Leave passage

[gtchye]

In the last page of Borang E listed 17 items of allowances, perquisites, etc. which are tax exempt. At the bottom of the page, it stated that these exemptions are not applicable to "Employees who have control over the company, sole proprietors or partners of a partnership".

Item 14 - Leave passage

This exemption is specifically allowed under Sec 13(1)(b)(ii) of the Income Tax Act. It DOES NOT say that it is not applicable to 'employees who has control over the company'. Even Public Ruling 1/2003 'Treatment of Leave Passage' does not say anything about controlled companies.

Can we rely on Sec 13(1)(b)(ii) to superceed the Borang E since it is the law unlike Borang E ? We would have complied with Public Ruling 1/2003 even if we treat leave passages to these employees as exempted.

Are we right to say that inhttp://www.hasil.org.my/cP/upload/Budget/lampiran09.pdf

Items listed in Page 6 has no restriction on controlled companies while only items listed on page 7 has  restriction for controlled companies ?

[selai]

In the last page of Borang E listed 17 items of allowances, perquisites, etc. which are tax exempt. At the bottom of the page, it stated that these exemptions are not applicable to "Employees who have control over the company, sole proprietors or partners of a partnership".

Item 14 - Leave passage

This exemption is specifically allowed under Sec 13(1)(b)(ii) of the Income Tax Act. It DOES NOT say that it is not applicable to 'employees who has control over the company'. Even Public Ruling 1/2003 'Treatment of Leave Passage' does not say anything about controlled companies.

Can we rely on Sec 13(1)(b)(ii) to superceed the Borang E since it is the law unlike Borang E ? We would have complied with Public Ruling 1/2003 even if we treat leave passages to these employees as exempted.

Are we right to say that inhttp://www.hasil.org.my/cP/upload/Budget/lampiran09.pdf

Items listed in Page 6 has no restriction on controlled companies while only items listed on page 7 has  restriction for controlled companies ?

GT,

Besides the above, you also had a similar comment on controlled company and exemption of perquisites/BIK earlier (viz. service awards, children of directors/shhs, nominee directors).

With going into a long dissertation:

(a)  we should go back to the definition of an "employee" (Section 2 ITA) - "means where the relationship of a master and servant subsist (etc.)"

(b)  IRB has also be consistent in its adverse treatment of controlled companies and its directors (eg. disallowing key-man insurance, assessing benefits-in-kind etc, and in the latest App 3 Budget 2009, not extending exemptions of perquisites/BIK to directors of controlled companies)

As such, view that we will need to tread carefully in applying tax-advantageous treatments where controlled companies are involved irregardless of the fact that a particular section of the Act provides for the exemption without a specific exclusion of directors of controlled companies (eg. Section 13(1)(b)(ii) or Clause 25 of 6th Schd). Additionally, in deciding the tax treatment, we will need to determine whether a master/servant relationship exist. If NO - then the perquisite/BIK exemption should NOT apply.

[gtchye]

Thank you Selai for your explanation.

(a) Since the ITA gives detailed definition of "Controlled Company" (Sec.2 and Sec 139), should we use these definitions instead of the definition of "Employees" (Sec.2) ?

I am puzzled because we used to rely on the ITA and Sec. 13(1)(b)(ii) & Para 25C Sch 6 have never excluded "Directors of Controlled Companies". Suddenly the restrictions come in this year but not in the form of amendment to the Act but by all kinds of other documents (Media Statements, Borang E, Lampiran 3 of the budget, etc) The Budget as announced was a proposal and it is not law until the Finance Bill is gazetted.

I am having difficulties explaining to my boss that the benefits he had been enjoying all this while tax-free is now not available to him anymore. I need to show the changes made to the law, which I can't find any.

To make matters worse, the definition of Sec 139 is different from the definition given in Second Addendum to Public Ruling 1/2006 (Updated 25/2/09).

Sec 139 (7)(a) includes "parent" but the definition in Second Addendum does not. If your father owns the company, you are deemed to have control over the company under Sec 139 but not under Public Ruling 1/2006 (updated 25/2/09).

[selai]

GT

Understand your frustrations and difficulty in explaining to your boss. I guess, you and I would agree that it is not easy interpretating the tax law, including the "possibly conflicting" Public Rulings.

Back to the issue of Perquisites & BIKS, and the exclusion of directors of controlled companies, partners, soleproprietors.

I brought up the definition of "Employee" in S2 ITA as when in doubt, I would go back to first principles.

The IRB/MOF intention of proposing the perquisites/BIK exemptions is to provide relief for an employee. As such, where a master-servant relationship exist, the exemptions are applicable. We would have to be tax-prudent where the taxpayer have difficulty in establishing such a master-servant relationship.

Subject to further clarifications that may be issued, I guess that the above's is the best possible reply that I can offer.

Your comments/queries has valid points, and we will try to bring it up to the IRB through the appropriate channels as soon as possible.

SE Lai

[liveirisjul]

Yes applying tax-advantageous treatments where controlled companies are involved irregardless of the fact that a particular section of the Act provides for the exemption without a specific exclusion of directors of controlled companies...


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Tax problems

[selai]

Yes applying tax-advantageous treatments where controlled companies are involved irregardless of the fact that a particular section of the Act provides for the exemption without a specific exclusion of directors of controlled companies...


Hi Liveiris

Your post does not seem complete ....

Lai

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Irs problems