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Lecture 1_Estate.pptx

  2. Introduction  A deceased individual cannot escape from paying tax  Where a will exists (dies testate), the executor will handle his affairs.  Otherwise (dies intestate), an administrator shall be appointed by court to deal with his affairs.  The wealth that a person beneficially owned at the time of death is known as his “estate”.
  3. Introduction  The executor or administrator’s duties include the settlement of any debts, payment of tax and distribution of the residue of estate to the beneficiaries according to will or with the Distribution (Amendment) Act 1997.  S 2 of the Act, states that the above person administers or manage the estate of the deceased
  4. Responsibility  An executor is only assessable and chargeable to tax on income of the estate of the deceased.  Failing which, he will be jointly and severally liable to pay a penalty = amount of tax unpaid  Eg: RM100k of unpaid tax
  5. Basis of assessment (s74)  Where an individual dies in the basis year for a YA, the executor is assessable and chargeable to tax on the chargeable income of the deceased a. For the basis year in which he died b. For the next succeeding basis year c. For the previous years
  6. Period of administration  Period commencing on the date of death to the date of last distribution of assets to the beneficiary  During this period, the executor or administrator would be liable for income tax liability on income accrued or derived from Malaysia
  7. INTRODUCTION For the basis year in which the individual died, there are 2 tax computations. Income up to the date of death is assessable on the deceased person. All reliefs will be available to him. No apportionment of relief. Income after the date of death is assessed on the executor of the estate and only RM 9,000 (w.e.f. YA 2009) of special relief is available ( if individual died domicile in Malaysia)
  8. ALLOCATION OF INCOME Income Apportionment  Business income/(loss) Time basis at statutory income  Interest Assessed on a receipt basis  Dividends (Single-tier) Tax exempt  Rental income Time basis  Foreign income Tax exempt – para 28, Sch 6
  9. APPORTIONMENT OF INCOME For dividends, any income paid, credited or distributed in the basis period when the individual was alive, is to be treated as the deceased individual’s income. Interest income received by individual is exempted if received from approved financial institutions w.e.f YA 2008. Interest which matures after the date of death is assessed on the executor.
  10. TAX COMPUTATION RULES In arriving at the Total Income of the Executor of the Estate, the following deductions shall be made from the aggregate income in the following order: 1. Current year business loss -- Time basis 2. Abortive prospective expenditure -- Time basis 3. Annuity payable 4. Approved donations -- Date of payment (restricted to 10 % of aggregate income )
  11. TAX COMPUTATION RULES  Administration expenses related to the estate are not deductible as incurred after the production of income or related to the assets held by the executor.  Any remuneration paid to the executor for the administrative work is not allowed as a deduction unless the executor is given the authority to carry on the business of the deceased individual.
  12. TAX RATES & RELIEFS OF EXECUTOR Deceased person died domiciled in Malaysia? •Scaled rate 0- 30% RM 9,000 special relief from total income (w.e.f YA 2009) •Flat rate -24% (Effective YA2016) Yes No Domiciled of a person is defined as the country in which the person has his permanent home
  13. Tax computation for a deceased person and executor (YA 2021) Deceased Executor 1 Jan to Date of death date of death to 31 Dec Statutory Business income Time Time Rental income Time Time Interest Receipt Receipt Dividends Exempt Exempt Foreign source Exempt Exempt Aggregate income (AI) xx xx Less: CY loss (Time) (Time) Less: Annuity payable - xx Less: Donation Date of payment Date of payment Less: Relief 9,000 (resident) 9,000(domiciled) Chargeable income xx xx
  14. Mable died domiciled in Malaysia on 30th Sept 2021. Assume that she is only eligible for personal relief. Details of her income are: Adjusted income/(loss) RM Business I 200,000 Business II (100,000) Income of foreign source (only 3,000 was remitted) 22,000 Dividend income (single tier) Received on 1st March 2021 9,000 Received on 1st Dec 2021 12,000 Rental income 40,000 Annuities payable (paid 3,000) 5,000 Approved donation (paid on 30th Dec 2021) 3,000
  15. Deceased Executor/Estate RM’000 RM’000 Business I (statutory) 150 50 Foreign source Exempt Exempt Dividend income (single tier) Exempt Exempt Rental income 30 10 Aggregate income 180 60 Less: CY loss (75) (25) Annuities payable ( 5) Approved donation __ (3) Total income 105 27 Less: Relief ( 9) (9) Chargeable income 96 18
  16. Distribution of income s64(5)  A beneficiary would only be liable to tax on annuity payment received from the executor. S64(3)  Any other payment received from the executor are mere gifts and not income in nature.
  17. Tax administration  The executor or administrator has to file the Form B or Form BE for the deceased individual. It covers period from 1 Jan to the date of death.  Form TP will be filed in the same year to account for the income of the deceased from date of death to 31 Dec. It will be assessed on the executor on behalf of the deceased.