Income distributed by unit trust funds, equity funds, and bond funds will be subject to taxation, and investors will receive tax credits to be claimed in their respective tax returns.
Investors can claim the tax credits under Section 110(9A) of the Income Tax Act 1967 (ITA).
If unit trust funds, equity funds, and bond funds receive Foreign Source Income (FSI) income, that income will be subject to taxation at the level of the funds.
Tax credits under Section 132 or 133 of the ITA can be claimed if that income has been taxed outside the country. Distributions received by unit holders (investors) are considered to be received from Malaysia under Section 61(1B) of the ITA. Tax credits can be claimed under Section 110(9A) of the ITA.
Sections 61(1) & 61(1B) of the Income Tax Act 1967
Section 61(1) outlines the rules for how a trust is treated for tax purposes.
The trustees are considered the “trust body” and are treated as persons for tax purposes, except for certain provisions.
Any property or income belonging to the trust or a trustee of the trust is treated as belonging to the trust body. However, gains from the sale of investments in a unit trust are not considered income of the trust body.
Beneficiaries of the trust are considered to have an “ordinary source” of income from the trust, and their share of the trust body’s total income is deemed their statutory income for tax purposes.
Beneficiaries are assessed and taxed on income from their ordinary source or any additional source related to the trust. These rules do not apply to someone with income included in their gross income from employment.
This section explains how a trust is taxed, with the trustees being treated as the “person” for tax purposes and beneficiaries being taxed on income from the trust.
Section 61(1A) states that a unit holder of a unit trust will be assessed and charged with tax in relation to their share of the total income of the unit trust, which is distributed to them during the basis year for that year of assessment. However, suppose the income distributed by the unit trust is tax exempted. In that case, the unit holder will not be charged for the tax unless it falls under specific exemptions listed in the section.
Section 61(1B) explains that any income distributed by a unit trust to a unit holder under subsection (1A) will be treated as income derived from Malaysia.
Provisions
Trusts are subject to the prevailing tax principles and provisions of the Income Tax Act as for other chargeable persons. There are also specific provisions relating to income from trusts and income of trusts, and these are:
- Section 2 – Definition of ‘trust body”
- Section 21A – Basis period of a trust
- Section 61 – Trusts generally
- Section 62 – Discretionary trusts
- Section 63 – Trust annuities
- Section 73 – Trustees as chargeable persons
- Section 77A – Return of income
- Section 107C – Estimate of tax payable and payment of instalments
- Section 110(8) and (9) – Set-off for tax deducted Schedule 1, paragraph 2(c) – Rate of tax
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