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.

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. 

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. 

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

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.

                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.

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%

 

                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.

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.

 

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

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

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.