BASIS PERIOD FOR A BUSINESS SOURCE (INDIVIDUALS & PERSONS OTHER THAN COMPANIES / CO-OPERATIVES)

1.0 TAX LAW

This Ruling applies in respect of sections 20 and 21 of the Income Tax Act 1967. It is effective for the year of assessment 2001 and subsequent years of assessment. This Ruling supersedes Public Ruling No. 3/2000 dated 1 March 2000.
    2.1
 an individual or a person other than a company or a co-operative commencing a new business;
3.0 HOW THE TAX LAW APPLIES
    3.1
 An individual or a person other than a company or a co-operative [ see paragraph 4.3 ] is chargeable to income tax in respect of all his sources of income for a year of assessment [hereinafter also referred to as Y/A ].

3.5.1

 Accounts prepared for less than or more than 12 months ending on 31 December

Where a business is commenced and its first accounts are prepared for less than or more than 12 months ending on 31 December, the basis period for a year of assessment is the period ending on 31 December.

Example 1

An individual commences business on 11.05.2001 and the accounts are closed on 31.12.2001.

The accounting period 11.05.2001 to 31.12.2001 is the basis period for the y/a 2001.

Example 2

An individual commences business on 01.09.2001 and the accounts are closed on 31.12.2002.

The period from 01.09.2001 to 31.12.2001 is the basis period for Y/A 2001.

The period from 01.01.2002 to 31.12.2002 is the basis period for Y/A 2002.
    3.6
 Change of accounting date

3.6.1

 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

An individual normally prepares his accounts ending on 31 December. He changes his accounting date to 30 September and prepares accounts as follows: 01.01.2001 to 30.09.2001, and subsequently to 30 September each year.

The basis period for the y/a 2001 is 01.01.2001 to 31.12.2001.
The basis period for the y/A 2002 is 01.10.2001 to 30.09.2002.

Example 2
An individual normally prepares his accounts ending on 31 December. He changes his accounting date to 31 March and prepares accounts as follows: 01.01.2001 to 31.03.2002, and subsequently to 31 March each year.

The basis period for the y/a 2001 is 01.01.2001 to 31.12.2001.
The basis period for the y/a 2002 is 01.01.2002 to 31.12.2002.
The basis period for the y/a 2003 is 01.04.2002 to 31.03.2003.

A)

 New accounts ending in the following year

The new accounting period is the basis period for the year of assessment in the failure year [ see paragraph 4.6 ].

Example

An individual’s accounts are normally prepared ending on 30 September. He changes his accounting date and the accounts are now closed on 31 March. Accounts are prepared as follows: 01.10.2000 to 30.09.2001, 01.10.2001 to 31.03.2002 (6 months), and to 31 March for subsequent years.

The basis period for the y/a 2002 (the failure year) is 01.10.2001 to 31.03.2002 (6 months).
The basis period for the y/a 2003 is 01.04.2002 to 31.03.2003.

3.6.3

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

A)

 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

An individual’s accounts are normally prepared ending on 31 July. He changes his accounting date and accounts are now closed on 31 October. Accounts are prepared as follows: 01.08.2001 to 31.10.2002 (15 months), and to 31 October for subsequent years.

The basis period for the y/a 2002 (the failure year) is 01.08.2001 to 31.10.2002 (15 months).
The basis period for the y/a 2003 is 01.11.2002 to 31.10.2003.
    -
 [In determining the basis periods for the situations in paragraphs 3.6.2 and 3.6.3 above, no accounting period or year of assessment should be left out and there should be no overlapping of basis periods. Any fraction of a month should be treated as falling into the first period.]

3.7.1

 Joining a new partnership

If an individual joins a new partnership, the basis period for the individual in respect of the partnership source is determined as in the case of a new business [see paragraphs 3.5.1, 3.5.2 or 3.5.3 ].

Example

An individual joins a new partnership which commences business on 18.02.2001. The first accounts are prepared to 30.09.2001 and accounts are subsequently prepared to 30 September each year.

The basis periods for the individual’s partnership source are [see paragraph 3.5.3] :

Y/a 2001: 18.02.2001 to 31.12.2001
Y/a 2002: 01.10.2001 to 30.09.2002
        • Partner

          Y/A

          		 Basis period
- [*Arising from change of accounting date (see paragraph 3.6.1 ]

Example 2

An individual joins an existing partnership on 01.04.2001. The accounts of the partnership are normally made up to 30 June, but on admission of the new partner, the accounting date is changed to 31 March. The partnership accounts are made up as follows:

01.07.1999 to 30.06.2000 (old partnership)
01.07.2000 to 31.03.2001 (old partnership)
01.04.2001 to 31.03.2002 (new partnership)
01.04.2002 to 31.03.2003 (new partnership)

The basis periods for the partnership source are as follows:
Partner

Y/A

 Basis period
- [*Arising from change of accounting date (see paragraph 3.6.2.A)]
    3.8
 Treatment of adjusted income / adjusted loss in overlapping periods

Where the application of paragraph 3.5.3 or paragraph 3.6.1 results in an overlapping of two basis periods [ see Examples 1 & 2 in paragraph 3.5.3 and Examples 1 & 2 in paragraph 3.6.1], the adjusted income or adjusted loss common to both basis periods is ignored in the second basis period.

Example

The business of an individual commences on 01.07.2001 and accounts are prepared as follows: 01.07.2001 to 31.03.2002, 01.04.2002 to 31.03.2003, and subsequently to 31 March.
- The adjusted income of the individual is as follows:

Accounting period ————————- Adjusted income
01.07.2001 to 31.03.2002 [A] ———— RM15,000
01.04.2002 to 31.03.2003 [B] ———— RM24,000

Applying paragraph 3.5.3, the basis periods for the individual are:

Y/A —————— Basis periods
2001 —————– 01.07.2001 - 31.12.2001 (6 months)
2002 —————– 01.01.2002 - 31.12.2002 (12 months)*
2003 —————– 01.04.2002 - 31.03.2003 (12 months)*
[*Overlapping period: 01.04.2002 - 31.12.2002]The adjusted income should be apportioned as follows:

        • Y/A & Basis period

          Apportionment

          Adjusted income
4.0 INTERPRETATION

For the purpose of this Ruling:
    4 .1
 If changes of accounting date are made in two consecutive accounting periods and the determinations in paragraph 3.6 above cannot be applied because a year of assessment or an accounting period will be left out, the Director General will, upon application by the individual or person other than a company or a co-operative, give specific directions.