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Hello dearest Dr Mazni and everyone, I have read through everyone’s inputs and they are all very brilliant. Honestly, I think every important details of tax treatment on the 4 mentioned areas have been well stated by my classmates. This got me hard to think of whats left to discuss.

On my side, I would like to share some inputs and also ask questions to my classmates.

Trade Associations:
1. What differs normal association and trade association?

-Erra has defined well what a trade association really is. Whats important now is to differentiate a normal association and trade association. An association is where its membership is extended to those exercising employment. Whereas, trade association is merely for members who have business income. For example, Actuarial Society of Malaysia.

Here is a link to see what are the other example of a trade associations.
http://www.mycen.com.my/malaysia/association.html
To see trade association examples, Syafiqah Athirah has listed down a few.

-It is important to note the different between these 2 has been highlighted by Erra. It is the treatment on taxable and non taxable income that differs. It may be difficult to categorise the two but mistakes of overlooking this matter can be costly.

2. Pavitran has mentioned a very good law case on Ketua Pengarah HDN v Malaysian Bar [2006] regarding trade association vs association.

3. Hazirah shared a very informative video on this area which I think helped me to understand this are easier. I hope everyone will watch it too.

Clubs
1. Hanis Aqilah has outlined the tax treatment on clubs very well. Therefore, I would like to extent a question on the term of mutual dealings.  As mentioned, any income arising from mutual dealings with the members is not subject to tax such as entrance fees and  members’ subscription fees.

However, it has occurred to me that to what extent do we measure the mutuality in a particular transaction. Therefore, my question that I would like to open to the floor is, does mutual here only refer to anything that may benefit the club in return or is it more than that?

Charitable institutions
-I find this particular area is easier to understand compared than the rest. Also, my classmates has highlighted very good points. I think the most important thing to remember is how to identify whether an institution is a charitable institution. Again, Hanis Aqilah has done a good job in highlighting the criteria of this area.

Co-operative societies
1. Syafiq mentioned a good example of law case on this area and some other friends have also mentioned the important points. From myself, I would like to add on that xxpenses allowable in ascertaining the statutory income of a co-operative society are expenses wholly and exclusively incurred in the production of income. Expenses domestic and capital in nature are not allowable.

There is also another case, KOPERASI SERBAGUNA KEBANGSAAN BERHAD v. PEMUNGUT DUTI SETEM (2004) MSTC 4,091 (HIGH COURT OF MALAYA). This case is about co-operative societies’s dealings with external party. This case is not a direct example but I just thought that I would share this as extra information.

I have no further questions on my classmates’ explanation and tq everyone for sharing such info. Do correct me if I got wrong anywhere.

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TRADE ASSOCIATION

-definition

Define as any association of persons, of partnership or of persons and partnership formed with the main objective of safeguarding or promoting the business of its members or developing and advancing the professions of its members and not notwithstanding any other provision of the Income Tax Act. Trade association will be deemed to be a body of persons and not a partnership.

Tax treatment

1.       The resident status for trade association is determine same with residence status of a company

2.       If trade association is resident in Malaysia for the basis year,

Gross income= any revenue receipt receivable for the basis year including entrance fee and members’ subscription

3.       Expenditure expenses that is connected with revenue receipts in respect of the deemed business source is regard to be incurred in the production of gross income. It is allowable at adjusted income or loss.

4.       In deciding either donation or subscription for specific for such as building or anniversary fund is that the general principle of revenue and capital must be applied.

5.       Eligible for capital allowance because it is deemed to have business source

6.       Tax rate using scale rate if it is resident in Malaysia. If not resident in Malaysia same with the tax rate for non-resident individual that is 25%

Club

Definitiom

A club is formed not for commercial purpose but for social, recreational, sports, arts, and other leisure pursuits for the interest and benefit of the members.

Tax treatment

1.       Resident status is determine similar with residence status of a company

2.       If the club is formed for the benefit of their members or public interest, the income derived from the transaction between the members and the club that is mutual dealings is not subject to tax.

3.       The income derived from non-members deemed to be taxable. The spouse, children, parents, are deemed to be subjected as non-members.

4.       Incomed derived from investments is taxable.

5.       Income from the arrangement with external parties are fully taxable.

6.       The expense incurred and qualifying capital expenditure are attributable to income from transaction with non-members are deductible in determining the adjusted income. Similar to capital expenditure incurred on assets used in business transaction with non-members to derived income qualify for capital allowance

7.       The expense incurred and qualifying capital expenditure derived from members are not deductible in determining the adjusted income. Capital expenditure is not qualify for capital allowance.

8.        If the expenditure expense and capital allowance are from the mixture of members and non-members will be deducted restricted to portion attributable to non-members.

9.       Losses arise from transaction with members cannot be deducted against income arise from transaction with non-members.

10.   Tax rate using scale rate for individuals. Personal relief that applicable to individual are not applicable.

Cooperative societies

Definitions

Defines as any co-operative society register under any written law relating to the registration of co-operative societies in Malaysia.

Tax treatment

1.       If it is registered outside Malaysia will be taxed like a non-resident.

2.       All the income derived from all the activities are subject to tax.

3.       Expense that are wholly and exclusively incurred in the production are deductible expenses. Expense domestic and capital in nature are not allowable.

4.       The amount deducted from total income is the sum which has been transferred to co-operative society to a statutory reserved fund; any educational institution/ or co-operative organization established for the furtherance of co-operative; or co-operative trust fund. The maximum deduction must not exceed 25% of the audited net profits.

5.       The amount of deduction is equal to 8% of the members’ fund as at the first day of basis period.

6.       The tax rate are using scale rate

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Co-operative society
1. co-operative societies is required to distribute a portion of its audited net profit for each of  financial year to its reserve fund, the Co-operative Educations Trust Fund and Co-operative Development Trust Fund. The amount is determined by the co-operative regulations on the property and funds made under the Co-operative Societies Act 1993 or relevant ministry.

2. Co-operative society registered outside Malaysia is taxed like  a non-resident company which is on a flat rate.

3. Example of  co-operative society in Malaysia
-  Co-operative College of Malaysia
- National Cooperative Organisation of Malaysia (ANGKASA)
- Association of Co-operative Credit Union Malaysia (ACCUM)

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COOPERATIVE SOCIETIES
Hi all, especially to Dr Mazni, sorry for the late review about today's topic.

So, I read on cooperative societies section and this is my summary of the topic. You guys can add on more information regarding the discussed topic.

Firstly, cooperative society is a registered body under Co-operative Societies Act 1993 and are mainly governed by Malaysia Co-operative Societies Commission of Malaysia (SKM).

In the first 5 years of operation of registered cooperative societies, the income will be exempted from tax, commencing from the date of registration. However, if the org. carries business dealings, the income will be assessed and subject to income tax.

Of course, a test must be conducted if the income arise will be subjected to income tax. In the case of Lower Perak Co-operative Housing Society Bhd v Ketua Pengarah Hasil Dalam Negeri (1994), the taxpayer won the case as the profit from sale of land is not part of the trading but considered as capital gain, thus not taxable.

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The participation not only counts what issue you can share here. I know your colleagues here have already supply detailed info for certain issue. But what you can do in order  to participate in this forum, perhaps  you can raise any question relating to the topics to your colleagues here like what Fariez did. I love
the arguments/ 2 ways interactions here.
Good Luck!
Dr Mazni

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Hello Dr and everyone, i am still doing my reading and will share my inputs will all of you soon.

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Dear all,
So far only 7 participates in this forum...where the other 5? Any problem to access your padlet?? Or do you need extra days to 'think' ?? I will close this forum tomorrow at 2pm if no response from you & only those who participate here can get the participation marks.

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Hi everyone! Okay I will give it a try to Fariez’s question.

From my reading, mosque which is a religious institution, is not considered as charitable institution under Section 44 (6), where they will enjoy full exemption on their income.

Why? This is because religious institutions already get a tax exemption under Para 13 of Schedule 6. So, they would only be able to apply for their building funds they receive from donations to be exempt under Section 44(6) in order for the donors to get tax deduction.

Schedule 6 lists down income which is exempt from tax, includes under Para 13 (1) (b) that states “a religious institution or organisation which is not operated or conducted primarily for profit and which is established in Malaysia exclusively for the purposes of religious worship or the advancement of religion”.

But, there had been an amendment in paragraph 13(1)(b) of Schedule 6 during the Budget 2017, in which, an additional requirement that the income be meant for “charitable purposes” was introduced.

This means that religious institutions automatically qualify for the exemption on income from donations contributed by religious worshippers, solely for the purpose of religious worship activities or the advancement of religion.

In addition to that, income from business or rental is taxable under the ITA and thus, fall outside the scope of the exemption under Schedule 6.

This amendment already takes effect from the year of assessment 2017 and onwards.

In short, religious institutions previously enjoy full tax exemption on all their income based on the old Para 13(1)(b), but after the amendment, only “contributions” received for charitable purposes would be exempted from tax.

Deputy Finance Minister said that the amendment is to avoid misuse by certain quarters to solicit donation for other purposes under the mask of a religious body. So the amendment is a way to ensure income from donations is used for charitable, preaching and worship activities.

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Woww..you took 2 days to think about the issue to discuss here..amazing!! No need to think about huge contribution, as long as you can share some idea or what you thought about the topic/issue is also consider your contribution. Now I'm wondering whether you all actually read all the posted issues here???? Perhaps I should give a quiz/ test on this topic when you come back here...mmm???
But Fariez, it is good question w/r mosque can be considered as a charitable institution? Love to hear your arguments on this question...any taker ....???

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SOME OF CRITERIA/ FACTS FOR APPROVAL CHARITABLE ORGANISATION

1.      At least 50% of the members of the Board of Trustees are 'outsiders', who are not connected to the organisation or founder.

2.      Organisation is not allowed to be involved in any political activities or trade union movements and must not allow its funds, staffs/members and premises/assets to be used for these purposes.

3.      An institution / organisation may carry out charitable activities outside Malaysia with the prior consent of the Minister of Finance.

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Morning all 😊 based on what I had read, if a club, association or similar institution that are not an approved charitable institution received any voluntary gifts of money from the general public for charitable purposes, those money are taxable but the amount expensed off to any specific charitable purpose is deductible. Which means the balance of unutilised sums of voluntary gifts of money would be taxable as receipts of the club, association or similar institution.

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CHi, guys... I have been thinking hard of what are the things that I should discuss and share with you guys cos it seems that most of the important things had been shared by you guys. It had spent 2 days just to think about a thing to share with you guys. :)

There is 2 small things that I would like to share here. First, the residence status of the club, societies or any similar institutions must be a residence of Malaysia to be taxed by Malaysian Law. The residence status of the club, societies or etc must be accordance with ITA 1961 Section 8(b) and 8(c). Any clubs, trade association, charitable institution and cooperative societies who is not a residence of Malaysia will be not taxed to this Ruling and will be taxed like a non-resident company

The second interesting thing that I would like to share is there will be no tax imposed on the transactions between the members of the club, societies or etc. Any income arising from the mutual dealings between the members are not subject to tax.

I also have a question regarding this topic. Maybe any of my beloved friend can try to answer my question. Is mosque is also considered as charitable institution? I kept thinking about this all night and cannot seem to find the answer about this.

Thank you in advance and ill update my post if I got any new things to share.. Happy E-Learning Week!!!

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CLUB

any income arising from mutual dealings with the members is not subject to tax

i.e

1. :i) entrance fees and members’ subscription fees;

2. (ii) drinks and food sold at the club, association or similar institution bar and restaurant to its members;

even though income derived from transactions with members are not subject to tax, not all transactions involving members are necessarily mutual receipts.

club is generally formed not with the aim to make profits, it may receive income from activities or transactions with non-members(spouse, parents and children of members ) which are taxable income

ie

1. (i) Proceeds from fundraising drives to the public, e.g. sale of homemade cakes, cookies or handicraft;

2. Drinks sold to non-members visiting the club;

3.  Fees received for hiring out of the club’s hall, facilities or equipment to the public

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Co-operative society

Co-operative society registered under the Co-operative Act 1993 (Act 502)

The treatment of tax for Co-operative society is subject to ITA 1967

Co-operative tax is charged to resident Co-operative society receiving income in Malaysia

For the purpose of income tax there is no principle of mutuality for a cooperative society. Tax is charged on income arising from both mutual and non-mutual activities.

Examples of the income from mutual activities are interest, processing fees and membership fees received by a co-operative society from its members and staff.

Deduction under paragraph 65A(a) of the ITA 1967
The amount to be deducted from the total income is the sum which has been transferred or paid by a co-operative society in the basis period for a year of assessment to:
i. a statutory reserve fund;
ii. any educational institution and/or co-operative organization established for the furtherance of co-operative; or
iii. a Co-operative Education Trust Fundas may be required under the provisions of any written law relating to the registration of co-operative societies in Malaysia.
The amount of maximum deduction allowable under this paragraph shall not exceed 25% of the audited net profits for that basis period of the co-operative society.

Deduction under paragraph 65A(b) of the ITA 1967

The amount of deduction is equal to 8%  of the members’ funds as at the first day of the basis period for a year of assessment.

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CHARITABLE INSTITUTIONS
Basically, the work 'charitable' can be classified into four categories;

a trust for the relief of poverty;

a trust for the advancement of education;

a trust for the advancement of religion;

a trust for other purposes beneficial to the community not falling under any of the preceding categories

1. Exempted 10% of the aggregate income of the donor company and 7% for all other person.

2. Donations to the Government / State Government / local authority are 100% exempted

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1. Trade Associations
According to s 8(1)(c), residence status of a trade association is determined if the management and control of its business at any time period which exercised in Malaysia.
Trade association shall for the purposes of income tax be deemed to be a body of persons (individual) and not a partnership.
(a) resident: Scale rates
(b) non-resident: flat rate of 28% ( YA 2016-2017 )

In Ketua Pengarah HDN v Malaysian Bar [2006] , the High Court held that Malaysian Bar is not a trade association as defined in Section 53 of the ITA.  For it to be a trade association it must first of all be an “association of persons”. Malaysian Bar is not an association of persons as it lacks the essential ingredients of an association of persons in that:

a. it was not formed by its members but by statute;
b. the Advocates and Solicitors do not voluntarily become its members. There is no volition on their part to be members;
c. the object of the taxpayer is not to produce income, profit or gain;
d. Malaysian Bar is a creature of statute and its primary object is to uphold justice.

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Dr Mazni

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Could you please put you name in your post
? I cannot identify who participate in this forum.
And also...just use plain language/ simple language/ layman terms....don't like copy paste from the text book...prefer  a natural discussion like " Hi all, tax rate for estate is 25% but...."

Dr Mazni

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LIM FU SHENG CEA150067 TAX TREATMENT FOR CHARITABLE INSTITUTIONS:

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LIM FU SHENG CEA150067 TAX TREATMENT FOR CHARITABLE INSTITUTIONS:

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Hi kawan kawan, for u all information, under subsection 44(6) of ITA1967, an institution only qualify as charitable institution if it spend at least 70% (or such % as may be determined by DG) of its income received in the previous year for purposes of charity for the basis period for a YA.

(a) Tax Deduction:

Donors who make donations to an institution or organisation or fund

approved under Subsection 44(6) will qualify for deduction in respect of their donation in computing their taxable aggregate income.

However, it should be noted that only cash donations supported by official receipts will qualify for tax deduction. Donation in kind (e.g. Food, clothing, computers, property, shares and building materials) will not qualify for tax deduction.

(b) Tax Exemption:

With effect from year of assessment 2001 and subsequent

years of assessment, any organisation or institution which are approved for subsection 44(6)

status will automatically be granted income tax exemption (except dividend income) under paragraph 13, Schedule 6, without further application.

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(a) What is trade association?

Any association or person or partnership with the main objective of safeguarding and promoting the business of its members or developing/ enhancing the profession of its members.

Prior YA 2009 professional body also be treated as trade association.

(b) Example of business income of trade association.

Entrance fees

Subscription fees

Donation (General = income/ Special = capital receipt)

Income from non-member treated as other source of income

(c) Any plant + equipment for business purposed are allowed for capital allowances
(d) Tax Rates

Residence -scale rates

Non-residence - flat rate

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LIM FU SHENG CEA150067 Example of application form for charitable institutions property tax exemption

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LIM FU SHENG CEA150067 Example of application form for charitable institutions property tax exemption

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Hi all, following are the form:

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Hi everyone. My sharing is about what kind of organization that we classify as club, association or similar institution.
A club, association or similar institution are organizations which is formed for social, recreational, sports, arts, science, literature or other leisure pursuit for the interest and benefit of their members ( which means it is formed not for commercial purposes)
E.g: athletic club, antic car collectors club and historical society.
Some clubs/associations/similar institutions have trade dealing activities which is conducted for profit that is subject to tax as business profit.
E.g.: fitness centre, professional football club

I found an informative video from Youtube explaining about tax treatment for trade association and clubs. In the video, the students also shared about the activities of the Malaysian Golf Association in short MGA (the student conducted an interview with the Deputy GM of the association) and from where the club get the fund and how they spend the money and the intersting part is that the MGA is fully tax exempted. You guys wanna know why? Do watch the video here :)

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The task for E-learning week: 3 April 2018.
You are required to discuss here the tax treatment for the following organizations:
1.Trade associations
2. Clubs
3.Cooperative Societies
4. Charitable institutions.

I will consider this as your participation marks. Hopes everyone participate because the marks are allocated based on whole performance. All the best!
The discussion platform open till this Thursday morning.

Dr Mazni

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Similarities and differences between a club and trade association

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Thanks for introducing this platform to me. Rushing for the meeting just now, I forgot to wish you Happy Holiday & will see you again in Week 9.  I will post a discussion issue here during the E learning week.
Dr Mazni