LEARNING OBJECTIVE:
|
Definition of 'basis year'? The period (not exceeding twelve months) for which the Group Holding Company of the particular PIC Group to which that subsection refers makes up its accounts.
|
|
Definition of 'basis period'? The basis period for a company, co-operative or trust body is normally the financial year (FY) ending in that particular YA. For example the basis period for the YA 2021 for a company which closes its accounts on 30 June 2021 is the FY ending 30 June 2021.
|
|
Definition of 'accounting period'? An accounting period is any time frame used for financial reporting. Transactions that fall within a given date range form part of the statements or reports for that Accounting period. An accounting period, or reporting period, is often 12 months.
|
Correct determination of basis periods
Determination of basis period of companies on commencement of business and change of accounting date?
|
Determining the basis period for a YA is important as it determines the period in which: |
- income arising is recognised and duly reported;
|
- expenses are treated as incurred, thus deductible; and
|
- capital expenditure on assets is treated as incurred, and prima facie eligible for initial allowance and annual allowance.
|
Correctly determining the basis period is therefore significant in the following aspects of tax management: |
- Accurately determining the adjusted income, the correct claim for capital allowances and, thus, the chargeable income and tax liability for a YA
|
- Providing a basis for the estimation of tax chargeable for the relevant basis periods, and
|
- Identifying the compliance responsibilities for the respective YAs.
|
Relevant provisions and public rulings
The provisions of the Income Tax Act 1967 relating to basis periods are as follows: |
- Section 20 – Basis years
|
- Section 21 – Basis periods for persons other than companies, LLP, trusts etc; and
|
- Section 21A – Basis periods for a company, limited liability partnership (LLP), trust or co-operative society
|
- Section 42(2) – Overlapping periods
|
- Section 107C(4) and (4A) – Basis periods on commencement of operations
|
- Section 107C(11B) and 120(1)(i) – Failure to notify constitutes an offence and recoverability
|
INTRODUCTION
A company is chargeable to income tax in respect of all its sources of income for a year of assessment (YA). |
The income from a source is determined in relation to the basis period for a YA. |
BP sets the time frame for the ascertainment of income for each source. |
Is governed under Section 20, 21 and 21A of the Act. |
Reason for important?
1 |
Any revenue expenses
incurred before the DOC
is not deductible
in arriving the adjusted income. |
2 |
Capital allowance
on qualifying capital expenditure would be available beginning from the first BP
where the commencement date falls
. |
3 |
It results in the determination of the first YA
. |
Why are the commencement date & the year-end date are important?
June 16 & March 16
|
|
PR8/2014
Commencement of operation |
Changes of accounting period |
Section 21A(2)
- Where a company commences business on a day in a basis year. |
- Accept the AP. |
1st set of accounts consist of 12 months
Section 21A(5)
- Required by the law of the place to close its accounts on a specified day or |
- Being a company within a company, is required to close its account on specified day to coincide with the group year end |
- Accept the AP |
Section 21A(6)
- Where a company commences a new business and is currently carrying on one or more other businesses |
- The new business will be treated as having the same basis period as the old business |
- Accept the AP |
Section 21A(4) - Amended**
- Is amended to simplify the BP on commencement |
- The BP of the company depends on the closing date of the accounts |
- Applicable to the 1 st set of account closed in 2014
onwards |
AP ending in the same year
- BP = AP |
- Accept the AP |
- March 2021 |
[21A(4)(a)]
Q March 2021
AP ending in the following year
- BP = AP |
- Accept the AP |
[21A(4)(b)]
Q February 2021
AP ending in the 3rd year
- BP = AP |
- Accept the AP |
[21A(4)(c)]
Example in the PR8/2014
|
|
The concept of failure year:
'Failure year' means the year in which there is failure to close the accounts to the normal accounting date.
Based on PR8/2014
What is the 'Failure Year'?
It is when the company fails to make up accounts for a 12-month accounting period, either |
- less than 12 months or |
- more than 12 months due to changes of the accounting date |
Changes in the AP
1 |
Ending in the same year |
The new AP would be added with the following AP |
2 |
Ending in the following year |
No adjustment is needed |
| |
|
Accept the AP |
3 |
Ending in the 3rd years |
The AP will be apportioned equally between 2 YAs |
Changes ending in the same year:
Q February 2021 & December 2019
Changes ending in the following year:
Q March 2021 & December 2018
Changes ending in the 3rd year:
Q February 2021 & June 2019
What is Overlapping Period?
|
Overlapping period is the period that appears in two year of assessment |
Tax implication for Overlapping Period
- Adjusted income/loss in the overlapping period will be taxed in the first Year Assessment (YA) |
- The adjusted income of the following YA would be reduced by the adjusted income/oss of the overlapping period |
- Sept15/March17 |
Notification on IRB
|
With effect from YA 2019
, the change of AP requires the notofocation to IRB within 30 days
via form CP 204B
either from the end of: |
- New accounting year end; or |
- Old accounting year end |
|
Non-Compliance
|
Failure to notify the IRB on the change of accounting date constitutes an offence |
Upon conviction, taxpayer would be liable to: |
- A fine between RM200 and RM20,000; or |
- Imprisonment for a term not exceeding 6 months; or |
- Both |
Penalty or presumption on existing year end
Section 21A(3A) mandatorily imposes the notification requirement to IRB on change of your end. |
Without such notification on the change of accounting date, the IRB would presume the existing year end continues |
The change of accounting date involve variation of month in YA, penalty would be imposed on: |
- Late payment of monthly instalments [Section 107C(11B)]
|
- Late submission on tax return [Section 112C(3A)]
|
Such penalties shall continue to be recoverable as if it were tax due and payable |
|
