Corporate Tax Planning

Tax planning:-
- the process of arranging one's affairs and transactions in such a way that the total tax liability is minimised

Evasion:-
- non-disclosure, falsifying documents/accounts - immoral, illegal, offence

Avoidance:-
- structuring of transactions, provisions of law not violated - right of taxpayer

Mitigation:-
- tax savings/advantage by reduce of income/incur allowable expenses (double deduction expenses)

Year End Tax Planning
a) Reduction of taxable income
- objective: to minimise income or postpone recognition of income
1) Bad debts
2) Inventory/stocks - written off obsolete stocks
3) Foreign exchange gains or loss (trade)
- the realisation of a substantial gain to be deferred (defer settlement)
- the realisation of a substantial loss to be accelerated (advance settlement of debt)
4) Goodson consignment - defers recognition of income
5) Capital expenditure
- assets purchases planned for early next year to be accelerated to current year
- CA claim will be accelerated
- assets must be used & owned by the company in the end of the basis period to qualify for IA&AA
- disposal of assets which will not be used further & which cannot be sold (but with residual value) to be accelerated, balancing allowance will be accelerated

b) increase of taxable income
- objective: to maximise income or accelerate recognition of income
- rationale: company enjoying tax exemption (eg pioneer status, Malaysian Shipping Company, tax waiver year)
1) accreleration of income - to recognise business income related to next year by issuing invoices before year end (good/services have been delivered)

c) interest restriction
1) review of the group inter-company loan position, charge interest on lender to mitigate its interest restriction problem
2) Unnecessary inter-company advances/loan be cancelled/reduced accordingly

Avoiding "pure" investment holding company
a) Investment holding company :-
1) holds investments (shares, fixed deposits, loans to related companies, real properties)
2) income derived (dividends, interest, rental - investment income)
- Not dealing with investment (gain from sale of investments treated as capital gain and loss treated as capital loss) passive in nature, not carrying on a business activity ie non-business income (investment income)

b) Deduction of expenses
1) direct expenses
- (expenses directly related to the investment income)interest on loans borrowed to finance investment/quit rent&assessment
2) indirect expenses
- (not directly related to the investment income but general/ administration/common expenses) not directly in relation to the production of gross income:
- rental of office, audit fee, salary, telephone, printing, entertainment expenses
- only certain % is deductible
- section 60F will be applicable (deduction limited to:-
i) Permitted expenses x gross taxable income/ 4(gross income) or
ii) 5% of gross taxable income (whichever is lower)


- CA/ITA/RA (b/f or current year) can only be set off against the same business source
- unabsorbed tax losses can be set off against statutory income from other business source
- current year tax losses can be set off against statutory income from business and non-business sources ie. Aggregate income