Identify between the interest income and business income very importance. Because these incomes have different tax treatment.
a) The definition
i) Interest income is a non-business source in the following conditions
1) Fixed Deposit Account
When the business deposit into fixed deposit account, then the business will be earning an interest income
2) Due to delay in payment of trade debt
The business may charge their customer who is delay in payment of trade debt
3) Providing of loan to employee
Some business has an excess cash, they can be advanced the excess cash to their employee with a certain percentage of interest (might be charged at lower that market rate).
ii) Business income where arise from the sales and purchase trading stock of a person (including a Limited Liability Partnership) or a person who carrying on a business of leading money.
b) The tax treatment
Prior the year of assessment (YA) 2013, interest income may charge under 4(a) business income or 4(d) interest income. However, with effect YA 2013, no interest income will be charged as 4 (a) income, except
(a) The debenture, mortgage or other source to which the interest relates forms part of the stock in trade of a person; or
(b) The interest is receivable by a person in the course of carrying on a business of lending money and that business is licensed under any written law.
By understanding how to identify income will assist you compute your tax correctly, the next topic will guide you through what are the different tax treatment for unabsorbed losses and capital allowances with respect to the interest income.
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