This is a three-part Q&A series on Budget 2008 (Part 1)
Q: My company has substantial accumulated retained profit but with no Section 108 credit. Thus my company could not declare dividends to me unless it pays income tax. With the proposed Budget 2008 announcement on the single-tier tax system for dividends, how will the change affect my company’s position?
A: Budget 2008 proposed a single-tier company income tax system whereby tax on the company’s profits is a final tax and dividends distributed to shareholders will be exempted from tax. Under this single-tier income tax system, companies having no Section 108 credit on Jan 1, 2008, will automatically be allowed to move to this system. However, companies with credit balance in the Section 108 credit will be given an option to elect for this system or continue with the full imputation system until Dec 31, 2013.
In your case, if the company has no Section 108 credit as of Jan 1, 2008, it will automatically move to the single-tier income tax system. In this situation, the company can distribute dividends based on the accumulated retained profit without incurring any tax liability.
Q: I am a private school teacher and I intend to opt for early retirement at the age of 50. Upon my retirement, I will receive a lump sum amount of RM50,000. How can I benefit from the recent Budget proposal?
A: In the proposed Budget, any retirement benefit for private sector employees who retire at the compulsory retirement age will be given full income tax exemption. However, the condition is that the compulsory retirement age is provided for in the employment contract or collective agreement between employer and employee. If the early retirement age of 50 is clearly stated in your employment contract, then the lump sum payment of RM50,000 will be fully exempted, otherwise it is a fully taxable income.
Q: It was announced during the 2008 Budget that the Government would implement a new system for dividend from year 2008 onwards. With the new system, dividend is exempted from tax. In this circumstance, do we need to declare the dividend in our personal return?
A: If the dividend is a tax-exempt dividend, it is not required to be disclosed in the personal tax return (Form B or E). However, an existing corporation with Section 108 credit balance has the option to switch over to the single-tier system or otherwise. In that case, the dividend with the Section 110 tax credit is taxable in the hands of the recipient. Thus, the recipient shall declare such dividend in his personal tax return (i.e. Form B or BE).
Q: My husband and I are thinking of purchasing sports equipment worth around RM1,000 this year. Can we claim RM300 each for the same sports equipment in our own tax returns?
A: As the maximum deduction allowed for the purchase of sport and exercise equipment for an individual is RM300, it is either you or your husband who can claim for the relief. Please also note that the claim must be supported by receipt(s).
Q: What are the types of broadband equipment and consumer access devices that qualify for import duty and sales tax exemption as announced in Budget 2008?
A: The proposal does not specify the exact types of equipment other than the requirement that they are “basic in providing the broadband services”. An applicant would have to submit a list of the equipment for which exemption is sought and he may be required to satisfy Mida that the equipment is not produced locally.
Q: I heard that the Budget has decided to establish a Public Companies Accounting Oversight Board (PCAOB) to provide independent oversight of auditors. How does this help improve corporate reporting?
A: The PCAOB’s role is to provide an independent oversight of the auditing and accounting of public-listed companies. With this mechanism in place, auditors will need to ensure that their work can hold up to scrutiny and meet quality standards, which in turn should enhance the quality and reliability of audited financial information disclosed to stakeholders. This is aimed at boosting both local and foreign investors’ confidence in our market.
By PwC Tax Team: Executive Director Fung Mei Lin, Managing Consultants Chee Ying Cheng, Farah Rosley and Wong Yoke Lin, Senior Consultants Chandran Ramasamy and Lee Kooi Thing.
This article was first published in The Star on 9 Sept 2007
