All about Gift Rule (And others given away for free)

Free items, free gift, free service

Asked on September 20, 2015 2015-09-20 09:27:08 Business (商家)

Hi,

May I know if I already past first scenario to pay GST as DS and  second scenario’s value not over RM500.00 still need to account for GST output tax?

on November 23, 2017. 2017-11-23 11:31:21
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1 Answer(s)

1. Gift Rule

Gift rule only applicable to supply of free goods only, not applicable to supply of free service. Generally, free service is not a supply and it is not subject to GST.

Gift means give away goods without receiving payment (free), and no tax invoice is issued despite it is subject to GST or not.

The gift’s value is follow current open market value which is based on current conditions of the goods.

Any goods worth RM500.00 or less given to the same person in the same year is not a supply and hence is not subject to GST. There is no restriction on the series of gift as long as the total value on the series of gift given to same person in the same year does not exceed RM500.00.

If more than RM500, GST need to be accounted for (deemed supply, DS).

If the gift is bought from a non‐registered person worth more than RM500, it is not subject to GST.

If the gift is received as free goods from other party and later it is given away as free as well, it is also not subject to GST.

Tax code if gift is subject to GST: DS

 

2. Industrial or commercial sample

An industrial or commercial sample in a form of good which is not ordinarily available for sale to the public. Sample is not subject to GST and there is no limitation on the value or the quantity of the sample to given away

Gift rule is not applicable to industrial or commercial sample.

Examples of an industrial or commercial sample are:

  • Merchandise which is marked as sample and in the form of reduced size of actual merchandize available for sale;
  • Replica of machinery having a limited function in comparison to the actual specifications of the machinery.

 

3. Donation, grant, sponsor in monetary form

Since money is neither goods nor services, so need not to account GST.

 

4. Donation, sponsor to societies and charity organization

Donation in the form of goods to societies or similar organizations (including charitable entity) without any benefits whatsoever to donor or sponsor is to be treated in accordance to Gift Rule.

Donation in the form of service is not subject to GST as free service is not regarded as a supply.

 

5. Business assets are put to private used or for the purpose other than business as free

If the business asset is entitled to claim input tax, the private use of the asset is deemed as a supply of services by the company to the person.

If not (of example passenger car because it is blocked), the private use of the asset is not a supply.

 

6. Supply of free goods to employee

Output tax needs to be accounted for on goods given free except on the following:

  1. Goods given free to employees as stated in the contract of employment (Example, working uniform).
  2. Exempt supply (Example, residential house).
  3. Zero rated supply (Example, sugar, rice).
  4. Supply of goods under gift rule(Example, RM100 hamper).
  5. Supplies where the recovery of input tax were blocked (Example, passenger car).

Gift rule is still applicable for any goods worth not more than RM500.00.

 

7. Supply of free services to employee

Free service is not a supply and therefore output tax need not be accounted for. For example, free meal and free transport.

Except for services of using business assets. See above.

 

8. Shares given free to employees

Shares given to employees are an exempt supply. Therefore, you do not have to account for output tax.

 

9. Supply of free goods  or services to connected person

Any goods or services given  free to a person who is connected to company or for the benefits of sole proprietor or directors of the company is deemed as a supply and it is required to account for output tax on such supply based on open market value.

Gift rule is still applicable for any goods worth not more than RM500.00.

 

10. Disposal/transfer ownership without received payment

If the business asset is entitled to claim input tax, the disposal is deemed supply

If not, the disposal is not a supply.

 

11. Supply by societies and similar organizations (including charitable entities)

Supply of goods or services to its members; which relates to its aims and objectives and available without payment (except membership subscription), where the value of such supply is nominal, is not regarded as a supply. For example, monthly bulletin distributed freely to members.

Supply of goods and available without payment and the benefits of such supply is substantive, is to be treated in accordance to Gift Rule.

Services supplied without payment is not regarded as a supply even though the benefits received are substantial. For example, free advisory services, ambulance service and security service.

Supply of goods or services by societies is not subject to GST if  it has no commercial value.

No commercial value means:

  1. has no resale value;
  2. is specially made for a particular fundraising event and is not available for sale in the market;
  3. bears the logo of the charitable entity; or
  4. carries the fundraising message.
  5. is mere acknowledgement which is not tantamount to advertising (e.g. naming the donors in the programme/ booklet/ banner, giving a small token of appreciation, etc.).
  6. has no written or verbal agreements where the conditions confer benefits on the sponsor; or
  7. is not linked to its business activity.

 

12. Tie-in goods

Examples of tie-in goods are a toothbrush (free item) sold with a toothpaste (main supply), a plate (free item) sold with a packet of rice and a plastic toy (free item) enclosed in a box of cereal. 

Tie-in goods sold in a single price. The GST treatment is follow the main supply. For example, rice is the main supply and  zero-rate supply as well, even the free plate is standard-rated supply, we need to treat the wholly tie-on goods as zero-rated supply.

 

13. Free extra item

Free extra item is given as incentive of bulk purchase. For example buy 10 apples free 1 apple. GST will only be based on 10 apples since the 1 free apple is considered as a discount.

 

References

PANEL DECISION 2/2014 – ITEM4: Gift rule
Director General’s Decision 1/2015 – ITEM 2: Goods received free and given away free
GUIDE ON SUPPLY
GUIDE ON SOCIETIES AND SIMILAR ORGANISATIONS
GUIDE ON EMPLOYEE BENEFITS

 

Answered on September 20, 2015. 2015-09-20 10:01:17
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