Chapter 1: Estate Under Administration

1.0 Topic Outcomes

Upon completion of this chapter, students will be able to:

 Explain the meaning of domicile status of the deceased and its implication on tax
liabilities of the executor.
 Apportion the income between the deceased and the executor.
 Identify the allowable and disallowable expenses.
 Explain the responsibility of the executor and the time period of the administration.
 Compute the income tax liability of the deceased and the executor.

1.1 Source of information

Section 4 of ITA 1967

Section 64 of ITA 1967
Section 74 of ITA 1967
Paragraph 28 Schedule 6 of ITA 1967

1.2
FORMAT
INCOME TAX PAYABLE

Deceased Executor
RM RM
S.4a Business income 1
Gross income x
Less: allowable expenses (x)
Adjusted income xx
Add: balancing charge x
Less: capital allowance (current +b/f) (x)
Balancing allowance (x)
Statutory income (apportioned on time basis) x x x

Business income 2
Adjusted loss ( 10K) Nil
Add: balancing charge 10,000
Less: capital allowance (current +b/f) 9k
Balancing allowance (2k) ( 10000)
Statutory income (apportioned on time basis) Nil nil nil
xx xx
Less: business loss brought forward from previous years (x) -
Xx Xx
Add: business income from foreign country remitted to
M’sia in January (exempt) Nil
Total statutory income from businesses XX XX
Add: other sources of income
S.4b Employment income (salary, bonus, allowances, etc) x -

S.4c Dividend (single tier) – receipt basis – exempt NIL -

Interest from savings ac, fixed deposits – exempt NIL
Dividend income remitted after date of death NIL
–remittance –exempt

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S.4d Gross rental income x
Less: allowable expenses (revenue)
Quit rent and assessment (x)
Repairs and maintenance (x)
Fire insurance premiums (x)
Renovations (capital) – not deductible NIL
Adjusted rental income (apportioned on time basis) x x x

S.4d Royalty income x

Less: exemption (x)
Net royalty income x receipt basis x -
S.4e Pension, annuity – receipt basis x -
S.4f Other income not falling under above section x -
Aggregate income (AI) xx xx
Less:
Current year business loss (time basis) (x) (x)
Annuity payable - (x)
Executor’s remuneration/fees (not deductible) - NIL
Distribution to beneficiaries (not deductible) NIL NIL
Donation to approved institutions (limited to 7% of AI) (x) (x)
Total Income Xx
Less : personal reliefs
Self/special relief (9,000) (9,000)
Wife (available if apply for joint assessment) (4,000)) -
And other available reliefs (x) -
Chargeable income xx xx

Tax payable (apply scale rate if the deceased was resident and flat rate 28% if the
deceased was a non-resident).

On the 1st RMxxxxx X

On the 2nd RMxxxxx X
Xx
Less: rebates
Self rebate (if chargeable income< RM35,000) (400)
Wife rebate (only under joint assessment) (400)
Zakat for individual xxx
Income tax payable xxx

1.3 Individual or Person

Deceased Executor
Is an individual Is a person

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1.4 Domicile status

Domicile refers to the country in which the person has his permanent home. A permanent
home is one in which a person has been habitually and physically present and that person
has all intentions of permanently residing there.

Deceased person Deceased person

died domiciled in died not domiciled
Malaysia in Malaysia

Executor gets special relief of RM9,000 Executor will not entitled to the special relief of
and taxable based on scale rate. RM9,000 and taxable based on flat rate 24%.

1.5 Determination of income or losses between the deceased and the

executor.

No Income Basis
.
1. Statutory business income from Apportioned based on time
Malaysia
2. Employment Receipt/Earned

3. Interest (Note 1) Receipt/Earned

4. Dividend (Note 2) Receipt/Earned

5. Royalty (Note 3) Receipt/Earned

6. Rental Apportioned based on time

7. Foreign income Remittance

8. Current year business losses Apportioned based on time

9. Business loss brought forward Absorbed by the deceased.

Note 1: Interest
Interest paid to non-residents individuals or persons, by any persons carrying on the
business of banking and finance (Sch 6 Para 33) is exempted from tax.

Interest paid to resident person is taxable but paid to resident individual is exempted
from tax.

Note 2: Dividend under single tier system is exempted from income tax.

Note 3: Royalty Exemptions available to resident individuals only.

Royalties - Royalties received in respect of the use of copyrights/patents are taxable if
they exceed the following exemption limits:
Type of Royalty Exemption (RM)
(i) Publication of artistic works/recording discs/tapes 10,000
(ii) Translation of books/literary works 12,000

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(iii) Publication of literary works/original
paintings/musical compositions 20,000
1.6 Approved donation
No Contribution Notes
1 Gift of money to the Government, State Government or Local Subsection 44(6)
Authorities.
2 Gift of money to Approved Institutions or Organisations. Subsection 44(6)
(Amount is limited to 7% of aggregate income)
3 Gift of money or cost of contribution in kind for any Approved Subsection 44(11B)
Sports Activity or Sports Body.
(Amount is limited to 7% of aggregate income)
4 Gift of money or cost of contribution in kind for any Approved Subsection
Project of National Interest Approved by Ministry of Finance. 44(11C)
(Amount is limited to 7% of aggregate income)
5 Gift of artifacts, manuscripts or paintings. Subsection 44(6A)
6 Gift of money for provision of Library Facilities or to Libraries. Subsection 44(8)
7 Gift of money or contribution in kind for the provision of facilities in Subsection 44(9)
Public Places for the benefit of disabled persons.
8 Gift of money or medical equipment to any healthcare facility Subsection 44(10)
approved by the Ministry of Health.
9 Gift of paintings to the National Art Gallery or any State Art Subsection 44(11)
Gallery.

1.7 Allowable deductions against aggregate income

1.7.1 Current year business loss

1.7.2 Annuity payable
1.7.3 Donation (subject to conditions)

1.1 Non allowable deductions against aggregate income

1.1.1 Executor’s remunerations or fees

1.1.2 Distribution to beneficiaries

1.9 Period of administration

The period commences from the date of death to the last distribution of the estates to
the beneficiaries.

1.10 Responsibility of executor

The executor is responsible to provide for any income tax which is known to be
payable or can be reasonably be foreseen to be payable, before making any
distribution to the beneficiaries. Failure to fulfill the responsibility will render the
executor jointly and severally liable to pay a penalty equal to the amount of tax to
which the failure relates.

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1.2 Annual Return

The executor of the estate will file Form T for any income earned from the date of
death up to 31 December. Either Form B or BE is use by the executor for income
earned from 1 January until the date of death of the deceased individual.

For further details, refer to Section 64, Section 74, paragraph 28 Schedule 6 of
Income Tax Act 1967 and Chapter 7 in `A Guide to Advanced Malaysian Taxation’
authored by Jeyapalan Kasipillai.

Example 1
Encik Amran, an entrepreneur and a director of several companies died on 1 July 2015. He
was a resident and domiciled in Malaysia at the time of his death. He left behind a wife,
Puan Rina (resident and not working) and two children. His brother, Encik Ramlan (non-
resident) is appointed as the executor of his estate. Encik Ramlan provided the following
information for the basis year 2015:
RM
1. Manufacturing business
Adjusted income 100,000
Adjusted loss brought forward from year of assessment 2014 44,000
Capital allowance for year of assessment 2015 6,000
Capital allowance brought forward from year of assessment 2014 5,000
Balancing charge for year of assessment 2015 14,000

2. Directors fees
Received in April 2015 from a Malaysian resident company 60,000
Received in June 2015 from a foreign company 50,000

3. Gratuity
Gratuity paid by a company in September 2015 to the executor on behalf of
Encik Amran’s family.
200,000

4. Dividend income
Received from Malaysian resident company in June 2015
(single tier). 12,000
Received from a foreign company in August 2015 (remitted) 16,000

5. Interest income

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Interest from a Malaysian resident bank - received in August 2015 3,000

6. Rental income
Gross receipts 24,000
Revenue expenses 5,000
Capital expenses 9,000

7. Annuity payable
Annuity payable (for the year 2015) to Puan Rina 24,000

8. Distributions made to his children in 2015 (not an annuity)

Shima (non-resident), 21 years old, studying in an Australian University.
Faris (resident), 20 years old, studying in a Malaysian University. 7,000
5,000

9. Executor fees paid during the year 2015 26,000

10. Encik Amran donated two units of computer to an approved institution in

February 2015.
4,500

11. Medical insurance premium paid for the period 1 January 2015 until 30
June 2015.
2,400

12. Purchase of books spent in January 2015 for Encik Amran’s children 800

Required:
i) Compute the total income of the deceased and the executor of the estate for the year
of assessment 2015.
ii) Calculate the income tax payable for the deceased and the executor of the estate for
the year of assessment 2015.
iii) Describe the importance of the domicile status for the executor of the estate.
(Total: 15 marks)

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Suggested answers

(i)
Computation of total income of the deceased and the executor of the estate for the YA
2015
Deceased Executor
RM RM
Manufacturing business:
Adjusted income 100,000
Balancing charges 14,000
Capital allowance (11,000)
Statutory income 103,000 51,500 51,500 
(-) business loss b/f (44,000) 
7,500 51,500
Director fees:
Resident company 60,000 
Foreign company Exempt
Gratuity Exempt
Dividend Exempt Exempt 
Interest Exempt 
Rental income:
Gross receipts 24,000
(-) revenue expenses (5,000)
(-) capital expenses NA
Adjusted rental income 19,000 9,500 9,500 
Aggregate income (AI) 77,000 61,000
Annuity payable (24,000) 
Distribution to children NA
Executor fee NA
Approved donation (restricted to 7% of AI) NA
Total income 77,000 37,000

(ii)
Total income 77,000 37,000
(-) Self relief / special relief (9,000)  (9,000) 
Book (800) 
Wife relief (3,000) 
Child relief (2 x 6,000) (12,000) 
Medical insurance premium (2,400) 

Chargeable income 49,800 28,000

Tax charge at scale rate:
1st 35,000 / 20,000  900 150
Next 14,800 / 8,000 @ 10% 1,480
5% 400
Tax payable 2,380 550

(iii) Domicile status is important to the executor because it determines whether the
special/personal relief (RM 9,000) is available or not. If the deceased was not
domicile in Malaysia at the time of death, the executor will not receive the
special/personal relief and will be taxed at flat rate 24%. If the deceased was
domiciled in Malaysia, then the executor will receive the special/personal relief and
he will be taxed according to scale rate. (Total: 15 marks)

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