CHAPTER 4 OTHER SOURCES OF INCOME YA 2021

CHAPTER 4 : OTHER SOURCES OF
INCOME

ROZANA BINTI CHE BIDI COMPILATION OF MALAYSIAN
SUHAILI BINTI YUSOF TAXATION – SMART REVISION MODULE

CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

CHAPTER 4: OTHER SOURCES OF INCOME

INTRODUCTION

Section 4 Income Tax Act (ITA) 1967 has listed the classes of income upon which
tax is chargeable and they are as follows:

Section 4 (a) gains or profits from business
Section 4 (b) gains and profits from employment
Section 4 (c) dividends, interests and discounts
Section 4 (d) rents, royalties and premiums
Section 4 (e) pensions, annuities or other periodical payments
Section 4 (f) gains or profits not falling under any of the foregoing sections

SECTION 4(c) - DIVIDEND, INTEREST AND DISCOUNT

DIVIDEND

 ITA 1967 does not define the meaning of dividend.
 Malaysia is replacing its imputation system to single tier system commencing

from year 2008
 The profit are taxable at the company level.
 The dividend received by shareholders exempted from tax.

Dividend represents distribution or payment out of profits or any undistributed profits
of a company to its shareholders in accordance with the shareholding ratio. This
can be in cash or otherwise. The scope of dividend income does not include any
return of paid up capital

Starting year of assessment 2008, Malaysia replaced its imputation system that has
been practicing for years with single tier system, where the profit are taxable at the
company level.

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

Under single tier system, income tax only imposed at the corporate level and it is a
final tax. The dividend are taxable at source only and will be tax exempt in the hand
of the shareholder.

INTEREST

 ITA 1967 does not define the meaning of interest.
 Interest can be defined as the premium or consideration paid for the use of sum

of money or property to the lender or from the settlement of debt.
 Therefore interest from financial institution, dividend from Tabung Haji and

Provident Fund or profit from Bank Islam Malaysia Bhd fall under this definition.
 Interest income received by individuals from money deposited in approved

financial institutions will be tax. However, effected year 30 August 2008, it was
classified as exempted.
 Taxed in calendar year or financial year that it was paid depending upon type of
taxable person (Section 21).
 Interest income is a payment received as a return from allowing another party to
use an individual’s money.
 Interest income is subject to withholding tax depends on the residence status of
the recipient taxpayer.
 If interest is paid by any financial institution in Malaysia to resident individual, a
5% withholding tax must be deducted from the interest income.
 This 5% WHT on interest income is treated as final tax.
 Therefore, net interest income received resident taxpayer not be included in the
computation of his tax liability (exempted from tax).
 The WHT deducted on interest income received by non-resident taxpayer is
15%.

Income in respect of interest received by individuals resident in Malaysia from
money deposited with the following institutions is tax exempt:
a) A bank or a finance company licensed or deemed to be licensed under the

Financial Services Act 2013 (FSA);
b) A bank licensed under the Islamic Financial Services Act 2013 (IFSA);
c) A development financial institutions prescribed under the Development

Financial Institutions Act 2002;
d) Lembaga Tabung Haji established under the Tabung Haji Act 1995;
e) Malaysia Building Society Berhad incorporated under the Companies Act

1965;
f) Borneo Housing Finance Berhad incorporated under the Companies Act

1965;
g) Securities or bonds issued or guaranteed by the Government;
h) Debentures approved by the Securities Commission;

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

i) Interest from offshore company.

DISCOUNT

Discount represent the deduction made from the amount of a bill of exchange or
promissory note, by one who gives value for it before it is due. It arises when a bill
of exchange is below its face value. Any profit accrued on holding it until it is
disposed off or matured is termed as discount.

SECTION 4(d) - RENTAL, ROYALTY AND PREMIUM

RENTAL

 Section 2 of ITA 1967 defines rent as sum received for the occupation of
premises or the hiring of assets.

 Rental income could be classed under Section 4(d) or Section 4(a) income.
 It is classified as Section 4(d) if arises from an investment activity or it will be

treated as Section 4(a) if it arises from a business activity.
 These are rental received in respect of houses, shop houses, land, plant,

machines, furniture, motor vehicles or other similar assets. Rental income is
assessed under Section 4(d) on a calendar year basis. However, rental income
may be assessed under section 4(a) is the taxpayer is in the business of rental.

ALLOWABLE EXPENSES

i. Repairs and maintenance of property–renovation, alteration not allowed.
ii. Fire insurance premium on the rented property
iii. Interest on loan borrowed for purchase of property.
iv. Assessment and quit rent of property
v. Cost of advertising to obtain tenant (not applicable for the first tenant, as it is

initial cost).
vi. Sewage charge.

In order to compute the adjusted income from rental source, allowable expenses
deduced against the gross rental income. Expenses that deducted from gross rental
income are:

i. Administrative and management cost
ii. Advertisement cost

Cost of advertisement allowed is expenses for obtain the hirer for the
replace tenant foregoing, means expenses for get first tenant are not
allowed.
iii. Commission and agency fee related to the collection of rental income.

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

iv. Cost of repairs of the property.
Repair expenses such as repairing roofs, windows, doors, water pipes
and so on. However, the costs of reconstructing (renovation, alteration
and modification) are not allowable expenses.

v. Expenses to renew the lease agreement
If the expenses are the expenses for the first time provides a rental
agreement, it is not allowed.

vi. Expenses related to control insects in the building.
vii. Expenses such as building maintenance expenses of employees hired to

take care of the building.
viii. Interest on the amount borrowed to purchase the rented property.

Only the interest expense on borrowings to finance the purchase of the
building are allowed as a deduction while the repayment of principal is
not allowed.
ix. Replacement cost on assets used in the rented property.
x. Repainting of rented premises.
xi. Security services.

If there is an excess of expenses cannot be less than one property, the excess
expenses can be deducted from other rental income. Loss from rented property is
not allowed to be carried forward to future years. It cannot be off-set against other
income. It’s considered as a permanent loss.

The following expenses are not allowable for deduction against rental income:

a) Capital expenses
It’s including loan repayments (excluding interest) and building renovation

alteration and modification expenses.

b) Occur before production expense rental income
Expenses for the first tenant, such as advertising spending and expense
to prepare the first rental agreement such as legal expenses.

c) Expense for violating the common law such as a fine of garbage disposal.

Exercise1
Mdm. Maya De La Rosa rented her terrace house to Miss Nicky, who was the first
tenant at the rate of RM 450 per month rent from 1 March 2021. Information about
deposits and expenses incurred were as follows: -

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

Deposits: RM 400
Rent deposit 150
Electricity and water deposits
Expenses: 600 yearly
Quit rent and assessment 900 yearly
Fire insurance 400 yearly
Cleaning house expense 200 yearly
Insects control expense 400
Repair ceiling on 3.6.2021 150
Repair toilet on 25.9.2020 150
Advertising cost 200
Payment provision of the lease contract 30 monthly
Collection of rent expense

Compute the adjusted income from rental sources of Mdm. Maya De La Rosa for
the year of assessment 2021.

Exercise 2

Mr. Laurance received rental income for the year basis 2021 amounting RM 18,000.
He incurred the following expenses:

Interest on loan RM 3,500
Fire insurance on the house 400
Repainting
Quit rent and assessment 2,200
Installment of air condition unit 500
Replacement of damaged tiles
Management fees 3,500
Penalty for late payment of quit rent 4,350
1,000

530

Compute the adjusted income from rental sources of Mr. Laurance for the year of
assessment 2021.

ROYALTY

Section 2 ITA 1967 define royalty to include any sum paid as consideration for
publications, or for the use of, or the right to use copyright, artistic or scientific works,
patents, designs or models, plans, secret processes or formula, trademarks or
tapes for radio or to broadcasting or other like property or rights.

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

Know-how or information concerning technical, industrial, commercial or scientific
knowledge, experience and skill.
A resident individual who receives royalty income will be exempted on the following
amount:

Type of Royalty Exemption (RM)

Para 32, Schedule 6 - Royalty from Publication or use or 10, 000
the right to use any of artistic works (other than original 12,000
painting) and from recording discs or tapes. 20,000
Full exemption
Para 32A, Schedule 6 - Royalty from Translation of books Limit to RM20,000
or literary work at the specific request of the Ministry of
Education or the Attorney General’s Chambers.
Para 32B, Schedule 6 – Royalty respect of Publication of,
or the use of, or the right to use any literary work, any
original painting or musical compositions.
Para 32C – Income in respect of cultural performances
approved by the Minister.
Para 32D – income in respect of any musical composition.

Exercise 3:

Mr. Meekail is a composer and an emerging name. In the basis year 2021, he
received royalty income as follows:

a) RM 28,000 from composing the song "Mahligai Rindu"
b) RM 22, 000 from the sale of the tape recording artists in its stable.
c) RM 15, 000 from a song writing "Cinta Padang Pasir".

Determine royalty income of Mr. Meekail for the year 2021.

Exercise 4:
Mdm. Janice is a lecturer in University of Malaya. She writes books on Malaysian
Taxation and received royalty income of RM 32,000 from her books. In addition, she
also received RM 14,000 translation fees on translation of literary work at the special
request of the Ministry of Education.

Determine royalty income that subject to income tax for Mdm. Janice.

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

PREMIUM

Premium is a one off payment. It is receipt for a consideration of giving away the
rights under the tenancy in connection with the granting of lease or immovable
properties. Premium is paid to acquire rights under a tenancy. The landlord would
be assessed on the premium received, in additional to any rental received.

SECTION 4(e) - PENSION, ANNUITY AND OTHER PERIODICAL PAYMENTS

PENSION

 Periodical payment made in respect to an individual who has permanently
ceased to exercise an employment.

 The pension is from employer to the employee, his wife, children or dependent.
 Malaysia derived pension is taxable

Pension represents contractual or voluntary payments made to an individual who
has retired or ceased to hold an employment. If a person is paid more than one
pension, only the higher or highest pension is exempt from tax. Other pensions have
to be reported.

Exempt pension income (Schedule 6):

 Pension paid to a resident person reaching 55 or compulsory retirement age or

retirement is due to ill health and satisfied by General Director.
 Pension paid to any person under written law relating to widow and orphans’

pension.
 Wound and disability pension paid to a person in respect of service in the arm

force of Malaysia or Commonwealth countries.
 Bounty payment provided by parliament to members of the following reserve

force:

 Royal Malaysia Naval or Air Force Volunteer Reserve.
 Malaysian Territorial Army.

ANNUITY

 An annuity is defined as an amount received on a regular basis.
 It can be payable annually or by way of installment in perpetuity or for some

lesser period.

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

 Sum received by way of annuities granted under annuity contracts issued by
Malaysia life insurers are exempted from income tax. Malaysian life insurers
means life insurers and takaful operators where Malaysian citizens hold the
majority ownership or membership.

These are sums of money received in accordance with a will or an investment of
money entitling the annuitants or investors to a series of annual payments, whether
or not received regularly or for a limited period only. It is defined as an amount
received on a regular basis.

It can be payable annually or by way of installment in perpetuity or for some lesser
period. Annuities granted under annuity contracts issued by Malaysian life insurers
are tax exempt. Malaysian life insurers mean life insurers and takaful operators
whose ownership or memberships are held in majority by Malaysian citizens.

OTHER PERIODICAL PAYMENTS

These refer to recurring payments received at fixed times. It includes sum of money
not payable on a regular basis. Example of such gross income included alimony
payments and sums payable under a separation order. Alimony refers to payment
from a husband to ex-wife in a divorce situation.

SECTION 4(f) - OTHER GAINS OR PROFIT

It refers to any other gain or profit not falling within Section 4(a) to Section 4(e). It
related to ad-hoc income or casual income received by a person such as payments
received for part-time or occasional broadcasting, lecturing, writing and so forth.

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

CALCULATION OF AGGREGATE INCOME OF MR. / MRS. FOR THE YEAR OF
ASSESSMENT 2021

Section 4(a) RM RM
Adjusted business income
(+): Balancing charges X
(-): Capital allowances X
(X)
(-): Losses brought forward from previous year
XX
Section 4(b) (X)
Employment income XX

X

Section 4(c) X
Dividend X
Interest X
Discount
X

Section 4(d) X
Rent (Less allowable expenses) X
Royalty (Less exemption) XX
Premium

Section 4(e) X
Pension X
Annuity XX
Periodical payments

Section 4(f) X
Other profit and gains XX
===
AGGREGATE INCOME

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

PRACTICAL EXERCISE

QUESTION 1

Mdm. Aishah is working as a secretary with a monthly salary of RM2,200 in one of the
company in Penang. In addition to monthly salary, she also obtained the following the
revenue for year 2021.

1. Dividend
 Dividend from G-Mark Bhd. RM7,520 (paid on 31 October 2021.
 Dividend from Unicorn RM4,500.
 Dividend from Mutiara Bayu Sdn. Bhd. on 31 December 2021 amounted
RM4,200.
 Dividend from Amanah Saham Wawasan RM450.

2. Interest
 Saving from Lembaga Tabung Haji for period 12 months, RM200.
 Deposit with Syarikat Kewangan Budiman for period of 12 months, RM450.

3. House rental (from 1 January 2021 unil 31 December 2021)

 Monthly rent RM600

 Expenses (annual)

 Rent collection expenses RM200

 Repair leaking pipes RM150

 Quit rent and assessment RM220

4. Royalty
 Royalty received on song composition RM16,000
 Royalty received from the translation book to Bahasa Melayu requested by
the Ministry of Education, RM26,000.
 Royalty received from the theatrical performance for 6 months by the
cultural group under his leadership, RM6,000.

Required:

Calculate the aggregate income of Mdm. Aishah for the year of assessment 2021
(including exemptions).

[25 marks]

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

QUESTION 2

Mr. Fikri had the following income for year basis 2021.

Dividend income:

 From a company in Thailand – RM18,000, all remitted to Malaysia
 From an approved unit trust – RM24,000
 From investment in Dharshini Sdn. Bhd. – RM15,000
 From Hock Mun Sdn. Bhd. (a pioneer status company) – RM4,800.

Royalty income

Mr. Fikri had translated a book (requested by the Ministry of Education) on foreign affair.
He was paid RM8,000 quarterly for the basis year 2021.

Rental income

House in Jawi Apartment in Gelugor
(RM) (RM)

Gross income 55,000 40,000

Expenditure:

Quit rent 1,600 900

Assessment 500 450

Repairs 3,000 600

Renovation 10,000 -

Fire insurance 500 250

 Mr. Fikri took a housing loan from Southern Bank Bhd. to purchase the house in

Jawi. He paid RM300 per month for the interest on loan.
 Renovation expenses were related to the extension of the kitchen.
 The gross income from the apartment in Gelugor did not include the refundable

deposit from a tenant amounting to RM1,000.

Required:
Calculate the aggregate income of Mr. Fikri for the year of assessment 2021.

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CHAPTER 4: OTHER SOURCES OF INCOME YEAR OF ASSESSMENT 2020

QUESTION 3

Mr. Khalil was a resident in Malaysia for the basis year. He had declared the relevant
information about income tax for the year of assessment 2021. The following is his
income derived for the basis year 2021.

RM

 Soy Bakery

Adjusted income 120,000

Balancing charges 1,000

Capital allowances 8,000

Business losses carried forward 2,000

 Employment 48,000
 Bonus 12,000
 Rental – Malaysia 18,000
5,000 (remitted)
- Singapore (net) 9,000
 Dividend - Malaysia 5,000 (remitted)
500
- Singapore 18,000
 Interest (Malaysian Government Bond) 15,000
 Royalty – translation of book
 - compose the song

Required:

Calculate Aggregate income for all sources of income and exemption for Mr. Khalil for
the year of assessment 2021.

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