Soalan Lazim

Berkaitan Perkara Umum Subseksyen 44(6)

Subseksyen 44(6) - Umum

Kompilasi Soalan-Soalan Berkenaan Permohonan Untuk Kelulusan Di Bawah Subseksyen 44(6), Subseksyen 44(11D), ACP 1967 Dan P.U. (A) 139/2020

NO. QUESTION ANSWER
1 What information is required for an application to acquire an asset (building) after obtaining approval under subsection 44(6) ITA 1967?
  1. Complete information on the purchase price of the building and valuation documents from the Valuation and Property Services Department to confirm the price or value of the asset to be acquired;
  2. A copy of the building title grant and complete details of the building such as address, type of building, property owner and other relevant information;
  3. Financial sources and financing information of the asset to be acquired;
  4. The purpose or use of the asset / building to be acquired.
2 Is there a requirement to obtain the approval from the Minister of Finance if the institutions/organizations/funds receive contribution from abroad'? No. The condition only applies if the institutions/organizations/funds itself wants to conduct activities abroad or involve providing benefit to foreigners.
3 If an institution/organization/fund approved under subsection 44(6) of ITA 1967 receives a contribution from abroad, will the contribution br exempted from tax? Contributions received by institutions/organizations/funds under subsection 44(6) of ITA 1967 are exempted from tax regardless of location.
4 Can donors from abroad who donate to institutions/ organisations/funds deduct their contributions from tax? If they have income that is taxable in Malaysia, the contribution made can be deducted from tax under subsection 44(6) of ITA 1967.
5 What is meant by the condition regarding the composition of registered members that more than 50% of the Board of Trustees/Board of Directors/Committee must be outsiders?

The conditions that must be complied with for all those registered under ROS/SSM/BHEUU are more than 50% of the member of the Board of Trustees/Board of Directors/Committee must consist of outsiders who have no connection with the institution or organization or the founder, family relationships such as parents, children, siblings including other close family relationships, master and servant relationships, directors or employees within the same company or group of companies. For institutions/organizations/funds that are registered as follows:

ROS
The condition is that all committee members must be members and entitled to vote.

SSM
In determining the percentage of outsiders, the conditions for membership in the Board of Directors of the Foundation are also taken into account (more than 50% of the list of BOD may not be registered members of the Foundation). Members are those who pay the membership fee to the Foundation. Non-members are those who do not pay membership dues to the Foundation. Each foundation may refer to their respective bylaws if they are unsure which members/non-members must be included in the list.

For foundations that have both members and non-members, the condition must be met that more than 50% of the board members are not registered members of the foundation. If all members are non-members, this condition is met.

BHEUU
According to the trust deed, there is no question of membership. All are non-members who must be enrolled in the list of members of the Board of Trustees. Under the new BHEUU law, the appointment of members of the Board of Trustees must be an odd number of three or seven and must be approved by the Minister. The minimum number for the appointment of members of the Board of Trustees is three, and there are no problems with the number of members for the committees.

Please refer to the requirements of the Board of Directors/Board of Trustees/Committee Members in paragraph 3.3 of the Guidelines for approval of DGIR.

6 Can institutions/organizations/funds collect donations from the public before obtaining the approval under Subsection 44(6) of the ITA 1967? An institution/organization/fund may collect donations. However, a donation receipt under subsection 44(6) of the ITA 1967 cannot be issued to the donor. Institutions/Organizations/Funds also subject to income tax.
7 What documents are required if an approved institution/organization/fund wants to acquire an asset such as a vehicle?

Institution/organization/fund that were approved by DGIR is required to apply for the aquisition of assets/vehicles by stating their purpose of use along with a copy of the vehicle quotation. They are also required to explain the financial source of the acquisition of the vehicle. Vehicle aquired in cash/one-off and hire-purchase is allowed.
Once the vehicle acquisition application is approved, the institution/organization/fund is required to comply with the following conditions:

  1. To furnish a copy of the vehicle grant and other related documents to IRBM for record;
  2. The aquisition of the vehicle cannot be considered in the calculation of 50% of the current year's expenditure;
  3. The aquisition does not prevent the foundation from continuing to carry out its core activities.
8 If the Institution/Organization/Fund makes a payment to a speaker from abroad, is there a need for DGIR approval? Approval from DGIR is not required. However, these activities must be in line with the objectives of the institution/organization/fund.
9 One of the objectives of the approved institution/organization/fund is to provide welfare and educational services to the public. Is fees paid for course registration are entitled for tax exemption? Course registration fees are part of income to the institutions/organizations/funds. Course registration fees are not eligible for tax exemption under subsection 44(6) ITA 1967. Any activity that is excluded in the objectives of the establishment, needs to get approval from DGIR.
10 Can a tax exemption receipt to be issued to donors who do not provide complete details? Institutions/organizations/funds do not need to issue an official tax exemption receipt if the donor's details are incomplete.
11 How is the documentation and recording of donation receipts and expenses are tracked when the institution/organization/fund organizes fundraising activities or events? Make sure to keep a detailed account statement for every activity that is carried out, including income and expenses. Institutions/organizations/funds can consolidate all activities detailed accounts, but each activity must have its own detailed statement of income and expenses.
12 Can institutions/organizations/funds approved by DGIR receive donations/contributions from abroad? For the purpose of implementing the objectives, institutions/organizations/funds may receive donations from foreign countries. All donations/contributions must comply with all updated financial regulations of this country. Please keep all records of donations.
13 What is the requirement for an institution/organization/fund under subsection 44(6) of the ITA 1967 approved by DGIR if they plan to acquire properties? Institutions/organizations/funds are required to write a letter to the Director of the Approval and Monitoring Division, Tax Policy Department, to obtain approval for the acquisition of properties. The letter should contain information about the purpose and other details related to the acquisition of the properties.
14 In order to apply for approval under subsection 44(6) of the ITA 1967, a letter of support must be attached. What is the meaning of a letter of support and where should it be obtained from?

The supporting letter must be related to the constitution and activities of the institution/organization/fund. The letter of support must state support and confirmation of the objectives and activities of the institution/organization/fund. A letter of support must be obtained from the Ministry/Department/Agency that is relevant to the objectives/activities of the relevant institution/organization/fund. The date of the supporting letter must be the latest and most recent.

For example, for foundations that carry out charity work to help the poor and homeless, a relevant letter of support should be from the Social Welfare Department.

15 What activities must be carried out by a foundation that has been approved by DGIR under subsection 44(6) of the ITA 1967? The activities that need to be carried out are those that are in line with the foundation's objectives and subsection 44(7) of the ITA 1967.
16 Can institutions/organizations/funds that have been approved by DGIR under subsection 44(6) ITA 1967 engage in business?

In general, institutions/organizations/funds are not permitted to conduct business activities as the primary activity for the purpose of earning income. However, Institutions/organizations/funds are allowed to engage in business as long as they use only 25% of the accumulated funds on the first day of the assessment year. Returning all earned income to the fund is necessary to achieve its welfare objectives.

If an institution/organization/fund wishes to carry out business activities, an application must be written in to the Director Approval and Monitoring Division, Tax Policy Department to ensure that the purpose of the activity is carried out and whether it is in accordance with the approval under subsection 44(6) of the ITA 1967.

17 Is it necessary for institutions/organizations registered under SSM to have more than 50% of their members on the Board of Directors being outsiders? What is the rationale for this condition? Yes. The reason for this condition is to ensure that decisions are not influenced by one party. The purpose of this regulation is to prevent irregularities as it involves public funds.
18 Are the beneficiaries in the activities of institutions/organizations/funds only Malaysia citizen? Yes, benefits can only be given to Malaysia citizen.
19 When is it necessary for institutions/organizations/funds to apply for an extension of the approval period if it is about to end? 6 months before the existing approval period ends.
20 If the institution/organization chooses to remain using the C file number, can they send an audited financial statement 7 months after closing the account? For institutions/organizations that continue to use the C file number, they can apply for an extension of the period to send audited financial statements which is 7 months after closing the account.
21 For a public company limited by guarantee (CLBG), is it mandatory to drop the word “Berhad” because it is not stated in the guidelines? Yes, for CLBGs that have the word “Berhad”, it must be dropped first before the application is submitted. While it is not explicitly stated in the guidelines, the related documents should be submitted as indicated in the checklist (attached to the guidelines).
22 What is the intention under subsection 44(6) ITA 1967 with respect to the fundraising for institutions/organizations/funds? Institutions/organizations/funds are encouraged to carry out public fundraising activities, as one of the approval objectives under subsection 44(6) ITA 1967 is to allow donors to enjoy tax deductions for their contributions.
23 Does the institution/organization/fund need to operate for at least 2 years before they can apply for approval? Yes, the institution/organization/fund must operate for at least 2 years before they can be considered for approval. This is to allow the establishment of a track record and the submission of financial statements.
24 Does the donation receipt format need to be approved from IRBM first? Yes, the draft format of the donation receipt needs to be submitted to the Approval and Monitoring Division for approval before it can be used.
25 Can contributions in the form of goods be given a tax deduction receipt under subsection 44(6) ITA 1967? Only cash contributions are allowed for tax deductions under subsection 44(6) ITA 1967. Institution/organization/fund can accept contributions in the form of goods, but tax deduction receipts cannot be issued for them.
26 Can audited financial statements be submitted after April 30th? An official request must be made, stating the requested extension date and clear reasons for the delay. The request letter should be submitted to the Director of the Approval and Monitoring Division, Tax Policy Depatment, on or before March 31st.
27 For institutions/organizations/funds that engage in fundraising activities by selling products, can donation receipts under subsections 44(6) ITA 1967 be issued to buyers and used for tax deductions under subsection 44(6) ITA 1967? Receipts under the approval of Director General of Inland Revenue (DGIR) under subsection 44(6) ITA 1967 cannot be issued to product buyers, and buyers cannot use them for tax deductions under subsection 44(6) ITA 1967 during tax computations. Receipts can only be issued for cash donations/contributions.
28 Can institutions/organizations/funds that have been approved by DGIR under subsection 44(6) ITA 1967 use digital/electronic/computerized receipts when receiving donations/contributions?

Institutions/organizations/funds that have been approved by the DGIR under subsection 44(6) ITA 1967 and wish to issue digital/electronic/computerized donation receipts must make a written application to the Director of the Approval and Monitoring Division, Tax Policy Department. Consideration will be made on a case-by-case basis according to specific requirements. Among the information required are:

  • The number of donation receipts issued in the previous year.
  • The number of officers authorized for issuing receipts in the previous year and the current year.
  • Esitmated number of donation receipt issuances for the current year.
  • Reason and obstacles faced by the institution/organization/fund for issuing receipts manually.
  • Name of the system, manual, and internal control methods for issuing digital/electronic/computerized receipts.
  • Costs involved in acquiring/developing the digital/electronic/computerized receipt system.

The approval granted is temporary and will be periodically reviewed by auditing officers.

29 What actions need to be taken if an institution/organization/fund that has received approval by DGIR under subsection 44(6) ITA 1967 changes its name? An institution/organization/fund that changes its name must provide written notification to the Director of the Approval and Monitoring Division, Tax Policy Department, along with the approval documents for the name change granted by the Companies Commission of Malaysia/Registrar of Societies. The processing officer will process the application, and a notification letter for the name change approval will be issued to the institution/organization/fund. Updates to the institution/organization/fund namen and information will also be made on the HASiL website.
30 One of the approval conditions under subsection 44 (6) ITA 1967 is that 50% of the income from the previous year must be spent in the current year. If an institution/organization/fund cannot comply with this condition, does it affect approval under subsection 44(6) ITA 1967, and what action should the institution/organization/fund take? An institution/organization/fund that cannot meet the requirement of spending 50% of the income from the previous year in the current year should submit a written application to the Director of the Approval and Monitoring Division, Tax Policy Department, providing justifications for non-compliance with this condition for the relevant year. The application will be considered based on its merits.
31 Can the following expenses be considered when determining the 50% charitable expenditure requirement?
  1. Purchase of assets/property
  2. Depreciation expenses
  3. Bad debts
  4. Employee salaries and wages

Only expenses related to charitable/philanthropic activities can be considered in the calculation of the 50% charitable expenditure requirement, as follows:

  1. Purchase of assets/property – Not eligible (capital expenditure)
  2. Depreciation expenses – Not eligible (capital expenditure)
  3. Bad debts – Not eligible (capital expenditure)
  4. Employee salaries and wages – Eligible (related to charitable/philanthropic activities)
32 Can payments be made as salaries to Founder/Board Members/Trustees/Committee Members of institutions/organizations/funds that have been approved by DGIR under subsection 44(6) ITA 1967? Referring to Paragraph 3.3 (ii) of the Guidelines for Approval by the DGIR under subsection 44(6) ITA 1967 dated 30th January 2020, Founder/Board Members/Trustees/Committee Members are not allowed to receive benefits/salaries/regular emoluments. Only reimbursement claims related to official duties supported by relevant documents are permitted.
33 Referring to the Guidelines for Approval by the DGIR under subsection 44(6) ITA 1967 dated 30th January 2020, institutions/organizations/funds that have received approval from DGIR are allowed to engage in business activities with the condition that they only use 25% of the accumulated funds on the first day of the assessment year. What is meant by the “first day of the assessment year”, and what types of businesses can be conducted by institutions/organizations/funds? The “first day of the assessment year” refers to the calculation of 25% of the accumulated capital of the institution/organization/fund on the first day of the assessment year when the application to conduct business is made to the IRBM. All income derived from this business must be channelled into the relevant fund to achieve the institution/organization/fund is objectives and/ or approved charitable activities as specified by the DGIR. The businesses that can be conducted should be related to the objectives and/ or approved charitable activities as determined by the DGIR.
34 Are the Guidelines for Approval by the Director General Inland Revenue under subsection 44(6) Income Tax Act 1967 issued in 2019 still applicable? The current applicable guidelines are dated 30th January 2020. Therefore, the guidelines issued in 2019 are no longer valid.
35 If a ministry/ government agency has received tax deduction approval from IRBM for donors who contribute to a trust fund established within that ministry/ government agency, do donors need to reapply to IRBM for tax deduction approval under subsection 44(6) ITA 1967 by providing Kew.38 receipts, or is it sufficient to declare the donation/contribution when submitting e-filing each year and keep the Kew.38 receipt as supporting evidence? It is sufficient to declare the donation/contribution when submitting e-filing each year and keep the Kew.38 receipt or a receipt from an institution/organization/fund that has received approval under subsection 44(6) ITA 1967 as supporting evidence if needed for verification during an audit.
36 Is there an application guide for donors who donate to trust funds established within a ministry/ government agency? For donors who contribute, proof is provided through the tax deduction receipts issued by approved institution/organization/fund under subsection 44(6) ITA 1967 or the Kew.38 receipt. There is no specific application guide for donors who contribute to the federal government, state government or local authorities. Donors can proceed with deductions, provided that the Kew.38 receipt is kept as evidence if needed.
37 If a school wants to build a prayer room (surau) for the use of students and teachers (involving educational and learning activities) within the school premises, should they apply under the school construction fund or the place of worship construction fund?

The prayer room (surau) is not part of activities involving teaching and learning. This is because teaching and learning activities can be carried out practically in the provided classrooms. A prayer room is a facility and a requirement that requires approval from the State Islamic Religious Council for the purpose of construction, operation and monitoring.

Therefore, whether the surau is constructed within the school premises or outside, it is not considered part of the school.

For the purpose of subsection 44(6) ITA 1967, it is appropriate to apply through the place of worship construction fund or the school public fund because it is part of a school project or school related project with the approval of the Ministry of Education Malaysia.

38

If the financial statement of an approved institution/organization/fund shows the following information:

Income for the year 2020 = RM800k
Expenditure for the year 2021 is RM800k/2 = RM400k

How is the 50% expenditure requirement calculated?

Fundamentally, every expenditure should come from the income received. When calculating the stipulated expenditure requirement, at least 50% of the previous year’s income must be spent in the following year, and the expenditure should be for activities that align with the institution/organization/fund is objectives.

The calculation is as follows:

Income for the year 2020 = RM800k
Expenditure for the year 2021is RM800k/2 = RM400k

Therefore, to meet the approval requirements under subsection 44(6) ITA 1967, the institution/organization/fund must spend at least RM400k in the year 2021, and this expenditure must be in line with the institution/organization/fund is establishment objectives.

39 Can family members of employees of an institution/organization/fund that has received approval under subsection 44(6) ITA 1967 qualify for assistance? For an example, if family members are from the B40 group and facing health problems.

Based on the latest conditions in the guidelines for approval under subsection 44(6) ITA 1967, it has been specified that services or benefits cannot be enjoyed by family members of Trustees or any interested parties related to the founder/trustees/board members committee members/parties involved in managing the foundation.

For family members of employees, it is allowed if they meet the specified criteria, which is to assist the B40 group facing health problems by submitting a form signed by a doctor from a government hospital. However, if the employee is the same person as mentioned in the paragraph above, then the benefit cannot be enjoyed by family members.