Are gains from unit trust taxable?

In Malaysia, the taxation of unit trusts is governed by Section 61 of the Income Tax Act, 1967 (“the Act”). 

The income of unit trusts is assessed and charged to tax separately from the income of the unitholders. 

The income of a unit trust may consist of dividends, interest or profit and gain from sale of investments and returns on bonds. Gains on disposal of investments by the unit trust will not be subject to income tax. 

The only exception is where the investments represent real properties or shares in real property companies and the gains on disposal of such investments will be subject to real property gains tax (“RPGT”) at rates ranging from 5 percent depending on the period of ownership. 

Due to the Malaysian Government’s efforts to promote unit trusts, most of the income received by unit trusts will be exempt from income tax.

Interest and discount derived by unit trusts from the following types of investments is exempt from income tax:

• Securities or bonds issued or guaranteed by the Government;
• Debentures, other than convertible loan stocks, approved by the Securities Commission; and
• Bon Simpanan Malaysia issued by Bank Negara Malaysia.

The interest paid or credited to a unit trust by any bank or financial institution licensed under the Banking and

Financial Institutions Act (BAFIA) 1989 or the Islamic Banking Act 1983 is also tax exempted. 

Income of the unit trust in respect of overseas investment is also exempted from Malaysian tax. If the unit trust received dividends from investments, such dividends would already have tax credits attached to them and can be used to offset against the unit trust’s tax liabilities. 

Therefore, no further tax would normally be applicable on dividends received. In addition, the tax credits attached to dividends can even be refunded to the unit trust if the unit trust’s tax liability is less than the tax credits.

Comparing the direct investment made by a corporate investor, it would be more tax advantageous to invest

in unit trusts with the same type of investment and risk profile since certain tax incentives have been provided

to the unit trusts. 

This will mean that it would be more beneficial for the investor to invest in the unit trust since certain income from the same type of investments would be tax exempted.

Given the above tax advantage provided to unit trusts, companies should perhaps consider the viability of unit

trusts as an alternative investment and enhance their returns on investments.

Now lets Go Out and Play!