 and 2012
b) Would the basis period for the relevant years of assessment be different if Vijay Motor Industries Sdn Bhd is not a subsidiary of Vijay Motor Industries Plc. of India?
c) What is the situation if Vijay Motor Industries Sdn Bhd is a subsidiary of a local group of Malaysian companies, Vijay Motor Holdings Bhd, and the holding company closes its accounts to 30 September each year?
ANSWER
a) Year of assessment 2010
1 Jan 2010 to 30 Sept 2010
Year of assessment 2011
1 Oct 2010 to 30 Sept 2011
Year of assessment 2012
1 Oct 2011 to 30 Sept 2012
b)Year of assessment 2010
1 Jan 2010 to 31 Dec 2010
Year of assessment 2011
1 Oct 2010 to 30 Sept 2011
Year of assessment 2012
1 Oct 2011 to 31 Sept 2012
c) Year of assessment 2010
1 Jan 2010 to 30 Sept 2010
Year of assessment 2011
1 Oct 2010 to 30 Sept 2011
Year of assessment 2012
1 Oct 2011 to 30 Sept 2012
QUESTION 5Castrol Sdn Bhd is a local Malaysian company manufacturing vegetable oil for use in the pharmaceutical industries. It closes its accounts to 31 December each year. The company changed its accounts to 30 June (not a requirement of the law) and prepared the accounts with the following results:
Accounting period
adjusted income/ (loss) [RM}
Year ended 31 Dec 2009
36,000
1 Jan 2010 to 30 June 2010
48,000
1 July 2010 to 30 June 2011
(12,000)
Required
Determine the basis period for the relevant years of assessment 2009 to 2011 showing the amount of adjusted income or loss accordingly.
ANSWER
NoteThere is a failure to make up accounts to the normal accounting date in the year 2010.
The basis period for the year of assessment 2010 will therefore be re-directed by the DGIR under section 21A (2).
The loss taken into account in the first period i.e. year of assessment 2010 will not be allowed in the second basis period i.e. year of assessment 2011.QUESTION 6
Ash Electrical Sdn. Bhd. has been closing the accounts to 31 December each year. It then decided to change the accounting date to 30 June.
Adj. income / Loss
Year ended 31.12.03(5,000)
6 months ended 30.6.048,000
Year ended 30.6.0510,800
On October 2005 Ash Electrical Sdn. Bhd. was taken over by Coal Electrical whose accounting date is 30 April. Ash Electrical Sdn. Bhd. then closed the accounts to 30 April and the adjusted income and loss details are as follows:
Adj. income / Loss
1.7.05-30.4.06(1,000)
Year ended 30.4.0713,200
Required:
Determine the basis period and the adjusted income and losses of Ash Electrical Sdn. Bhd. for the relevant years of assessment. Also indicate the failure yearANSWERYear of assessment Basis periodAdjusted income / (loss)
20031.1.03-31.12.03 (5,000)
20041.1.04-31.12.04 [Sec. 21A(1)]
8,000 (for 6 months) + 6/12 x 10,80013,400
20051.7.04-30.6.05 [ Sec. 21A(2)]
6/12 x 10,8005,400
20061.7.05-30.4.06 [Sec. 21A(3)](1,000)
20071.5.06-30.4.07 [Sec. 21A(2)13,200
The failure year is the year 2006 since the accounts has not been made to a 12-month period from the previous accounting date.QUESTION 7 SELF REVISIONMr. Choo operates a coffee shop. He commenced operations on 1 March 2005. His first accounts are prepared as follows:
1 March 2005 28 Feb 2006
What would you advice him on the issue of basis period?
If Mr. Choo derived rental income and interest income, what would be the basis period for those incomes for the relevant year of assessment?
ANSWER Since he is a sole proprietor, he should close the accounts to 31 Dec each year.
As for rental and interest income, the basis period will be the ye 31 December
QUESTION 8 SELF REVISIONChoo Auto Accessories Sdn. Bhd. commenced business on 1 May 2005. The company plans to close the accounts to 30 April each year.
What is your advice?
Can the company close the accounts to 31 December? What is the consequence?
ANSWER
The company may close the accounts to 30 April since this is a 12-month period.
The company can also close the accounts to 31 December every year.
The consequence is that the company will be preparing, submitting, and paying taxes much earlier if the accounts are closed to 31 December. QUESTION 9
If Choo Auto Accessories Sdn. Bhd. is a subsidiary of Ching Accessories Sdn. Bhd (accounting date: 31 Dec) and commenced business on 1 May 2005, what is the implication for the accounting dates?ANSWER
Choo Auto Accessories Sdn. Bhd. must close its accounts to the same date as that of the holding company so that the dates are co-terminus i.e. it ends on the same date for both the companiesQUESTION 10 SELF REVISIONWhy is it important to determine the commencement of a business with certainty? ANSWER
Expenditure incurred before the commencement date are treated as pre-commencement expenditure and may not qualify for tax deduction.QUESTION 11 SELF REVISIONSaraswathy Cash & Carry Sdn Bhd makes up its accounts to 30 June each year. When the founder of the company passed away in November 2010 the new board of directors proposed the accounting date be changed to 30 September. The accounts were then prepared as follows:
Year ended 30 June 2010
1 July 2010 to 30 Sept 2011
Year ended 30 Sept 2012
Required:
Determine the basis period for the years of assessment 2010 to 2012
ANSWER
The accounting date was changed to a new date and there was no legal requirement to do so. As such, the basis period for the relevant years of assessment would be as follows:
Year of assessment 20101 July 2009 to 30 June2010(12 months)
Year of assessment 20111 July 2010 to 30 Sept 2011 (15 months)
Year of assessment 20121 Oct 2011 to 30 Sept 2012 (12 months)
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