Lecture 3 taxation in Malaysia and the world.pptx.pptx

tax

1. Partnerships Introduction Type of partner Allocation of partnership income/loss; capital allowances Computation of Divisible Income and Adjusted Income

2. Introduction Defined as an association of any kind (includ e joint venture, syndicates) between parties who have agreed to combine any of their rights, powers, property, labour or skill, for the purpose of carrying on a business and sharing the profit there from. Exclude a Hindu joint family although such a family may be a partner in a partnership Relationship which co mprises 2 or more person s (restricted to maximum of 20 person) Not a separate entity Register with the Registrar of Business

3. Introduction Partnership is not a chargeable person for income tax purpose Each in dividual partner is assessed on his or her share of partnership income Business income include trade, manufacture, profession, vocation, adventures, or concern in the nature of trade Filing of partnership return (Form P) not later than 30 June

4. Existence of Partnership The following factors need to be present: C arrying on business; Sharing of rights and responsibilities A view of profit Element of risk and reward for each partner Partn ership agreement exist (not a compulsory)

5. Existence of Partnership Example: Cheng Guan & Soon Ling agreed to the following arrangements: Cheng Guan would p rovide all the capital n eeded for the setting up of a food catering business Soon Ling would be the cook and overseas the operation of busin ess Soon Ling would rec eive a fixed salary and a percentage of the sales proceeds Cheng Guan would receive the balance after taking into account of all other operating expenses Discuss whether a partnership exists?

6. Existence of Partnership Answer: A partnership does not exist as: There i s a master-servant relationship between Cheng Guan & Soon Ling Cheng Guan – sole proprietor of the business; Soon Ling merely an employee There is n o sharing of profits/losses amo ng them but only an incentive scheme - % of sales proceeds given to Soon Ling

7. Existence of Partnership Example: A cons ortium is formed between Apha Ltd & Beta S B to initiate a construction project in Malaysia. Each party would be required to perform their functions as per contract agreem ent with State Government. All the c ontract income & expenses will be shown in consortium’s account. The net profit of the consortium shall be allocated as follows: Apha Ltd 45% Beta SB 55% Discuss whether a partnership exists?

8. Existence of Partnership Answer: A partnership exist even though there is no formal partnership agreement between them as: Bo th parties agreed on their share of profit form the contra ct All in come & expenses from the project are accounted for the consortium accounts

9. Type of Partner F ull partner Activ ely involved in business Responsible to submit Form P to IRB Sa laries partner D raws a salary from the partnershi p with or without share of profit S leeping partner Do es not involved in the business Merely share the profit/losses Cor porate partner A company or a non-resident may become a partner Li mited partne r Su bscribes fixed amount of capital Not actively involved in th e management of business

10. Assessment of partnership business Basis period = Calendar year Pr ofit figure = net after adjustment made for partners’ salaries, interest on partner’s capital and other personal expenses charged in the partnership a ccount

11. Divisible Income and Adjusted Income Divisible Income [Sec 55(3)] Pr ovisional adjusted income less: P artners’ wages or salaries; Interest payable to a partner; and Private expenses of the partners charged to a partnership account

12. Divisible Income and Adjusted Income Adjusted Income of an individual partner [Sec 55(5)] Share of divisible income/loss; an d R emuneration, interest & private expe nses from the partnership

13. Capital Allowances Divided among the partners in accordance with their profit sharing ratio New partner will enjoy full year capital allowance; retired partner during the year would not enjoy any capital allowance Capital allowances not utilised during the YA are carried forward and allowed in the following YA

14. Assets Purchased by Partner A partner may incur qualifying expenditure such as motor vehicle purchased individually but use it for partnership business The partner would entitle for capital allowance on the motor vehicle Non-business Income of a Partnership Sec 58 – When a partnership receive non-business income in the form of rent, dividends or interest income, such income will be shared by the individual partners according to their profit sharing

15. Death of a Partner When a partner in the partnership dies, his heirs have the following option: Liqu idation of the business F ind a new partner who will take over deceased partners’ inter est The dece ased partners’ heirs may decide to form a new partnership with the remaining partners The deceased partners’ h eirs may decide to buy out existing partners’ interest & continue the business themselves The deceased partners’ heirs ma y sell the deceased partners’ interest to the surviving partners

16. Example – Speedy Enterprise Trial balance ended 31.12.2017 DR CR Sales 150,000 Cost of sales 50,000 Administrative expenses 50,000 Partners’ salaries Sim 22,000 Ling 14,000 Partners’ interest Sim 3,000 Ling 3,000 Partners’ private expenses Sim 2,000 Sim & Ling agreed to share their income equally between them. The capital allowances for the partnership business for YA 2017 is RM8,000. Compute the ( i ) partners divisible income (ii) partners statutory income for YA2017

17. Solution – Speedy Enterprise Calculate net profit Calculate provisional adjusted income Calculate divisible income for partnership & individual partner Calculate statutory income

18. Solution – Speedy Enterprise

19. Solution – Speedy Enterprise

20. Solution – Speedy Enterprise

21. Solution – Speedy Enterprise