Taxation 1 / BAC 2674 / Tutorial 3

Basis period and change of accounting date

QUESTION 1
What do you understand by the term calendar year, basis year and the year of assessment
in relation to the relevant taxable entities?
ANSWER
Malaysia moves into the current year assessment basis with effect from the year 2004.
Under the current year assessment system, the year of assessment in relation to a source
of a company, trust body or a co-operative society shall consist of the basis period for the
year of assessment. This will apply to all sources of income of the relevant entity.
Example
Komathi Jhansi Sdn Bhd carries a business of trading in construction materials. It closes
its accounts to 30 June each year. For the year 2012, it closed its accounts to 30 June
2012. In this case:
The financial period is 1 July 2011 to 30 June2012
The basis period is 1 July 2011 to 30 June2012
The assessment year is 2012
In the case of an individual, the calendar year coinciding with a year of assessment shall
constitute the basis year for a year of assessment. If the individual has any other sources
of income, including business income, the year ended has to be 31 December (sec 20)
Example
Mr Barath Raja commenced employment on 1 April 2011.
For the year of assessment 2011
The basis period is 1 April 2011 to 31 December 2011
The assessment year is 2011
For the year of assessment 2012
The basis year is 1 January 2012 to 31 December 2012
The assessment year is 2012

QUESTION 2
What is the basis period for determining the employment income? Will it make any
difference if the taxpayer has any non-business income other than employment income?
ANSWER
The basis period is the calendar year for determining the employment income.
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The same applies if the taxpayer has other non-business income like dividend or rent.
QUESTION 3
JK Sdn Bhd commenced business on 1 October 2010. It closes its accounts to 31
December each year.
Required:
a) What is the basis period for the year of assessment 2010, 2011, and 2012?
b) What is the basis period for the year of assessment 2010, 2011, and 2012 if the
accounts are closed to 30th September each year?
ANSWER
a) Year ended 31 Dec
Year of assessment 2010
Year of assessment 2011
Year of assessment 2012

1 Oct 2010 to 31 Dec 2010

1 Jan 2011 to 31 Dec 2011
1 Jan 2012 to 31 Dec 2012

b) Year ended 30 September

Year of assessment 2011
Year of assessment 2012
Year of assessment 2013

1 Oct 2010 to 30 Sept 2011

1 Oct 2011 to 30 Sept 2012
1 Oct 2012 to 30 Sept 2013

QUESTION 4
Vijay Motor Industries Sdn Bhd is a subsidiary of an Indian firm Vijay Motor Industries
Plc. (the Indian firm). The Indian firm is required to close the accounts to 30th
September each under the Indian company law. Vijay Motor Industries Sdn Bhd
commenced business in Malaysia on 1 January 2010.
Required:
a) What is the basis period for the years of assessment 2010, 2011 and 2012
b) Would the basis period for the relevant years of assessment be different if Vijay Motor
Industries Sdn Bhd is not a subsidiary of Vijay Motor Industries Plc. of India?
c) What is the situation if Vijay Motor Industries Sdn Bhd is a subsidiary of a local
group of Malaysian companies, Vijay Motor Holdings Bhd, and the holding company
closes its accounts to 30 September each year?
ANSWER
a) Year of assessment 2010
Year of assessment 2011
Year of assessment 2012

1 Jan 2010 to 30 Sept 2010

1 Oct 2010 to 30 Sept 2011
1 Oct 2011 to 30 Sept 2012

b)Year of assessment 2010

Year of assessment 2011

1 Jan 2010 to 31 Dec 2010

1 Oct 2010 to 30 Sept 2011
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Year of assessment 2012

c) Year of assessment 2010
Year of assessment 2011
Year of assessment 2012

1 Oct 2011 to 31 Sept 2012

1 Jan 2010 to 30 Sept 2010
1 Oct 2010 to 30 Sept 2011
1 Oct 2011 to 30 Sept 2012

QUESTION 5
Castrol Sdn Bhd is a local Malaysian company manufacturing vegetable oil for use in the
pharmaceutical industries. It closes its accounts to 31 December each year. The company
changed its accounts to 30 June (not a requirement of the law) and prepared the accounts
with the following results:
Accounting period
Year ended 31 Dec 2009
1 Jan 2010 to 30 June 2010
1 July 2010 to 30 June 2011

adjusted income/ (loss) [RM}

36,000
48,000
(12,000)

Required
Determine the basis period for the relevant years of assessment 2009 to 2011 showing the
amount of adjusted income or loss accordingly.
ANSWER

Note
There is a failure to make up accounts to the normal accounting date in the year 2010.
The basis period for the year of assessment 2010 will therefore be re-directed by the
DGIR under section 21A (2).
The loss taken into account in the first period i.e. year of assessment 2010 will not be
allowed in the second basis period i.e. year of assessment 2011.
QUESTION 6
Ash Electrical Sdn. Bhd. has been closing the accounts to 31 December each year. It then
decided to change the accounting date to 30 June.
Adj. income / Loss
Year ended 31.12.03
6 months ended 30.6.04
Year ended 30.6.05

(5,000)
8,000
10,800
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On October 2005 Ash Electrical Sdn. Bhd. was taken over by Coal Electrical whose
accounting date is 30 April. Ash Electrical Sdn. Bhd. then closed the accounts to 30 April
and the adjusted income and loss details are as follows:
Adj. income / Loss
1.7.05-30.4.06
Year ended 30.4.07

(1,000)
13,200

Required:
Determine the basis period and the adjusted income and losses of Ash Electrical Sdn.
Bhd. for the relevant years of assessment. Also indicate the failure year
ANSWER
Year of
assessment
2003
2004
2005
2006
2007

Basis period
1.1.03-31.12.03
1.1.04-31.12.04 [Sec. 21A(1)]
8,000 (for 6 months) + 6/12 x 10,800
1.7.04-30.6.05 [ Sec. 21A(2)]
6/12 x 10,800
1.7.05-30.4.06 [Sec. 21A(3)]
1.5.06-30.4.07 [Sec. 21A(2)

Adjusted
income / (loss)
(5,000)
13,400
5,400
(1,000)
13,200

The failure year is the year 2006 since the accounts has not been made to a 12-month
period from the previous accounting date.

QUESTION 7 SELF REVISION

Mr. Choo operates a coffee shop. He commenced operations on 1 March 2005. His first
accounts are prepared as follows:
1 March 2005 28 Feb 2006
What would you advice him on the issue of basis period?
If Mr. Choo derived rental income and interest income, what would be the basis period
for those incomes for the relevant year of assessment?
ANSWER
Since he is a sole proprietor, he should close the accounts to 31 Dec each year.
As for rental and interest income, the basis period will be the ye 31 December
QUESTION 8 SELF REVISION
Choo Auto Accessories Sdn. Bhd. commenced business on 1 May 2005. The company
plans to close the accounts to 30 April each year.
What is your advice?
Can the company close the accounts to 31 December? What is the consequence?
ANSWER
The company may close the accounts to 30 April since this is a 12-month period.
The company can also close the accounts to 31 December every year.
The consequence is that the company will be preparing, submitting, and paying taxes
much earlier if the accounts are closed to 31 December.
QUESTION 9
If Choo Auto Accessories Sdn. Bhd. is a subsidiary of Ching Accessories Sdn. Bhd
(accounting date: 31 Dec) and commenced business on 1 May 2005, what is the
implication for the accounting dates?
ANSWER
Choo Auto Accessories Sdn. Bhd. must close its accounts to the same date as that of the
holding company so that the dates are co-terminus i.e. it ends on the same date for both
the companies
QUESTION 10 SELF REVISION
Why is it important to determine the commencement of a business with certainty?
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ANSWER
Expenditure incurred before the commencement date are treated as pre-commencement
expenditure and may not qualify for tax deduction.
QUESTION 11 SELF REVISION
Saraswathy Cash & Carry Sdn Bhd makes up its accounts to 30 June each year. When the
founder of the company passed away in November 2010 the new board of directors
proposed the accounting date be changed to 30 September. The accounts were then
prepared as follows:
Year ended 30 June 2010
1 July 2010 to 30 Sept 2011
Year ended 30 Sept 2012
Required:
Determine the basis period for the years of assessment 2010 to 2012
ANSWER
The accounting date was changed to a new date and there was no legal requirement to do
so. As such, the basis period for the relevant years of assessment would be as follows:
Year of assessment 2010
Year of assessment 2011
Year of assessment 2012

1 July 2009 to 30 June2010 (12 months)

1 July 2010 to 30 Sept 2011 (15 months)
1 Oct 2011 to 30 Sept 2012 (12 months)