Chapter 4 Estate, Trust and Settlement

CHAPTER 4
CHAPTER 4
Estate under administration, trust bodies and settlements
1. Introduction
The tax treatment of estates under administration, trust bodies and settlements are discussed in
this chapter.
2. Estate under administration
Under sec 64 (1), any source of income forming part of the estate of a deceased individual and
any income from that source arising after the day of the death of the individual shall be treated as
the source and income of the executor of that individual.
When the deceased taxpayer leaves a valid will, then there is testacy and a probate is granted to
a person called the “executor” who is entrusted with the handling of the estate on behalf of the
beneficiaries. If the deceased person does not leave a will or alternatively the will is proved to
be invalid, then there is intestacy and executors will subsequently be appointed under the
intestacy law.
The administration period is the period immediately following the death of the taxpayer and ends
on the completion of the administration. The duties of the administrator during this period would
include realizing the estate, paying all debts and liabilities of the deceased, and paying out the
legacies. The balance which is called the “residue” is then paid over to the beneficiaries as
provided for in the will. The “residue” is the accumulated income of the estate together with the
capital of the estate. When distributed to the beneficiaries, they will receive their share as a capital
receipt.
The “executor” is responsible for the payment of taxes and has to file Form B for the deceased
individual covering the period from January of the relevant basis year for the year of assessment
to the date of death – the income for this period would be assessed in the name of the deceased
individual. Form TP must be filed for the same year in respect of the account of the deceased
from the date of death to 31 December of that year, the income of which will be assessed on
administrator or the executor as the case may be. The administrator or the executor is only
assessable and chargeable to income tax on the income of the estate of the deceased and is not
liable in his personal or individual capacity. He has the responsibility to provide for any income
tax which is known to be payable before he could make any distribution to the beneficiaries.
Failure to fulfil this obligation would render him liable to a penalty under section 74(5) and (6).
3. Domiciles status
For tax purposes, the domicile status of a person is important. Two factors determine the domicile
status of a person:
a) his permanent home; and

b) the intention of residence.
MIA QUALIFYING EXAMINATION STUDY TEXT

Taxation (Revised 2023) 267
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The domicile one receives at birth is the domicile of origin. The domicile of the child follows that
of the father. On the other hand, the domicile of choice is obtained by changing the domicile of
origin implying that there is a change of residence and an intention to stay in a new country of
choice.
For Malaysian income tax purposes, once a person is domiciled in Malaysia, there is a
presumption of a continuing domicile status (quite similar to the presumption as in the case of a
company’s resident status under section 8).
4. Tax treatment of a deceased individual
A deceased individual will be taxed on all income accruing to him until the date of his death under
normal individual tax computational rules. If the deceased individual was resident in the year of
death, he would be entitled to full personal reliefs and rebates without time apportionment to the
date of death. His chargeable income would be taxed at the prevailing scale rates.
5. Tax treatment of an executor
The provisions stipulated in sec 64 will apply for the purpose of determining the assessable
income of the estate. The income or receipts that were taxable on the individual (had he not died)
will now be taxable in the hands of the executor.
Under section 2, an executor means:
‘the executor, administrator or other persons administering or managing the estate of a

deceased person’
An executor is a legal person and in the case of Kerajaan Malaysia v Yong Siew Choon [(1999)
5 MLJ 28] it was held that a person who manages the estate of a deceased is deemed to be the
legal representative or executor of the estate of the deceased.
An executor is not a ‘natural person’ for income tax purposes; he is a legal person or entity created
under the law [see Harta Pesaka TSDSHA v Ketua Pengarah HDN (1991) 1 MSTC 429].
For income tax, the implication is that an executor who received interest income from deposits in
a financial institution would be liable to tax on that interest income at the prevailing tax rates ie
either at scale rates or fixed rate depending on the domicile status of the deceased individual.
Note that such income would have been exempted if it had been received by the deceased
individual prior to his death if he had been a resident.
The interest income of a licensed money lender would be treated as income falling to be assessed
under section 4(a). However, upon his death, the business source is deemed to have ceased and
any income received by the executor after the death of the money lender would be investment
income and will be assessed under section 4(c) instead.
Under section 104, the issue of a certificate by the Director-General of Inland Revenue to an
administrator of the estate of a deceased individual or a trustee preventing him from leaving
Malaysia is not applicable. In the case of Ong Bee Yam v Pengarah Hasil Dalam Negeri [(2002)

268 Taxation (Revised 2023)
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3 MLJ 389] it was held that sums owing by the estate or the trust is not the personal liability of the
administrator or the trustee.
Sums received upon death arising from life insurance payable upon death or death gratuities are
exempted [Para 14 Schedule 6].
Deductions are allowed for expenses wholly and exclusively incurred in the production of gross
income in determining the income of the executor. This will include reasonable administrative
charges, but will not include any capital expenditure.
In addition, sec 64(4) states that where the individual was domiciled in Malaysia at the time of
death, the deduction allowed for any year of assessment by sec 46 is to be given against the total
income of the deceased person’s estate (which is assessed on the executor of the estate). Special
relief of RM9,000 is allowed to the executor of a deceased person’s estate. The resident status
of the executor is irrelevant for the purposes of this relief.
6. Tax rates
The tax rates applicable to an estate would depend on whether the deceased individual was
domiciled in Malaysia at the time of death. In the application of the tax rates, the resident status
of the executor is not relevant.
6.1 Deceased domiciled
If the deceased individual was domiciled in Malaysia at the time of his death, the graduated scale
of taxes as applicable to individuals is applied (Para 1, Part 1 of Schedule 1 ITA). The rates as
proposed under the Budget 2021 is as below:
Table 1
Chargeable income, tax rate and tax payable [Budget 2021]
Chargeable income (RM) Tax rate (%) Tax payable (RM)

YA 2022
First 2,500 0 0
Next 2,500 0 0
On 5,000 0
Next 5,000 1 50
On 10,000 50
Next 10,000 1 100
On 20,000 150
Next 15,000 3 450
On 35,000 600
Next 15,000 8 1,200
On 50,000 1,800
Next 20,000 13 2,600
On 70,000 4,400
Next 30,000 21 6,300
On 100,000 10,700
Next 50,000 24 12,000

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On 150,000 22,700
Next 100,000 24 24,000
On 250,000 46,700
Next 150,000 24.5 36,750
On 400,000 83,450
Next 200,000 25 50,000
On 600,000 133,450
Next 400,000 26 104,000
On 1,000,000 237,450
Next 1,000,000 28 280,000
Exceeding 2,000,000 30
The rate was amended under the Budget 2023 as follows:
Table 2
Chargeable income, tax rate and tax payable [Budget 2023]
Chargeable income (RM) Tax rate (%) Tax payable (RM)

YA 2023
First 2,500 0 0
Next 2,500 0 0
On 5,000 0
Next 5,000 1 50
On 10,000 50
Next 10,000 1 100
On 20,000 150
Next 15,000 3 450
On 35,000 600
Next 15,000 6 900
On 50,000 1,500
Next 20,000 11 2,200
On 70,000 3,700
Next 30,000 19 5,700
On 100,000 9,400
Next 50,000 25 12,500
On 150,000 21,900
Next 100,000 25 25,000
On 250,000 46,900
Next 150,000 25 37,500
On 400,000 84,400
Next 200,000 26 52,000
On 600,000 136,400
Next 400,000 28 112,000
On 1,000,000 248,400
Next 1,000,000 28 280,000
Exceeding 2,000,000 30

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6.2 Deceased not domiciled
However, if the deceased individual was not domiciled in Malaysia i.e., he was outside Malaysia
at the time of death, then the tax is at a flat rate of 24% of the chargeable income on the executor
[YA 2016 - 2022] (Para 2(d), Part 1 of Schedule 1).
7. Income during the period of administration
The income during the period of the estate’s administration could be specifically bequeathed
(bestow or leave) to a specified beneficiary. In such a case the income will be assessed on the
named beneficiary. If the income is not specifically bequeathed to anybody, it will form part of the
residue of the estate and will be available for distribution when the administration of the estate is
completed.
The period between the date of death of the individual and the date of the final distribution is the
period of administration. This period of administration has no time limit under the law and would
remain so as long as the executor has not made the final distribution [Ketua Pengarah HDN v
Tan Sri Kishu T Jethannand [(1998) MSTC 3,700].
Income received by the estate or trust from foreign sources is tax exempt wef 2004 under
paragraph 28 schedule 6 which provides as follows:
28. (1) Income of any person, other than a resident company carrying on the business of banking,
insurance or sea or air transport, for the basis year for a year of assessment derived from sources
outside Malaysia and received in Malaysia.
With effect from 1.1.2022, the law has been amended and foreign source income received by an
executor is subject to income tax.
8. Distributions
The executor usually receives all the income of the estate. If there is a will and it specifically
bequeaths sums to a beneficiary, then that income could be paid directly to the beneficiary. If the
beneficiaries are minors or incapacitated, the executor can make payments by way of educational
and maintenance disbursement if the will has provided so. These disbursements will rank for a
deduction in computing the income of the estate.
Income remitted from overseas properties and investments of the deceased taxpayer are
exempted from tax. Consequently, if the beneficiary is resident in Malaysia and receives any
distributions made by the executor from the asset situated overseas, such distribution will not be
income in the hands of the recipient and will accordingly be not taxable.
The deduction rule under sec 33 stipulates that any expenditure incurred wholly and exclusively
in the production of gross income is allowable. However, expenses that are related to the
distribution of the income of the estate are not deductible. If the executor is entitled to
remuneration for his or her services, it is not treated as an allowable deduction in arriving at the
total income of the deceased estate. On the other hand, if the executor was managing the
business of the estate, then the proportion of his remuneration applicable to the management of
the business is an allowable deduction.

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9. Basis of apportionment of income
The income is allocated between the deceased person and the estate on the following basis:
Business income Time basis

Rental income Time basis
Interest Income Receipt basis
• Savings account
• Fixed deposit and other securities with fixed date of payment Receipt basis
10. Tax computation for an individual and an executor
Deceased individual Executor

[1 Jan to date of death] [Date of death to 31 Dec]
Section 4(a) income

Business x x
Section 4(b) income

Employment x x
Section 4(c) income

Dividend (single tier) Exempted Exempted
Interest income -FD local bank Exempted x
Section 4(d) income

Rent x x
Aggregate income x
Less:
Basis year loss x x
Annuity paid x
Approved donation x x
Total income x
Less:
Personal relief 9,000
Special relief 9,000
Chargeable income x x
Example 1
Dev Anand died domiciled in Malaysia on 31 August 2023. The executor of the estate is resident
for tax purposes in basis year 2023. The executor of the estate furnished the following information
for basis year 2023:
Particulars of income RM Notes
Business 1 - adjusted income 100,000 -

Business 2 - adjusted loss (60,000) -
Foreign income 36,000 Not remitted to Malaysia

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Single tier dividend 18,000 Received in May 2023

Single tier dividend 20,000 Received in Oct 2023
Rental income - adjusted 80,000 -
income
Annuities - paid to 5,000 -
beneficiaries
Cash donation to an 10,000 Paid in December 2023
approved institution
Required:
Compute for year of assessment 2023 the chargeable income of:
(i) Dev Anand (deceased); and

(ii) Estate under administration.
Computation of the chargeable income of the individual and the estate of the deceased.
Year of assessment 2023
Individual Estate
RM RM
Business I 66,667 33,333
Foreign income (not
remitted) 0 0
Single tier
dividend 0 0
Adjusted rental income 53,333 26,667
Aggregate income 120,000 60,000
-
Less: Basis year adjusted loss (40,000) (20,000)
80,000 40,000
Less: Annuities 0 5,000
80,000 35,000
Less: Approved
donations (Note 4,5 and
6) 0 6,000
Total income 80,000 29,000
Less: Personal relief 9,000
Special deduction [Note 7] 9,000
Chargeable income 71,000 20,000
Note to the computation:
In the above computation, take note of the following law applications:
1 The business and rental income is apportioned on a time basis.

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2 Foreign income remitted to Malaysia is not brought to charge since it is exempted under Para
28 Sch 6 of the ITA.
However, the law has been amended and with effect from 1.1.2022, foreign income received by
an executor would be taxed. In this case as the foreign income is not remitted to Malaysia, it is
not brought to charge.
Also refer to the following Orders and IRB Guidelines for the details of the treatment of foreign
income remitted to Malaysia from overseas:
▪ The Income Tax (Exemption) (No. 5) Order 2022 [P.U.(A) 234/2022]

▪ The Income Tax (Exemption) (No. 6) Order 2022 [P.U.(A) 235/2022],
▪ IRB Guideline: Tax Treatment in Relation to Income Received from Abroad dated 29
September 2022
▪ IRB Guideline: Tax Treatment in Relation to Income Received from Abroad (Amendment)
dated 29 December 2022
3 Single tier dividends are not brought to charge (Para12B Sch 6)
4 Annuities are allowed a deduction to the executor in determining the total income. Section
64(3)(a) provides that where an annuity is payable for the basis year for a year of assessment
by an executor of a deceased individual, then in ascertaining the total income of the executor,
the annuity shall be deducted after any deduction falling to be made under section 44(1)(a)
[current year loss] or 44(1)(b) [prospecting expenses under Schedule 4 and pre-operating
business expenses under Schedule 4B] but before any deduction for donation falling to be
made under section 44 (1)(c).
This section 44(1)(c) authorises the deduction for donations under section 44(6) [approved
donations] and 44(6A) [gift of artefacts manuscript and paintings].
5 The deduction for donation made to an approved institution are restricted to 7% of the
aggregate income [up to the YA 2019] and are allowed based on the date of payment.
The computation steps are as follows:
Approved donation
deduction RM RM
Aggregate income of the estate 60,000
7% of the aggregate income
(Also see Note 6) 4,200
Actual donation made 10,000
Donation deducted
restricted to 4,200
6 The law on donation is amended, and is now restricted to 10% of the aggregate income with
effect from the year of assessment 2020 and subsequent years of assessment [Amendment
under Act 823 of 2019, Section 8(b)]. Under this amendment, the computation for the donation
deduction would be as follows:

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Approved donation
deduction RM RM
Aggregate income of the estate 60,000
10% of the aggregate income 6,000
Actual donation made 10,000
Donation deducted
restricted to 6,000
Note that the ‘aggregate income’ of the ‘Estate’ taken for the purposes of the deduction for
approved donation is the amount before the deduction for losses and annuity in this instance.
7 A special deduction due under section sec 46 is available to the estate of an individual who
was domiciled in Malaysia at the time of his death. This deduction shall be made from the total
income of the executor, whether or not the executor is an individual and whether or not the
executor is resident for the basis year for the relevant year of assessment [Section 64(4)].
11. Annual return
The return form issued by the IRB to deceased persons’ estate is Form T. The same form is also
issued to trust bodies, clubs, associations, societies and other bodies of persons (including a
Hindu Joint Family).
12. Time limit for raising an assessment
Assessments and additional assessments on the income arising up to the date of death of the
individual shall be made not later than the third year of assessment following the year of
assessment in the basis year the DGIR was informed of the death of the individual in the
prescribed form.
Example 2
Mr. Leong died on 1 November 2019.
• Assuming the DGIR was informed in December 2019:
Then the income on Mr. Leong up to the date of death must be raised not later than the
year of assessment 2022 [ YA 2019 + 3 years]
• Assuming the DGIR was informed only in say, January 2020:
Then the income on Mr. Leong up to the date of death must be raised not later than the
year of assessment 2023 [ YA 2020 + 3 years]
The assessment made by the DGIR after the third year in the relevant instances would be time
barred and is void in law as per section 74(3). This law adds an element of certainty to the time
and powers of the DGIR to raise an assessment of the income of a deceased person.
13. Distribution of income

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Under section 64(5), payments made by the executor of a deceased individual to the beneficiaries
of the estate of that individual are not regarded as income in the hands of the beneficiaries.
Only payments made by an executor as an annuity under section 64(3) to a beneficiary would be
liable to income tax.
14. Trust body
A trust is an equitable obligation, binding a trustee to deal with the trust property which he
manages for the benefit of the beneficiaries. The trustee may himself or herself be a beneficiary,
and any one of the beneficiaries may enforce the obligation. Consequently, the three important
elements of a trust are the trustee, the trust property and the beneficiaries. A trust can be formed
during a person’s life by a trust instrument or after death in a will.
A trust which is created by a will under which the testator (the person who created the will) would
normally stipulate the following:
(i) assets that are to form part of the trust;

(ii) list of beneficiaries;
(iii) particulars of trustees who are to administer the estate;
(iv) power of the trustees;
(v) rules for the distribution of the capital of the trust;
(vi) rules for the distribution of the income of the trust; and
(vii) period the trust is to be maintained.
The trustees are considered to be a trust body which is treated as a chargeable person for income
tax purposes [sec 61(1)].
A trust comes into being when the period of administration by the executor has ceased. A trust
comes to an end only when the terms of the will are fully carried out and the whole of the asset
or income subject to the trust is paid out or distributed.
The well-established principle that tax is charged only once is applicable to trust bodies. In other
words, tax can be charged in the hands of the trustee or in the hands of the beneficiary, but not
both. If the terms of the trust require the trustee to pay any income to a particular beneficiary, the
income accrues to the beneficiary. The trust will not be taxed on such income. Under this tax
treatment, the trust becomes merely an intermediary whereby the income is conveyed from the
trust to the beneficiary.
15. Tax compliance by trust body
The assessment of all income sources of a trust body will be based on the financial year. Such a
treatment is similar to the basis of assessment currently applicable to companies. The income tax
rate for a trust body is currently 24%. Annual tax returns must be submitted, and any tax must be
paid within seven months of the basis period. An estimate of tax payable must be submitted not
later than 30 days before the beginning of the basis period and the estimated tax has to be settled
by instalments. A trust body can revise or vary the estimated tax in the sixth and/or ninth month
of the basis period for a relevant year of assessment.

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16. Resident status of a trust body
Under sec 61(3) ITA, the trust body is deemed to be a resident in Malaysia for a basis year if any
trustee of the trust is resident in that basis year. Thus, if none of the trustees are resident in
Malaysia during the basis year, then the trust is non-resident.
Section 61(3) also stipulates that a trust body is deemed as non–resident if all the following
conditions are satisfied:
(i) it was created outside Malaysia by a person or persons who at that time was not a citizen of
Malaysia;
(ii) the income of that trust body for that year basis year is wholly derived from outside Malaysia;
(iii) the trust is administered for the whole of that basis year outside Malaysia; and
(iv) at least one-half of the number of the member trustees are not resident in Malaysia for that
basis year.
It is important to ascertain the residence status of a trust body as it affects the derivation of the
annuity received by beneficiaries. Income remitted into Malaysia from abroad by a trust body is
exempted from income tax.
17. Type of trust
The four common types of trusts under the Malaysian Income Tax are:
(i) Discretionary trust

(ii) Non-discretionary trust
(iii) Trust for accumulation
(iv) Mixed trust
18. Discretionary trust – single beneficiary
The trustee is given some measure of discretion to act in administrating the trust. This flexibility
is useful and therefore it is a very popular form of trust. The discretion could apply to the income,
capital or to both. The trustees are the legal owners of the trust property.
Sections 61 and 62(2) govern the tax treatment of a discretionary trust. In the case of a particular
beneficiary (i.e. single beneficiary), the amount of a particular beneficiary’s share of that total
income shall be the lower of:
• the total of all sums received in Malaysia by a particular beneficiary from the trust (being sums
of an income nature in his hands) in that basis year; or
• the total income of the trust for the year of assessment.
Should the trustee make payments to the beneficiary that exceed the total income of the trust for
a year of assessment, the excess is not taxable on the beneficiary.
Example 3

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PQR Trust is resident in Malaysia and had a total income RM180,00 for the year ended 31
December 2023. Miss Wendy is the sole beneficiary and received RM60,000 during the year.
Assume that she has no other income, and that she is entitled to only a personal relief of RM9,000.
Tax computation for the trust

Total income of trust RM180,000

Tax @ 24% RM43,200
Net distributable income=RM180,000 – RM43,200 =

RM136,800
[this is the amount available for distribution after the payment of
income tax]
Miss Wendy’s tax computation

Trust income RM
The lower of amount received and trust total income 60,000
Less: Personal relief (9,000)
Chargeable income 51,000
Tax payable @ scale rates RM
First RM50,000 1,500.00
Next RM1,000 @ 11% 110.00
Tax charged 1,610.00
Less: sec 110(8) set off (60,000 /180,000) x 43,200= (14,400.00
Tax refundable 12,790.00
19. Discretionary trust –several beneficiaries
Where there are several beneficiaries of the discretionary trust, and the aggregate of all sums
received by the beneficiaries in Malaysia exceeds the total income of the trust, the share of trust
total income for each beneficiary shall be determined using the following formula:
Amount received by a beneficiary x Total income of the Trust body

Total Aggregate income received by all the beneficiaries
Due to the uncertainty surrounding the beneficiary’s entitlement to the trust income in the case of
a discretionary trust, the beneficiary is only taxed on trust income when it is received (not
receivable).
Example 4
XYZ Trust is resident in Malaysia for the year of assessment 2023. The total income of the trust
is RM60,000. Three beneficiaries Ong, Chee and Nelson received RM50,000, RM30,000 and
RM20,000 respectively in Malaysia i.e. totalling RM100,000

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Share of trust total income for the relevant individuals are:
Ong
50,000 X 60,000 =RM30,000
100,000
The amount assessed to tax on Ong would be RM30,000.
Chee
30,000 X 60,000 =RM18,000
100,000
The amount assessed to tax on Chee would be RM18,000
Nelson
20,000 X 60,000 =RM12,000
100,000
The amount assessed to tax on Nelson would be RM12,000
20. Non-discretionary trust
In a non-discretionary trust, the trustee cannot, or has restricted powers to determine the amount
to be distributed to the trust’s beneficiary. The trust deed would usually provide for the ratio or the
entitlement of each beneficiary.
The beneficiaries are therefore taxed based on their entitlement known as ordinary source,
computed as follows:
Trust total income x ratio of entitlement
Statutory income from an ordinary source is the beneficiary’s share of the total income of the trust
body. Statutory income from a further source is quantified by reference to the excess of the total
of all incomes received in Malaysia and all sums received outside Malaysia and remitted to
Malaysia from a trust over the beneficiary’s share from an ordinary source in respect of the trust.
Should the amount received (including income received from outside Malaysia from the trust and
remitted to Malaysia) by the beneficiary exceed the ordinary source, the excess shall be regarded
as a further source. Further source is deemed derived from outside Malaysia and is thus not be
taxable.
21. Trust for accumulation
A trust where the trustees can accumulate income within the trust is called an accumulation trust.
Income that is accumulated becomes part of the capital of the trust. The total income of the trust
body for the purposes of computing the beneficiary’s shares is calculated as follows:
Total income of trust x Distributable income

Distributable income + Accumulation
Accumulated income would be subject to tax at the rate of 24%. Accumulation of income in a trust
only affects the taxability of the beneficiaries and not the trust itself ie the chargeable income of

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the trust would remain the same whether only part of the trust income or the whole of the trust
income is accumulated.
The beneficiary would not be subject to tax on the income accumulated in the trust and in the
future upon receipt of such amount being paid out to the beneficiaries as the income has already
suffered tax at the trust stage.
22. Mixed trust
In a mixed trust, the trustees have discretionary power of part of the trust income and non-
discretionary power over part of the trust income. The total income of the trust body is divided into
discretionary part and non-discretionary part using the following formula;
• Discretionary part
Total income x Discretionary part of distributable income

Total distributable income of the trust body
• Non-discretionary part
Total income x Non-discretionary part of distributable income

Total Distributable income of the trust body
23. Trust annuities
Where the trust pays an annuity to the beneficiaries the amount payable shall be deducted from
the aggregate income of the trust in arriving at the total income. If the trust is resident in Malaysia,
then the annuity paid out will be deemed to be derived from Malaysia in the hands of the
beneficiary.
If the trust is a non-resident for tax purposes, then the annuity would be deemed to be derived
from Malaysia if the whole of the annuity is deducted from the aggregate income. However, if only
a part of the annuity is deducted from the aggregate income [due to say insufficiency of aggregate
income] then only that portion of the annuity as was deducted from the aggregate income would
be deemed to be derived from Malaysia.
24. Computation of total Income of a trust Body
The general format of a tax computation for a trust body is as follows (using assumed figures):
Tax computation of a trust body

RM RM
Section 4(a)
Business income 100,000
Less: Expenses 45,000
Adjusted income 55,000
Less: Capital allowance 5,000
50,000

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Less: Unabsorbed loss b/f 2,000

Statutory income from business 48,000
Section 4(c)
Dividend (single tier)
(exempted) 0
Interest income 20,000

Statutory income from interest 17,000
Section 4(d)
Gross rental 40,000
Statutory income from rent 20,000
Aggregate income 85,000
Less: Current year business loss
(say) 5,000
80,000
Less: Annuity 10,000
70,000
Less: Approved donation 1,000
Total income/Chargeable income 69,000
25. Distributable income and total income
‘Distributable income’ is income available for distribution which is income for accounting
purposes.
‘Total income’ is the total income of the trust which is determined under the tax laws. This income
is derived by adjusting the gross income from a source (say a business source) for allowable and
disallowable expenses and deductions for capital allowance as provided for in the ITA.
Example 5
Distributable income and total income (using assumed figures)
Distributable income RM
Gross income from

business 150,000
Less: Expenses
(per accounting rules) 50,000
Distributable income 100,000
Total income

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Gross income from

business 150,000
Less: Allowable expenses
(per ITA rules) 40,000
110,000
Less: Capital allowance
(per ITA rules) 30,000
Total income 80,000
26. Tax rates
The income tax rate for a trust body is 24% with effect from year of assessment 2016 (see note
below). Individual beneficiaries will be taxed at scale rates. The amount allocated to the
beneficiary becomes income only when it is so paid out to the beneficiaries; otherwise it is not
treated as income in the hands of the beneficiary.
Note
For the years of assessment 2017-2018 only, there was a reduction in the income tax rate based
on the percentage of increase in chargeable income as compared to the immediately preceding
year of assessment as indicated in the Table below:
Table 3
Reduction in income tax rate: Years of Assessment 2017-2018
Percentage of increase in Percentage point Income tax rate after

chargeable income as compared to reduction reduction
the immediately preceding year of (%)
assessment
Less than 5.00 Nil 24

5.00-9.99 1 23
10.00-14.99 2 22
15.00-19.99 3 21
20.00 and above 4 20
27. Taxation of beneficiaries
A beneficiary is a person who receives a benefit under a will. The beneficiary could be an
individual or an institution.
28. Income of the beneficiary during the period of administration
The entitlement of the beneficiary during the period of the administration is taxable on the
beneficiary. The net income i.e. after deduction of all allowable expenses, is available for
distribution to the beneficiary.
The statutory income of a beneficiary is based on the amount received from a trust in the basis
year of the year of assessment. A beneficiary can be a resident or non-resident.

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A trust can be viewed as a transitional body through which the income of the trust is channelled.
The DGIR would normally tax the trust body but if he chooses, he may tax the beneficiaries on
the income received by them. In the latter case, the trust body will be given a deduction for the
income distributed.
If the trust body is taxed on its total income, the beneficiary’s statutory income is generally
calculated as a proportion of the total income of the trust body. In such an instance the beneficiary
is due for tax credit in respect of the tax paid by the trust body.
As mentioned earlier, trusts may have a single beneficiary or several beneficiaries.
28.1 Single beneficiary
Where a single beneficiary is entitled to the trust for the whole basis year for a year of assessment,
the total income of the trust shall be equal to the total income of the beneficiary [sec 61(4)(a)].
28.2 Several beneficiaries
Where there are several beneficiaries of a trust with share of distributable income remaining
unchanged throughout the basis year, the total income of each beneficiary shall be his share of
the total income of the trust [sec 61(4)(b) and (c)]
Example 6
RM
Total income of a trust 140,000
Distributable income of the trust 120,000
Beneficiary’s share of distributable income
Kevin 30,000 (1/4)
Elaine 90,000 (3/4)
The statutory income from the ordinary source is as follows:
Kevin (RM140,000 x ¼) RM35,000

Elaine (RM140,000 x ¾) RM105,000
When there is a change in the share of distributable income during the basis year, the total income
of the trust shall be apportioned on a time basis accordingly.
29. Section 110 set off
The Director General may give a deduction in arriving at the chargeable income for the share of
distributions made to resident beneficiaries where the trust body is a resident for the basis year
[sec 61(2)].
If a deduction is not given and where the trust body is assessed in full on its chargeable income,
the beneficiaries can claim relief under sec 110(8) against their tax payable. The relief is based
on the portion of tax which is suffered by the trust body and which is in respect of the beneficiary’s
share of the income.

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The claim for the relief will not be available to the beneficiary if a deduction is given for the
distributions.
30. Zakat set off
With effect from year of assessment 2007, zakat on business income paid by trust bodies to
Islamic religious bodies will be allowed a set-off subject to a maximum of 2.5% of their aggregate
income [sec 44 (11A)].
31. Worked example of a trust
Mr. Timothy Lim carried on a business in Malaysia. He had a wife and four children. Before his
death in 2016, he wrote a Will creating a trust, that provided for the following:
• The wife would be trustee of the trust and will also continue to manage the business after his
death. The four children would be the beneficiaries and they, together with the wife, would be
entitled to the following financial provisions of the trust:
o The first child would be entitled to one-quarter of the trust distributable income. This
must be paid at the sole discretion of the trustee;
o The second and the third child would each be entitled to a one-half of the balance of
the distributable income (after having provided for an accumulation for the last child).
o A sum of RM20,000 per annum would be accumulated for the last child till the child
attains the age of 21 years. In January 2023 this child was 10 years old.
Mrs. Lim made the following payments or arrangements, for the year ended 31 December 2023:
No. Recipients Amount

(RM)
1 Annuity to herself 24,000
2 First child 60,500
3 Second child 90,750
4 Third child 90,750
5 Fourth child (sum to be accumulated) 20,000
Total 286,000
The trust received the following investment-based income during the year ended 31 December
2023 details of which are as follows:
No. Particulars of investment-based income Amount

(RM)
1 Rent from a property in Malaysia 15,000
2 Interest from a fixed deposit in a local bank 4,000
3 Dividends (Malaysia) (single tier) 7,000
4 Dividends (Singapore) (not remitted in 2023) 10,000
The trust deed was challenged by a related party in 2020 and this matter was litigated in court. In
2023 the matter was settled out of court. The following expenses were incurred:

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(i) Legal fees on professional advice: RM4,000

(ii) Out of court settlement payment to the related party: RM50,000
Mrs. Lim made a cash donation of RM40,000 under the trust account to an approved Malaysian
charitable body. She also sponsored food packets worth RM3,000 to the said charitable body.
Mrs. Lim charged a trust management fee of RM20,000 for managing the trust.
All these expenses (legal fees, out-of-court settlement, donations and trust management fee) are
included under ‘Expenses’ in the business account. The balance of the expenses is incurred
wholly and exclusively for the purposes of the business, and is verified by the auditor’s report.
The profit of the business is appended below:
Business 1 RM
Gross income from business 521,000
Less: Expenses (223,000)
Net profit 298,000
Other information in respect of the trust business for the year of assessment 2023 are as follows:
▪ The trust is claiming a capital allowance of RM44,000 for the current year of assessment
▪ There is a balancing allowance of RM22,000 on the disposal of an asset
▪ A balancing charge of RM14,000 on the disposal of another asset
▪ There is an unabsorbed loss of RM5,000 brought forward to the current year of assessment
▪ an unabsorbed capital allowance of RM48,000 brought forward to the current year.
▪ The trust distributable income before accumulation for the fourth child is RM262,000
Required:
With reference to the Income Tax Act 1967 (as amended), compute for the year of assessment
2023:
(a) the total income and the chargeable income of the trust; and
(b) the beneficiary’s share of the trust total income.
Note:
Assume that the Director General of Inland Revenue has allowed the application of section 61(2)
of the Income Tax Act 1967 (as amended) to the trust income. Under section 61(2) the DGIR will
allow a deduction for the share of the beneficiaries paid out from the Trust against the total income
in arriving at the chargeable income of the Trust.
Answer
Trust of Timothy Lim (Dec’d)

Computation of trust total income
YA 2023
Business 1 RM RM
Net profits per accounts 298,000
Add: Disallowable expenses

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Trustee administration fee 20,000

Lega fee on claims dispute 4,000
Payment to 3rd party to withdraw suit 50,000
Donation in kind 3,000
Donation in cash 40,000 117,000
Add: Balancing charge 14,000
429,000
Less: Capital allowance
Unabs CA b/f 48,000
CA for current year 44,000
Balancing allowance 22,000 114,000
Statutory income 315,000
Less: Unabsorbed loss b/f 5,000
310,000
Other income
Rent 15,000
Interest 4,000
Dividend-Malaysia (single tier) 0
Dividend-Singapore (not
remitted) 0 19,000
Less: Annuity to wife 24,000
305,000
Donation to charity home
In kind 0
In cash 40,000
Restricted to 10% of AI 32,900 32,900
Total income 272,100
Less: Payment to beneficiaries [sec
61(2)]
First child 60,500
Second child 94,248
Third child 94,248 248,997
Trust total income/chargeable income 23,103
Computation under section 61(7) RM
Distributable income before

accumulation 262,000
Less: Accumulation for 4th child 20,000
Distributable income after
accumulation 242,000
Deemed total income

272,100x (242,000/262,000) 251,329
Computation under section 62(3)(a)

Discretionary portion [1/4] 62,832

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Non-discretionary portion [3/4] 188,497

Total 251,329
Computation under section 62(2)(a)

Amount paid to first child 60,500
Amount due to first child 62,832
Statutory income - lower of the two 60,500
Amount received by the second child 94,248

Amount received by the third child 94,248
Rounding error: RM1
32. Settlement
Settlement refers to the transfer of income-producing assets to others whose liability to income
tax is at a lower rate. Section 65 is essentially a tax avoidance provision in respect of such a
settlement. A person is deemed to have made a settlement if he has entered into it directly or
indirectly, in writing or orally, or has made a reciprocal arrangement with any other person to enter
into the settlement or has undertaken to provide funds for the purposes of a settlement.
A settlement will not include bona fide commercial transactions entered into for a valuable
consideration. The DGIR may waive a transaction which includes a bounty.
33. Settlor
A settlor is any person by whom a settlement is made or entered into it directly or indirectly, for
the purpose of the settlement.
34. Settlement by court order
A settlement made under the order of the court or an agreement made by an employer to pay an
employee or his dependents a fair and reasonable sum being pension after the employee’s death
is not a settlement [sec 65(11)].
35. Income of the settlor
Section 65 ITA is an anti-avoidance provision and it operates to prevent tax avoidance through
an arrangement or settlement, especially where the parties involved are relatives. Tax avoidance
is achieved in a settlement by transferring the liability of a settlor who may be in a higher tax
bracket to another relative who may be in a lower tax bracket.
A “relative” means a wife, child, grandchild, brother, sister, uncle, aunt, nephew, niece or cousin
of the settlor. The word ‘child’ is defined to include a stepchild, a legally adopted child, or a child
over whom the settlor has custody or whom he maintains wholly or partly at his own expense [sec
65(11)].
Any arrangement by way of a settlement will be ignored and the income will be deemed to be that
of the settlor where the relative is unmarried and is under the age of 21 years at the

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commencement of that year of assessment. A married relative regardless of the age will however
fall outside this scope [sec 65(1)].
Example 7
Mr. Ratnam is a hugely successful entrepreneur and is currently taxed at the marginal rate of 28%
for income tax purposes. As part of his business strategy, he settled a luxury condominium on his
unmarried son, Prasad, aged 18 as at 1.1.2023. The annual rental income from the condominium
is RM60,000.
Required:
Discuss the tax implications of this arrangement with reference to section 65 of the ITA.
Answer
The son is only 18 years old as at 1.1.2023. The Director General of Inland Revenue will apply
the anti-avoidance provision of section 65(1), and the income will be regarded as income of the
settlor, Mr. Ratnam.
However, if the son is 21 years old as at 1.1.2023, the rental income will be assessed as the son’s
income under his own name. For this purpose, it is assumed that the settlement is an irrevocable
arrangement.
36. Revocable settlement
Under sec 65(2), a settlement which gives a power of revocation to the settlor, i.e., the income or
capital in the settlement can revert to the settlor (or his wife) will be disregarded for tax purposes.
If any income arises from such a settlement, then such income will be treated as the income of
the settlor. The provision will also apply to a relative over whom the settlor has control.
Section 65(2) shall not apply if the only reason the property reverted to the settlor is in the event
that the beneficiary predeceases (i.e. dies before) the settlor.
Example 8
Mr Chin settled a property on his daughter Janice aged 25. The terms of the settlement are that
Mr Chin has the power to revoke the settlement at any time and in the event the settlement is
revoked, the properties will revert to Mr Chin.
Required
What is the consequence of this arrangement with reference to section 65 of the ITA?
Answer
The anti-avoidance provision sec 65(2) would be applied and the income will be regarded as the
income of the settlor, Mr Chin.

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Example 9
On 1 January 2019, Mr Dharma settled a property on his son Navin aged 21. However, the son
passed away in a car accident on 1 August 2021 and the properties reverted to Mr Dharma.
Question
What is the income tax position for Mr Dharma and Mr Navin with reference to the settlement?
Answer
The anti-avoidance provision will not apply in this case. Income arising from the properties from
1 January 2019 to 31 July 2021 would be assessed as Navin’s income.
However, from 1 August 2021, any income from the property would be assessed as income of Mr
Dharma, as the property has reverted to Mr. Dharma. And the property reverted to Mr. Dharma
only on account of the son pre-deceasing the father.
37. Deemed income of the settlor
Where the settlor in relation to a settlement or any relative of the settlor or any company with
respect to which the settlor or any of his relatives has control makes use for his or its own purpose
whether by borrowing or otherwise any income or any accumulated income of the settlement,
the income or accumulated income shall be deemed to be the income of the settlor and not of
any other person [sec 65(3)].
Where any other person other than the settlor is or was beneficially entitled to that income, there
shall be a tax refund to him on the taxes that he has paid (if any) in respect of the income.
Example 10
Mr. Paul transfers a house in 2021 to his daughter, Veronica who was aged 26 and is married.
The settlement is irrevocable since she is 21 years old and married. However, Mr. Paul retained
the right to use the rental income of RM24,000 received in 2023 for his own business purposes
as and when he was faced with a cash flow problem.
The sum of RM24,000 shall be deemed to be Mr. Paul’s income for the year of assessment 2023.
A tax refund would be made to Veronica if she has paid income tax on the income of RM24,000.
The settlor shall be entitled to recover from any trustee of the settlement where any tax is charged,
or paid by the settlor in respect of income of a settlement. The DGIR shall furnish a certificate
specifying the amount of tax so paid and any certificate so furnished shall be conclusive evidence
of the facts appearing therein [sec 65(4)].

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38. Quick question and answer
Question 1
Meganathan is a businessman and he is resident and domiciled in Malaysia at the time of his
death. He passed away on 30 September 2023. According to his will, Rohan, a tax resident was
appointed as an executor of his estate. Rohan provides the following information with respect to
the estate of Meganathan for the basis year 2023:
Business
Business 1 (Malaysia) RM
Gross income 850,000
Revenue expenses (all allowable) 450,000
Capital allowance 30,000
Business 2 (Malaysia)
Gross income 8,000
Revenue expenses (all allowable) 44,000
Capital allowance Nil
Rental income
Gross rent 24,000
Expenses - repairs and maintenance (all allowable) 6,260
Other income:
RM
Interest on fixed deposit credited on 31 May 2023 3,600
Interest on fixed deposit credited on 1 December 2023 4,200
Dividend from Rohani Sdn Bhd (single tier) – paid in August 2023 7,000
Dividend from Singapore – not remitted to Malaysia 10,000
Additional information:
(i) Annuity of RM5,000 per month is to be paid to Meganathan’s wife, Usha who is a housewife.
She is a citizen of Singapore but was resident in Malaysia in the basis year 2023.
(ii) Additionally, RM10,000 was paid by the executor to Meganathan’s daughter, Divya. She is 20
years old (not married) and currently studying in University of Toronto, Canada. Divya’s tuition
fees of RM45,000 was paid by Meganathan in January 2023.
(iii) Mr. Meganathan has made a cash donation of RM9,500 to an approved charitable institution
in March 2023.
(iv) In October 2023, the executor donated, on behalf of the estate, five sets of computers worth
RM8,200 to the secondary school where Meganathan’s son, Ganesh was attending. Ganesh
is 16 years old.
(v) Rohan was paid executor’s fee of RM12,000.
(vi) Mr Meganathan had spent RM50,000 on his mother’s medical treatment in Penang. He also
spent RM6,000 for the purchase of supporting equipment for his mother.
(vii)Meganathan had paid medical insurance and education insurance premium of RM3,500 and
RM1,800 respectively. A further RM600 was spent towards purchase of books for Divya in
2023.

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Required:
Compute the income tax payable (if any) by Meganathan (dec’d) and Rohan (the executor of the
deceased’s estate) for the year of assessment 2023.
Note
Assume that Mrs. Meganathan is jointly assessment with her husband; and she has no total
income of her own.
Answer
Determination of the statutory income/(loss) from business and rent
Business 1
Gross income 850,000
Business 2
Gross income 8,000
Adjusted loss (36,000)
Statutory income Nil
Rent
Rental - gross 24,000
Computation of tax payable by Meganathan and his executor, Rohan

(Year of assessment 2023)
Computation of tax payable by Meganathan (dec’d) and the

executor
Meganathan
(Dec’d) Executor
1.1.2023 - 1.10.2023 -
Period of apportionment 30.9.2023 31.12.2023
Ratio of apportionment 3/4 1/4
RM RM
Statutory business income 277,500 92,500
Non-business income
Interest 0 4,200
Dividend 0 0
Rent 13,305 4,435

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Less: Current year business loss 27,000 9,000

263,805 92,135
Less: Annuity to wife 0 15,000
263,805 77,135
Less: Donation 9,500 0
Total income 2505 77,135
Less: Reliefs
Self/Special relief 9,000 9,000
Wife 4,000
Child relief
First child 8,000
Second child 2,000
Medical treatment for parents
(Max) [s. 46(1)(c)] 8,000
Lifestyle expenses 600
Supporting equipment for parents
(Max) [s. 46(1)(d)] 6,000
Medical insurance premium 3,000 40,600
Tax payable RM RM
150,000 21,900.00 50,000 1,500.00

63,705 x 25% 15,926.25 18,135 x11% 1,994.85
213,705 37,826.25 68,135 3,494.85
Notes to the computation:
Students should take note of the following:
(a) Losses - the business losses arising because the allowable expenses exceed the gross
income, is allocated between the deceased individual and the estate of the deceased
individual, in the same manner as that of the statutory income from business [section 44 and
section 64].
Note that when there is no statutory income on account of say the expenses exceeding the
gross income or the capital allowance exceeding the adjusted income, the law treats the
position as the person having a ‘statutory income of zero from that source’ [section 43(4) and
64(3)(a)].
(b) Exemption on bank interest is only applicable to interest received by an individual, but not
by the executor on behalf of the estate, because under the law an executor is not an
‘individual’ i.e. he is not a natural person [see Harta Pesaka TSDSHA v Ketua Pengarah HDN
(1991) 1 MSTC 429].
(c) The donation is restricted to 10% of the aggregate income. The restriction previously was 7%
[see Amendment under Act 823 of 2019, Section 8(b) wef YA 2020].
(d) The donation made by the deceased is allowed in computing the chargeable income of the
deceased while that made by the estate would be allowed in computing the chargeable
income of the estate. In this case the donation of computers to the school by the executor on
behalf of the deceased’s estate does not qualify for a deduction as it was a donation in kind.

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(e) Annuity - the deduction of annuity is made after deduction for the current year losses but
before the deduction of any approved donation [see section 64(3)] i.e. it follows the order of
(1) current year losses; (2) annuity, and then (3) donation.
(f) The payment made to the daughter Divya by the executor is not an annuity and therefore
does not qualify for a deduction under section 64.
(g) The wife relief is granted to the deceased individual as she had opted for a joint assessment.
(h) Medical treatment expenses incurred for parents are limited to a maximum of RM8,000; while
the expenditure on supporting equipment (also for the parents) is limited to a maximum of
RM6,000.
Law:
▪ section 46(1)(c) - medical treatment amount expended for parents [max RM8,000 under
the Budget 2021]; and
▪ section 46(1)(d) – amount expended for supporting equipment for self, wife, child or parent
who is a disabled person [max 6,000].
(i) As the deceased was domiciled in Malaysia at the time of death, the following tax treatment
is accorded:
a. The executor will be taxed at graduated scale rates.
b. The executor will be allowed a special relief of RM9,000 against the total income, but
not any other relief in computing the chargeable income.
Question 2
Ronald Lee was domiciled in Malaysia during 2023. For tax purposes, he was a non-resident.
The following information is in respect of the income of Ronald Lee for the year ended 31
December 2023.
Business 1 (Penang) RM
Capital allowances 60,000
Balancing charge 50,000
Unabsorbed capital allowances from basis year 2018 10,000
Business 2 (Ipoh)
Adjusted loss (60,000)
Balancing charge 12,000
Capital allowance 8,000

Dividend (single tier system) - received from a Malaysian Company on
15 October 2023 3,900
Interest received from a fixed deposit account with Affin Bank Bhd on
28 February 2023 3,400
Adjusted rental income received from a house in Petaling Jaya 27,000
Business income from abroad, remitted on 15 March 2023 3,700
On 30 April 2023, Ronald Lee passed away in a road accident. Since he was not married, his
brother, James was appointed as the executor of his estate.

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James is a non-resident in Malaysia in the year of assessment 2023. He is paid RM500 per month
for his services as the administrator of the estate. Isabelle Lee is Ronald’s mother and she is paid
an annuity of RM12,000 out of the income of the estate.
Required:
(i) Compute the chargeable income of Ronald Lee and of the estate of Ronald Lee for the year
of assessment 2023.
(ii) Identify the changes to your answer in (i) above, if Mr. Ronald was not domiciled but resident
in Malaysia for tax purposes. [Computation is not required]
Answer
(i) Roland Lee
Business 1 RM RM
700,000
[60,000+10,000]
Business 2
Adjusted income Nil
12,000
Aggregate of statutory income 634,000
from business
Allocation of business income to deceased and the executor based on time period
Deceased Executor
[4 months] [8 months]
Business 211,333 422,667

Business income from abroad Exempt Exempt
Add: Other sources of income
Dividend (single tier) 0 Exempt
Interest Exempt 0
Rental 9,000 18,000
Less: 20,000 40,000
Current year business loss
200,333 400,667
Less: Annuity payable 0 12,000
200,333 388,667

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Less: Administration fees 0 0

Total income 200,333 388,667
Less: Personal relief Nil 9,000
(ii) Deceased person domiciled in Malaysia but not resident in Malaysia: tax treatment
a) The deceased person, as non-resident, is not entitled to the personal and other reliefs
b) The executor of a deceased person domiciled outside Malaysia will be taxed at flat rate of
24%.
c) Special relief of RM9,000 only given if deceased person was domiciled in Malaysia at the
time of death.
Question 3
Mr. Paul Chong (‘Paul’) was a Malaysian resident with business operations in both Malaysia and
Thailand. The accounts for the businesses are closed to 31 December each year. He passed
away in hometown Segamat on 30 September 2022, intestate (i.e. without a Will).
For the year ended 31 December 2022, it was ascertained that the trading results of the
businesses carried on by Paul were as follows:
Businesses Income/ (loss) Amount (RM)
Business 1 (Malaysia) Statutory income 282,265

Business 2 (Malaysia) Adjusted loss (124,320)
Business 3 (Thailand) Adjusted income 83,362
Business 2 ceased operations on 30 June 2022 owing to heavy losses. Paul had other sources
of income details of which are as follows:
Other income Amount

(RM)
Net rental from a commercial property in Segamat 43,668

Dividend from a local company (single tier) (credited June 2022) 3,000
Interest from a Malaysian bank (credited in May 2022) 782
Interest from a Malaysian bank (credited in November 2022) 612
Paul (who was domiciled in Malaysia at the time of his death), was survived by a wife, Madam
Catherine Lee.
Upon Paul’s death, William, a professional accountant and the younger brother of the deceased
administered the estate till 31 December 2022 at which date it was wound-up.
He closed the business in Thailand, and after settling debts and liabilities, remitted RM170,000
to Malaysia and was paid into the account of the wife with a local bank.

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The wife had no sources of income. The administrator therefore paid an annuity of RM30,000 to
the wife for her upkeep in October 2022, while he was sorting out the assets and liabilities of the
businesses. William rendered his services pro bono (i.e. he did not take any fees for the services
rendered).
Required:
With reference to the Income Tax Act 1967:
(i) Compute the chargeable income of the estate of Paul Chong (dec’d) for the year of
assessment 2022; and
(ii) Indicate the last date the Director General of Inland Revenue can raise an assessment, or
additional assessment, on the income of Paul Chong on his income up to the date of his death
assuming the Director General of Inland Revenue was informed of his death on 16 February
2023.
Answer
Computation of chargeable income of the estate of the deceased

RM
Business (Malaysia) 1/4 x 282,265 70,566
Business 2 (Malaysia) (business ceased) 0
Business 3 (Thailand) (closed) 0
Statutory income - business 70,566
Add: Other income
Rent 1/4 x 43,668 10,917
Interest (Nov 2022) 612
Less: Annuity to wife 30,000
Total income 52,095
Less: Personal relief (domiciled in Malaysia) 9,000
Chargeable income 43,095
Raising of an assessment on the deceased
Pursuant to section 74(3) of the Income Tax Act 1967, any assessment or additional assessment
on the income arising up to the date of the deceased’s death must be made not later than the
third year of assessment following the year of assessment in the basis year in which the Director
General of Inland Revenue was informed of the death of the individual in the prescribed form.
In this instance as the Director General of Inland Revenue was informed of the death of Paul
Chong on 16 February 2023, the latest year of assessment for which any assessment or
additional assessment on the income of the deceased can be made would be 31 December 2026.
Question 4

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Explain the circumstances under which income arising from a settlement is deemed to be the
income of the settlor.
Answer
Section 65 ITA is an anti-avoidance provision and it operates to prevent tax avoidance through
an arrangement or settlement, especially where the parties involved are relatives. In the event of
a settlement to a relative in a particular year of assessment, sec 65(1) which is an anti-avoidance
provision shall only apply if at the commencement of that year of assessment the relative is
unmarried and he or she is below the age of 21 years.
Section 65(2) deems income arising from a settlement as the income of the settlor if:
(i) the terms of settlement provide revocation powers to the settlor; and
(ii) in the event of exercise of such powers, the settlor or spouse of the settlor will repossess the
whole or any part of the property comprised in the settlement.
However, if the settlement is revoked due to the fact that the beneficiary passes away before the
settlor or spouse of the settlor, then sec 65(2) will not be applicable. In such situations, income
from the settlement will be assessed on the beneficiary and not on the settlor.
Question 5
On 1 March 2016, Tan settled his properties to his son Jason aged 28. Under the terms of the
settlement, Tan has the power to revoke the settlement at any time. The properties will be
transferred to his wife Mrs Tan in the event the settlement is revoked. However, Mrs Tan passed
away on 1 August 2023.
Required:
Explain the tax treatment on Jason, Tan and Mrs Tan under the provisions of section 65 of the
Income Tax Act 1967.
Answer
Under sec 65(2), a settlement which gives a power of revocation to the settlor will be disregarded
for tax purposes. If any income arises from such a settlement then such income will be treated as
the income of the settlor.
In this case, the anti-avoidance provision sec 65(2) will only be applicable from 1 March 2020 to
the time of death of Mrs. Tan, since the settlement is revocable and upon revocation, the
properties will be transferred to Mrs. Tan. Until then, the income derived from the properties will
be assessed on Mr. Tan till 1 August 2023.
Upon the death of the wife, Mrs. Tan, sec 65(2) will not be applicable. After her death, the income
derived will be assessed on Jason. Mrs Tan is not assessed to tax as she was not the settlor.
Question 6

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En. Maniam has a four-storey block of flats which are rented out. He bought it some time back
and the loans have been fully settled. He was getting old and in 2020 he settled the property in
the name of his two daughters, Vimala and Jothika in equal shares; and a legal document was
executed in May 2020 to that effect by the family lawyer. As at that date, Vimala was 23 years old
and Jothika was 15 years old. Ms Vimala is not married.
Vimala is a qualified accountant and is employed in Maniam’s manufacturing business as an

account’s manager in the production department. This is her first job.
For the year ended 31 December 2023, the following information is available:
Gross rental income from the flats RM200,000

Revenue expenses in connection with the flats RM40,000
Salary paid to Vimala RM 48,000
Required
Compute the income the Director General of Inland Revenue would assess on the following
individuals, and explain the basis for his decision:
(a) Mr. Maniam

(b) Ms. Vimala
(c) Ms. Jothika
Answer
The net rental is RM160,000 [RM200k less RM40k].

Rental income - Vimala
The share of the rental income accruing to Vimala would be assessed on her being one-half of
the net rental income i.e. RM80,000. She is more than 21 years old as at 1.1.2023, and the
settlement rules under section 65 do not apply.
Rental income – Jothika/Maniam
The share of the rental income of RM80,000 accruing to Jothika would not be assessed on her
as she is below the age of 21 years as at 1.1.2023.
The income would instead be assessed on Mr. Maniam under section 65 as the settlor of the
income.
Employment income – Vimala
Vimala is a qualified accountant and the annual salary of RM48,000 per annum paid to her is a
reasonable salary commensurate with her qualification, being her first job and without prior
experience. Section 65 will therefore not apply to the arrangement. She will be assessed in her
name on the employment income.


Chapter 4 Estate, Trust and Settlement

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Chapter 4 Estate, Trust and Settlement

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CHAPTER 4

Estate under administration, trust bodies and settlements

2. Estate under administration

a) his permanent home; and

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4. Tax treatment of a deceased individual

5. Tax treatment of an executor

Under section 2, an executor means:

‘the executor, administrator or other persons administering or managing the estate of a

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6.1 Deceased domiciled

Chargeable income (RM) Tax rate (%) Tax payable (RM)

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The rate was amended under the Budget 2023 as follows:

Chargeable income (RM) Tax rate (%) Tax payable (RM)

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6.2 Deceased not domiciled

7. Income during the period of administration

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9. Basis of apportionment of income

Business income Time basis

10. Tax computation for an individual and an executor

Deceased individual Executor

Section 4(a) income

Section 4(b) income

Section 4(c) income

Section 4(d) income

Particulars of income RM Notes

Business 1 - adjusted income 100,000 -

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Single tier dividend 18,000 Received in May 2023

Compute for year of assessment 2023 the chargeable income of:

(i) Dev Anand (deceased); and

Year of assessment 2023

Note to the computation:

In the above computation, take note of the following law applications:

1 The business and rental income is apportioned on a time basis.

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▪ The Income Tax (Exemption) (No. 5) Order 2022 [P.U.(A) 234/2022]

3 Single tier dividends are not brought to charge (Para12B Sch 6)

The computation steps are as follows:

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11. Annual return

12. Time limit for raising an assessment

Mr. Leong died on 1 November 2019.

• Assuming the DGIR was informed in December 2019:

• Assuming the DGIR was informed only in say, January 2020:

13. Distribution of income

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14. Trust body

(i) assets that are to form part of the trust;

15. Tax compliance by trust body

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16. Resident status of a trust body

17. Type of trust

(i) Discretionary trust

18. Discretionary trust – single beneficiary

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Tax computation for the trust