Corporate Tax SystemClassical System Dividends Income Company Shareholders Taxed Taxed Once Twice
Corporate Tax SystemImputationSystem Dividends Income Company Shareholders Allow to use to offset shareholders tax liability when dividends declared Tax Paid/payable S108 account
Corporate Tax System • Under the Imputation System, a company is taxed on its chargeable income • Dividends paid to shareholders are included as taxable income on shareholders. • What is included in the shareholders taxable income is the amount of dividend plus the amount of company’s tax paid (s110) • After computing the shareholder’s tax liability , the shareholders are allowed to use amount of Co’s tax paid to offset their tax liability
IMPUTATION SYSTEM Tax Paid Company’s Level (RM) 1,000 (a) Taxable Income 280 (b) Tax @ 28% : Tax Assessed (c) Tax paid 280 Shareholder’s Level Net dividend 720 Tax (gross @20%) 200 280 Tax Credit Imputed [S.110] 80 Repayment/ Tax
Recording the “tax paid” for Shareholders Use Sec 108 Debit Credit Compared Total Compared Aggregate • Co’s tax on dividends paid, credited or distributed. • ( Dividends paid with the s110 credits) • Co’s tax paid (new Sec 108) or payable (old Sec 108).
Compared Total • Defined as being the amount of tax on dividend paid, credited or distributed • in the basis period for a YA. • Debited to Section 108 account.
S.108 Debits - Compared Total • Gross dividends paid by Co A to shareholders is RM 1000 . • What is the Compared Total (S 108 Db) for Co A?
Compared Aggregate Balance b/f Less: Tax deemed refund Tax Paid in the basis period - Payment under s107C - Payment under s103 Dividends received Lower of: Tax on chargeable income Tax credit on dividend income
Sec 108 Computation (YA 2005) RM’000 Balance brought forward xx + Income tax paid 1 install. (YA 2004) xx + Income tax paid 11 install. (YA 2005) xx + Final tax payment for YA 2004 xx or - Tax refund for YA 2004 xx + Lower of: xx • Tax on chargeable income Less: S132/133 + S6B xx • Tax credit on dividend income xx Compared aggregate xx
TAX PAID : S 107CEstimate Tax PayableYA 2005[1.1.2005-31.12.2005] ETP = RM 120,000 paid on 10th every month commencing on Feb 2005 at RM 10,000 per month. Tax Paid under s107C YA 2005: RM 110,000 (11 X 10,000) YA 2006: RM 10,000 (1 X 10,000)
TAX PAID : S 107CYA 2004 [1.1.2004-31.12.2004] Payment Date YA for s 108 purposes 10.2.2005 10.3.2005 10.4.2005 10.5.2005 10.6.2005 10.7.2005 10.8.2005 10.9.2005 10.10.2005 10.11.2005 10.12.2005 YA 2005 YA 2006 Tax paid in the basis period: Feb to Dec 2005 = 11 x 10000 = 110000 (RM 10000) 10.1.2006
Payment of Tax : S 103 Tax Payable: Estimate of Tax Payable < > Tax Refund Balance under s103 Tax Paid on ETP > Actual tax payable := Tax refund
YA 2005 : S 103 • YA 2005 • Tax payable 140000 • Tax paid for YA 2005(CP 204) 120000 • Balance of Tax Payable 20000 • The amount is payable on 31.7.06.(date of submission of Return.) • The tax paid of RM 20,000 is to be included in the S 108( Form R) for YA 2006.
Definition: S 108(14) TAX PAID • Payment of tax: • In the basis period for the year of assessment • Exclude: • Tax payable for YA 2000(cyb) & prior years • Penalties[s112(3), 113] • increase in tax S 103,107C etc • RPGT payments • S 108 charge
Tax Refund YA 2005 Actual tax payable 100000 Tax paid for YA 2005(ETP) 120000 Tax to be refunded 20000 In which YA is RM 20000 to be taken into in the S 108 account?
Tax Refund Refund is deemed occur in the following YA even though no actual refund. Hence, tax refund for a YA (say YA 2004) should be deemed taken into account in compared aggregate in the following YA (YA 2005).
(B) Amount of s110 Inter Company Dividends Amount of tax credits on dividends(S110) or Income tax charged (before S 110 set off) less: S 132 S 133 S 6B rebate Whichever is lower
(B) Amount of s110 Inter Company Dividends • What is the amount to be included as S 108( Form R) • of YA 2005 ?
Underfranking of Dividends • Debits < Credits • Excess credits is c/f to the following year of assessment
Overfranking of Dividends • Debits > Credits Compared Aggregate (Credit) 150000 Less: Tax on dividend paid( Db) 220000 Debt due and payable (70000)
Overfranking of Dividends If compared total exceeds the compared aggregate, the shortfall becomes a debt due to the IRB. Any shortfall is payable on due date for payment of tax under Self Assessment System (SAS) i.e. 7 months from the close of accounts
Overfranking of Dividends • Failure to pay on due date - 10% increase of the excess/shorfall. Or • <=100% if not furnished Form R. Penalties
S 108 account • Order Rules - Priority? Old account or New account? Any tax on dividend paid, credited or distributed will be debited to old section 108 account (until the balance is nil) and then new section 108 account.
> Form R Compliance Submission of S.108 account. Type of Form: Form R Date due : Within seven months following the close of the accounting period. Failure to submit : Penalty 100% on Non-compliance : RM 200 -RM 2000 or up to 6 months or both