Why I have to PAY TAX even though not yet received my money???

Mr X (Director): Aiya..I haven’t received my director fee which accrued in YR2019 account because of this Covid-19.

Mr K (Tax Agent): Oh.. So sad to hear about this.. But, did you pay your PCB for the accrued director fee?

Mr X (Director): Why I need to pay??? I haven’t received my director fee!!!

Mr K (Tax Agent): You are required to do so if you are the person who has the right to control the company.

Mr X (Director): …… Yes, I am.

Mr K (Tax Agent): So, your director fee which accrued in Year 2019 is required to

• pay PCB before 15.01.2021 and
• reported in Year 2020 Form EA before 28.02.2021.

Deemed income provision under Income Tax Act

If you met the conditions under S29(4) of ITA:-

b) Individual who are relatives of each other

c) Person both of whom are controlled by some other persons

So, the “income” is required to declare in the Income Tax Return Form even though it is not yet received.

Director Fee (Past vs Now)

In the past, the directors receive the directors fees are not taxed on them until they are actually received,

But...

With effect from 2016, irrespective of whether the directors’ fees/bonus are actually paid in cash from the company bank account, or credited to the directors’ loan account...

... 𝐃𝐄𝐄𝐌𝐄𝐃 𝐑𝐄𝐂𝐄𝐈𝐏𝐓 is applicable.

It mean the directors must declare his/her director fee in personal tax in the following year.

Real Story of Deemed Income Provision under S29 (4) of the Income Tax Act

Given #1 Kena Tax Sdn Bhd Balance Sheet show :

• Accrual of director fee since 2018 RM100,000

• Accrual of director fee since 2019 RM150,000

• Accrual of director fee since 2020 RM200,000

Given #2 Director of Kena Tax Sdn Bhd never pay the personal tax on the director fee (assuming not yet receipt).

Given #3 Kena Tax Sdn Bhd never pay PCB on the accrued director fee.

Question to taxpayer;

• How to appeal to tax officer during tax audit on such accrual director's fee?

• Does IRB officer has the right to add back those accrued director fee in Kena Tax Sdn Bhd?

Trivial of Deemed Income Provision

PS #1 : Why our tax people always ask directors on the reporting of director fee?

PS #2 : Why our account people always review accrual account in the balance sheet for Form E compliance work?

𝐒𝐨𝐮𝐫𝐜𝐞𝐬 of Deemed Income Provision

Income Tax Act 1967 – Section 29(4) Basis period to which income obtainable on demand is related

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