Guidelines on tax exemption of grants and subsidies, and income of statutory bodies

The IRB has issued the above guidelines on 26 January 2010 to explain the operation of Income Tax (Exemption) (No.4) Order 2003 [P.U.(A) 33/2003] and Income Tax (Exemption) (No.22) Order 2006 [P.U.(A) 207/2006]. 

Treatment of subsidies and grants

                  i.         Under Income Tax (Exemption) (No.4) Order 2003 [P.U.(A) 33/2003], effective from years of assessment 2002 to 2005,

a.            subsidies and grants are exempt from tax at the statutory income level;

b.            expenditure financed by the subsidies and grants are allowed a  deduction under Section 33(1) of the Income Tax Act 1967 (ITA); and

c.            expenditure, incurred on acquisition of plant and machinery financed by the subsidies and grants, qualify for capital allowances under Schedule 3(1) of ITA.

                ii.         Under Income Tax (Exemption) (No.22) Order 2006 [P.U.(A) 207/2006], effective from year of assessment 2006, 

a.            subsidies and grants are exempt from tax at the gross income level;

b.            expenditure financed by the subsidies and grants are not eligible for a deduction under Section 33(1) of the ITA;

c.            capital expenditure, on plant and machinery financed by the subsidies and grants, do not qualify for capital allowances under Schedule 3(1) of ITA; and

d.            Subsidies and grants are exempt from tax in the basis period in which they are received, or in the basis period in which expenditure financed through the subsidies and grants, is incurred.

It is noted that the IRB did not comment on the impact of the decision in the Court of Appeal case Ketua Pengarah Hasil Dalam Negeri v Perbadanan Kemajuan Ekonomi Negeri Johor (2009).

Tax exemption of income of a statutory authority

The IRB has clarified that

a.            a statutory authority is defined as “any authority or body established by or under a written law (not being an authority or body established by or under the Companies Act 1965 [Act 125],…) to discharge any functions of a public nature, including the provision of public utility and similar services”; and

b.            the tax treatment of the income of a statutory authority is the same as that of subsidies and grants received from a federal or state government.

Members may view the guidelines on the IRB’s website at Guideline