Estate and Trust - Taxation of Estate of the Deceased

Tutorial 1

Advanced Taxation / BAC 4644/Dr Nakha Ratnam Somasundaram

Taxation of Estate of the deceased

Taxation of  Trust

TAXTION OF THE ESTATE OF THE DECEASED

Question 1

What are the factors that  one needs to consider as regards an individual who has died during the basis year for a year of assessment?

Answer 1

There are several things to consider:

• The taxability of his income before his death
• The taxability of his income after his death
• Personal representative and the executor
• The basis of assessment
• Time limitation for raising an assessment
• Rates of tax
• Domicile status of the deceased

Question 2

How is the income allocated between the deceased individual and the estate of the deceased?

Answer 2

In the year the individual died, there will be two tax computations

• From the beginning of the basis year  to the date of his death for the relevant year of assessment
• From the date of death to the end of the basis period for the year of assessment

The income is allocated as follows:

• Business and rental income :         On a time basis  (sec 64(1)
• Interest and dividends:  These income are assessed on a receipt basis

Note that for income tax purposes, an executor is not an individual (defined in the law as a ‘natural person’). Hence benefits available to an individual would not be available to an executor. (Case law: Harta Pesaka TSDSHA v Ketua Pengarah Hasil Dalam Negeri).

Income arising from a source outside Malaysian and remitted to Malaysia and received by any person is exempt from tax  (Para 28 Sch 6 effective from year of assessment 2004).

Question 3

What are the special deductions allowable for an estate under administration, in determining the chargeable income?

Answer 3

Sometime the will may provide for the payment of an annuity from the income of the estate under administration. This annuity is allowable as a deduction under section 64(3) against the aggregate income in arriving at the total income. The annuity is a taxable receipt on the recipient. It taxable on a receivable basis and therefore as soon as the recipient becomes entitled to the income, the amount will be assessed.

Payment of annuity must to be distinguished from a ‘distribution’ which is capital and therefore not deductible in arriving at the total income of the estate under administration nor is it taxable in the hands of the recipient.