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This article was first published in the February 2009 edition of Accounting and Business magazine.
Unlike a company or co-operative that is brought into existence and registered under the provisions of a specific law, a trust has no separate existence in law. The Act contains detailed provisions dealing with the taxation of trusts, but it does not define a trust. The concept is recognised under Malaysian law, but we need to refer to English law to gain an understanding of the terminology.
A trust has been defined as 'An equitable obligation, binding a person (trustee) to deal with property over which he has control (trust property) for the benefit of persons (beneficiaries or cestuis que trust) of whom he may himself be one, and anyone of whom may enforce the obligation.' Underhill quoted with approval in Green v Russell (1959) 2 Q.B.226.
Trust provisions can vary, but two basic aspects are important: certainty as to what the trust property is; and certainty as to the intended beneficiaries. Beneficiaries might be named specifically, or as a class of persons.
Method of taxation
The Act, in Sections 61 to 63, sets out specific rules for taxing the income of trusts. These cover the trust body itself and the beneficiaries, who are assessed and charged to tax separately from the trust body.
The trustees are also known as the trust body and regarded as a single and separate person for all tax purposes (except for the penalty provisions).
Trusts, whether carrying on business or not, have to comply with the self-assessment system in the same way as companies do, in particular:
- The basis period is the period covered by any accounts made up by the trust, otherwise the year to 31 December.
- The return of income must be submitted within seven months of the end of the basis period.
- Any tax due must be paid without further demand within seven months of the end of the basis period.
- The trust must provide an estimate of tax payable within one month before the commencement of its basis period and make instalment payments.
The trust body's income
The first step is to ascertain the total income of the trust body computed in accordance with Section 44 of the Act.
Income of the trust body consists of income from any source comprising property of the trust, including a trustee's share of any partnership income, which is also trust income. Deductions can be made from gross income in ascertaining the adjusted income from each source.
The trust body of ABC Trust is resident in Malaysia. Accounts are made up to 30 June each year. The trust had the following amounts of income for the basis period 1 July 2006 to 30 June 2007. This forms the total income of the trust body for the year of assessment 2007 (see below).