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Income Tax Issues for Developers

Income Tax Issues for Developers. Recognition of profit Income tax and accounting principles Commencement and deductions. Inland Revenue Practice. Intention at the outset Developer to furnish particulars Related party sales Project income can be taxed at TOP

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Income Tax Issues for Developers

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  1. Income Tax Issues for Developers • Recognition of profit • Income tax and accounting principles • Commencement and deductions

  2. Inland Revenue Practice • Intention at the outset • Developer to furnish particulars • Related party sales • Project income can be taxed at TOP • One-project company and carry-back relief

  3. Recognition of Profit • Source • Timing • Building project (Source) • Percentage of completion method; or • Completed contract method (Timing)

  4. Charge of income tax • "Income tax shall be payable upon the income of any person in respect of gains or profits from any business."

  5. Deductions allowed • "For the purpose of ascertaining the income of any person for any period from any source chargeable with tax under this Act, there shall be deducted all outgoings and expenses wholly and exclusively incurred during that period by that person in the production of the income."

  6. Income Tax andAccounting Principles • Natural • Proper • Commercial

  7. General principles • Where accounting principles point unequivocally to a particular treatment, that treatment will usually be followed in ascertaining taxable profits. • Where conflicting accountancy principles are potentially applicable or where there is no generally accepted principle the Court will do its best to choose the most appropriate method of arriving at the taxable profit.

  8. General principles • In all cases, the accounting treatment will be subject to statutory or judge-made overrides where appropriate; ie, where taxation principles dictate a different treatment. • Malaysian IRB Public Ruling 3/2006

  9. “Source” & its impact on developers • “Gains or profits from any business” • Whether or not definitive? • Profits from the business per se • Or profits from each building project? • Sarawak Properties v DGIR

  10. Commencement & Deductions • Developer for sale • Developer for rent • Business of letting commences at TOP • Pre-commencement expenses • Convention centre, zoo, telecoms

  11. Thank You LeonKwongWing@khattarwong.com

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