BASIS PERIOD

Terms
Basis year calendar year Basis period taxable period of income relative to a year of assessment - not necessarily 31/12

Basis period
Determination of the basis period for a company: (1) commencing operation (2) changing the accounting date of its existing operation (3) joining a partnership

Business commencement
From tax perspective, the determination of the date of business commencement is crucial. Any expenses incurred prior to commencement will be disallowed for tax deduction. Such expenses is considered as not wholly and exclusively incurred in the production of income.

Public rulings business commencement

Public ruling 1/2009 property development Public ruling 2/2009 construction contracts Public ruling 2/2010 allowable pre-allowable and pre-commencement of business expenses Public ruling 4/2011 income from letting of real property

Estimated tax payable

Companies, trust bodies and cooperative societies: Submit estimated tax payable 30 days to IRB before the commencement of the new basis period. Companies first commence business operations: Submit estimated tax payable 3 months after the date of commencement

Basis period
Refers to the period of income received relative to a year of assessment Current year basis: calendar year Section 21A ITA 1967 & Public ruling No. 7/2001:

Basis period
21A(1) & PR (general) : the basis year for a YA is the basis period for that YA in relation to a sources of income of a company. Example: A company which has a business source and a dividend source prepares its accounts from 1/1/11 to 31/12/11 Basis year ending 31/12/11 is the basis period for the YA 2011

Basis period
21A(2) & PR: Where a company has made up the accounts for a period of 12 months ending on a day other than 31 December in the basis year, the accounting period is the basis period for the YA in which the accounts are closed for all its sources of income Example: A company makes up its accounts from 1/7/11 to 30/6/12. The period from 1/7/11 to 30/6/12 is the basis period for the YA 2012.

Commencement of operation (PR) -1

Accounts prepared for less than or more than 12 months ending on 31 Dec, the basis period for the YA is the period ending on 31 Dec, Example: A company commences operation on 11/5/11 and the first accounts closed on 31/12/11. Accounting period 11/5/11 to 31/12/11 is the basis period for the YA 2011

Commencement of operation (PR) -1

Example 2: A company commences operation on 1/9/11 and the first accounts closed on 31/12/2012 1/9/11 to 31/12/11 basis period for YA 2011 1/1/12 to 31/12/12 basis period for YA 2012

Commencement of operation (PR) -2

21A(4) & PR: Where a company in its first year of operation and commences operation on a day in a basis year and makes up its accounts for a period of 12 months ending on a day other than 31 December, there shall be no basis period in relation to its sources of income for the first year

Commencement of operation (PR) -2

Example: A company commences operation on 1/7/11 and its first accounts are prepared for the period 1/7/11 to 30/6/12 The accounting period 1/7/11 to 30/6/12 is the basis period for the YA 2012. No basis period for the YA 2011.

Commencement of operation (PR) -3

Accounts prepared for less than or more than 12 months and not ending 31 Dec, the basis period for the YA is the year ending 31/12 each year until accounts are made up for a 12 month accounting period

Commencement of operation (PR) -3

Example 1 A company commences operation on 26/6/10 and accounts are made up to 30/4/11 (10 months) and subsequently to 30/4/12 Example 2 A company commences operation on 26/6/10 and accounts are made up to 30/9/11 (15 months) and subsequently to 30/9/12

Commencement of operation (PR) -4

Company with existing operations commencing new operations, the basis period for the existing operation is also the basis period for the new operation Example: A company has been in operation for several years and makes up its accounts ending on 30 Sept each year. The company starts a new operation on 1/6/11

Commencement of operation (PR) -5

S21A(5): Specific commencement rules of a company: (1) Where a company commences its operation and is required under any law of the place of incorporation to make up its accounts ending on a specified day; or (2) being a company within a group of companies makes up its accounts ending on the same day as that of all other companies in that group,

Commencement of operation (PR) -5

The period which begins from the day the company commences operations until the end of the accounting period of the company shall constitute, for those operations of that company, the basis period for a YA

Commencement of operation (PR) -5

Example 1: A company, being a member of a group of companies, commences operation on 15/1/11 and closes its first accounts on 30/9/11 to coincide with the financial year ending for the group of companies, and subsequently closes its accounts on 30 Sept each year

Commencement of operation (PR) -5

Example 2 A company commences operations on 21/1/11 and makes up its first accounts to 30/4/12 as required by the law of the place of its incorporation

Failure year concept

The first year in which there is a failure to close the accounts to the normal accounting date (where the normal accounting date is not 31 December) Assume SamaRata Sdn. Bhd. prepares its accounts to year ended 31 July 2009. The company change its accounting date to 30 November 2010. So, the failure year of SamaRata Sdn. Bhd. is 2010 as that is the first year the company did not make up the accounts to 31 July.

Change of accounting date

3 different situations: 1) Normal accounts ending on 31 December 2) Normal accounts not ending on 31 December and new accounts prepared for less than 12 months 3) Normal accounts not ending on 31 December and new accounts prepared for more than 12 months

Normal accounts ending on 31 December

Where accounts are normally closed on 31 December and there is a change of accounting date, the basis period in the year of change is the year ending 31 December. The basis period for the subsequent year of assessment will also be the year ending 31 December unless there is a 12-month accounting period ending in that year, in which case that accounting period will be the basis period. Thereafter, the 12-month accounting period will be the basis period

Example 1
A company which normally closes its accounts on 31 December changes its accounting date to 30 September and prepares accounts as follows: 01.01.2011 to 30.09.2011, and subsequently to 30 September each year. The basis period for the y/a 2011 is 01.01.2011 to 31.12.2011. The basis period for the y/a 2012 is 01.10.2011 to 30.09.2012

Example 2
A company which normally closes its accounts on 31 December changes its accounting date to 31 March and prepares accounts as follows: 01.01.2011 to 31.03.2012, and subsequently to 31 March each year. The basis period for the y/a 2011 is 01.01.2011 to 31.12.2011. The basis period for the y/a 2012 is 01.01.2012 to 31.12.2012. The basis period for the y/a 2013 is 01.04.2012 to 31.03.2013

Normal accounts not ending on 31 December and new accounts prepared for less than 12 months

1)New accounts ending in the following year The new accounting period is the basis period for the year of assessment in the failure year

Example
A company's accounts are normally prepared ending on 30 September. The company changes its accounting date and the accounts are now closed on 31 March. Accounts are prepared as follows: 01.10.2010 to 30.09.2011, 01.10.2011 to 31.03.2012 (6 months), and to 31 March for subsequent years. The basis period for the y/a 2012 (the failure year) is 01.10.2011 to 31.03.2012 (6 months). The basis period for the y/a 2013 is 01.04.2012 to 31.03.2013

Normal accounts not ending on 31 December and new accounts prepared for less than 12 months
2)New accounts and the last accounts ending in the same year The period comprising the new accounting period together with the following accounting period is the basis period for the year of assessment in the failure year

Example
A company's accounts are normally prepared ending on 30 June. The company changes its accounting date and the accounts are now closed on 31 December. Accounts are prepared as follows: 01.07.2010 to 30.06.2011, 01.07.2011 to 31.12.2011 (6 months), 01.01.2012 to 31.12.2012, and to 31 December for subsequent years. Since both the new accounting period 01.07.2011 to 31.12.2011 and the last accounting period 01.07.2010 to 30.06.2011 end in the same basis year:

Example The basis period for the y/a 2002 (the failure year) is 01.07.2011 to 31.12.2012 (18 months). The basis period for the y/a 2003 is 01.01.2013 to 31.12.2013.

Normal accounts not ending on 31 December and new accounts prepared for more than 12 months
1)New accounts ending in the following year The new accounting period is the basis period for the year of assessment in the failure year

Example
A company's accounts are normally prepared ending on 31 July. The company changes its accounting date and accounts are now closed on 31 October. Accounts are prepared as follows: 01.08.2011 to 31.10.2012 (15 months), and to 31 October for subsequent years. The basis period for the y/a 2012 (the failure year) is 01.08.2011 to 31.10.2012 (15 months). The basis period for the y/a 2013 is 01.11.2012 to 31.10.2013.

Normal accounts not ending on 31 December and new accounts prepared for more than 12 months
2)New accounts ending in the third year If the new accounting period spans 3 basis years, it is apportioned into 2 periods, and these 2 periods will be taken to be the basis periods for the first 2 years of assessment commencing in the failure year.

Example A company's accounts are normally prepared ending on 30 November. There is failure to close accounts to its normal accounting date and accounts are prepared for a period of more than 12 months from 01.12.2010 to 28.02.2012 (15 months), and to 28 February for subsequent years.

Example The accounting period 01.12.2010 to 28.02.2012 (15 months) is apportioned into 2 periods, so that: The basis period for the y/a 2011 (the failure year) is the period 01.12.2010 to 31.07.2011 (8 months). The basis period for the y/a 2012 is the period 01.08.2011 to 28.02.2012 (7 months).

Company joining a partnership

If a company joins a partnership, the partnership will be regarded as a new operation of the company. The basis period for its existing operations is, therefore, also the basis period for the partnership source

Example
A company (whose accounts are closed on 30 June) joins a new partnership which commences business on 18.02.2011. The first accounts of the partnership are prepared to 30.09.2011 and accounts are subsequently prepared to 30 September each year. Notwithstanding the accounting period of the partnership, the basis periods for the company in respect of its partnership source are: Y/a 2011: 18.02.2011 to 30.06.2011 Y/a 2012: 01.07.2011 to 30.06.2012

Treatment of adjusted income / adjusted loss in overlapping periods

In case of overlapping of two basis periods, the adjusted income or adjusted loss common to both basis periods is ignored in the second basis period

Example
A company commences a business on 01.07.2011 and accounts are prepared as follows: 01.07.2011 to 31.03.2012, 01.04.2012 to 31.03.2013, and subsequently to 31 March. The adjusted income of the company's business is as follows: 01.07.2011 to 31.03.2102 [A] - RM15,000 01.04.2102 to 31.03.2013 [B] - RM24,000