FACULTY OF LAW

(FOL)

GROUP ASSIGNMENT

UEQ 3622 – EQUITY &TRUSTS II

No. GROUP MEMBERS ID

1. JASINTRASWNI RAVICHANDRAN 1151100296
2. KESAVARTHINI ARUMUGAM 1132701960
3. NIROSHINI A/P RAGENDRAN 1142700168
4. HAIRI ZAIRI BIN HAMDAN 1161101090

Lecturer : MS HANNA BT AMBARAS KHAN

Date of Submission : 16TH JANUARY 2020

Marks : /20

TABLE OF CONTENT
1.0 INTRODUCTION………………………………………………………………….. 2

2.0 CHARITABLE AND RELIGIOUS TRUST IN MALAYSIAN CONTEXT AND

HOW WAS IT CREATED……………………………………………………............... 4

3.0 THE BENEFICIARIES’ RIGHTS IN A CHARITABLE AND RELIGIOUS

TRUST IN MALAYSIA……………………………………………………………….. 9

4.0 MALAYSIAN LAW ON CHARITABLE AND RELIGIOUS TRUST…………… 16

4.1 Registration And Establishment Of Regulatory Body For The

Administration Of Charitable And Religious Trust In Malaysia……………….. 16

4.2 Tax Concessions For Charitable And Religious Trust In Malaysia –

(Exemption Of Tax In Malaysia)………………………………………………... 18

5.0 UNITED KINGDOM POSITION ON CHARITABLE & RELIGIOUS TRUST…. 19

6.0 THE AUSTRALIAN POSITION ON CHARITABLE & RELIGIOUS TRUST….. 22

7.0 COMPARISON BETWEEN MALAYSIA, UNITED KINGDOM AND

AUSTRALIA’S POSITION ON CHARITABLE TRUST…………………………….. 24

8.0 RECOMMENDATION…………………………………………………………….. 25

9.0
29
CONCLUSION……………………………………………………………………...

BIBLIOGRAPHY…………………………………………………………....................
32
.

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1.0 INTRODUCTION

The meaning of trust had been given under Article 2 of The Hague Convention on the

Law Applicable to Trusts and Their Recognition as the legal connections made, regardless of

whether inter vivos or on death by the settlor, when resources have been put heavily influenced

by a trustee to serve a beneficiary or for a predefined purpose 1. Charitable trusts is made for

charitable purposes that will profit general society on the loose. Under the case of

Commissioners of Income Tax v Pemsel2, charitable trusts must fall inside these ambits of

charitable purposes which are for the alleviation of poverty, the progression of education, the

headway of religion and for different purposes gainful to the network. The charitable trust is

ostensibly one of the alternate giving devices that may improve the nation's social welfare3.

In Malaysia, the prime sources of the law of charitable trusts are the nearby legislation

and cases got from the ward and United States purviews are permissible. In the court, those

wellsprings of law become a definitive reference by the court in settling charitable trust

prosecutions since there is no governing legislation in matter of charitable trust. The

nonattendance of a particular governing legislation on the charitable trust inside our nation

makes issues with regards to the organization of charitable trust.

Charitable trust upon registration with the Commissions of Companies Malaysia and

Registrar of Society as incorporation system is bound to any enactment to guarantee the

compelling utilization of the charitable assets. The main enforcement of law left is the Trustee

1 The Hague Convention on the Law Applicable to Trusts and Their Recognition..

2 Commissioners of Income Tax v Pemsel [1891] A.C. 531

3Allan D. Vestal, 'Critical Evaluation of the Charitable Trust as a Giving Device' (Washington University Law

Review 1957) <https://openscholarship.wustl.edu/cgi/viewcontent.cgi?article=3549&context=law_lawreview>

accessed 14 January 2020.

2
Act 1949 which just directs the organization of the trust. Along these lines, such nonappearance

of an administrative body to screen and administer the charitable trust may likely open the

beneficiaries to the helplessness of bungle of trust reserves and the commission of fraud.

The charitable trust is one of a wide range of sorts of trust accessible under British law.

They are built up for a quite certain purpose which is to give a tax productive strategy by which

people can cause charitable gifts while different sorts to can be utilized in a wide range of

conditions. In that capacity, there are various significant qualifications to be made concerning the

legal status and tax treatment of charitable and non-charitable trusts.

In the first instance, and of key significance to numerous settlors of charitable trusts, it is

imperative to recollect that charitable and non-charitable trusts are dependent upon various tax

plans. Numerous people use non-charitable trusts to evade installment of legacy tax on death. So

as to battle this loss of income, moves into these trusts totalling more than the Nil Rate Band

which is as of now set at £325,000 are dependent upon a 20% flat tax. This isn't the situation for

charitable trusts of any advantages moved into a charitable trust, whether they are moved by the

first settlor or by others, are exempt from tax, paying little mind to the value of the exchange.

There are additionally contrasts concerning income tax. For the most part, income got

from resources held in a non-charitable trust will be dependent upon income tax at the typical

rate. This doesn't, in any case, apply to charitable trusts. Any income got from resources in

charitable trusts can be drawn sans tax, with the stipulation that they are utilized exclusively for

the proclaimed charitable purposes of the trust. This stretches out to speculation income where

resources can be contributed with no ensuing tax liability.

Non-charitable trusts are dependent upon a restriction on perpetuity. This implies all non-

charitable trusts must stop to work inside a specific timeframe and this period will rely on the

3
idea of the individual trusts. No such arrangement exists for charitable trusts, implying that they

can keep working similarly until the end of time.

Rules in regards to beneficiaries additionally vary for charitable and non-charitable trusts.

In a non-charitable trust, it is commonly necessitated that the expected beneficiary is explicitly

recognized in the trust instrument. In any event, a 'class' of beneficiary must be point by point,

and the trustees will have some circumspection in regards to the interpretation of those

directions.

2.0 CHARITABLE AND RELIGIOUS TRUST IN MALAYSIAN CONTEXT AND HOW

WAS IT CREATED

Charitable trust has not been statutorily defined in the context of West Malaysia. Charitable

trust is different from private trust because charitable trusts are purpose trusts. Ascertainable

beneficiaries are not required in charitable trust because Attorney-General is the one who

enforces the trust. Secondly, the object of charitable trusts need not be certain. The principle

provides that as long as the object is exclusively charitable, the trust is valid. Thirdly, charitable

trust is not subject to the rule against perpetuity. Nevertheless, private trusts and charitable trusts

have something in common in which they may be created inter vivos or by will and the rules of

certainty of intention and certainty of subject matter are applicable to them. It was proposed that

a uniform definition is needed for classification of the charitable trust in Malaysia. This is due to

the facts that the establishment of charitable trusts that is derived from both Suruhanjaya Syarikat

Malaysia and Registrar of Society is not in harmony.

Charitable trust in Malaysia is governed by Trustees Act 1949 where Section 39 to Section

44 of Trustees Act 1949 explains everything about charitable trust. The trustees of charities may

4
be more than four in number, Section 39(2) Trustees Act 1949 and the Attorney General sues on

behalf of the charitable trust as of Section 9(1) of Government Proceedings Ordinance 1956

provides that only Attorney General, or two or more persons having interest in the charitable

trust having obtained the written consent from Attorney General can bring an action on behalf of

the Government or the public in a case of breach of charitable trust. In the case of

Lectchumanan Nagappan v R Nadarajah & 2 Ors 4, it was held that Section 9(1) of Government

Proceedings Ordinance 1956 is mandatory to be complied. The trustees manage the trust

property for a charitable purpose, called the ‘public benefit’. In the case of Commissioners of

Special Purposes of Income Tax v Pemsel, Lord MacNagthen classified the recognized purposes

of charitable trust into four heads: relief of poverty, advancement of education, advancement of

religion and other purposes beneficial to the communities.

On the other hand, a religion is a system of belief that has certain characteristics. Malaysia is

known as a multiracial country. After independence, when the Federal Constitution was adopted,

matters regulated at Federal and State level were divided into 2 lists, which are the Federal List

and the State List. For trust law, List II of the Federal Constitution clearly stated that:

“Except concerning the Federal Territories, Islamic law and personal and family law

of persons professing the religion of Islam including the Islamic law relating to

succession, testate and intestate, betrothal, marriage, divorce, dower, maintenance,

adoption, legitimacy, guardianship, gifts, partitions and non charitable trusts; wakafs

and the definition and regulation of charitable and Religious trusts, the appointment of

trustees and for the incorporation of persons in respect of Islamic religious and

charitable endowments, institutions, trusts,charities and charitable institutions

operating wholly within the State...“

4 Lectchumanan Nagappan v R Nadarajah & 2 Ors [1993] 4 CLJ 253

5
This shows that unlike England, where the trust law was regulated by the Lord Chancellor,

Malaysian trust law is regulated by the Federal Constitution and the State. Before the colonial

powers came into existence in Malaysia, the States were regulated by Syariah Law, which was

also mixed with Malay customs.

Thus, after independence, the laws of Malaysia had changed and there was confusion when

it came to the matter of trust. Some argued that trust law should be regulated by the Syariah Law

and Not Civil Law because trust law had always been regulated under waqf by Muslims.

However, it is stated that matters related to trusts are always dealt with by the civil courts.

Malaysian law of charitable trusts can be found in Section 4(e) (i), Schedule 9, List 1 of the

Federal list of Federal Constitution5. Since Malaysia is a multiracial country, charities, charitable

institutions and trustees are governed by Section 15(c), Schedule 9, List 1 of Federal List

excluding waqfs and Hindu endowments. Hindu endowments are covered by Section IX, 115 (c)

whereas waqfs are dealt with under List II of the State List. Trustee Act 1949, generally regulates

law relating to trustees but Section 39(2) of the Act does not apply to a charitable trust where the

number of trustees for charitable trusts and public trusts may exceed four. For example, the

charitable endowments made by Muslims are regulated by Islamic law and not following UK

trust law. This can be seen in Re Syed Shaik Alkaff6, where in defining wakaf, reliance was

placed upon the meaning’ given in a book entitled ‘Mohamedan Law’. There is no requirement

to register trust deeds. This lacunae makes the beneficiaries vulnerable. However, the stamping

of the trust deed gives some legal protection.

5(Agc.gov.my, 2020) <http://www.agc.gov.my/agcportal/uploads/files/Publications/FC/Federal%20Consti%20(BI

%20text).pdf> accessed 14 January 2020.

6 Re Syed Shaik Alkaff [1923] 2 MC 38

6
 The applicability of English common law and equitable principles is subject to Section 3 of

the Civil Law Act 1956, which provides for a cut-off date for West Malaysia, Sabah and

Sarawak. This section provides that the application of UK common law, rules of equity and

certain statutes,

“save so far as other provision has been made or may hereafter be made by any

written law in force in Malaysia, the Court shall in West Malaysia or any part thereof,

apply the common law of England and the rules of equity as administered in England

on 7 April 1956.”

In Sabah, the Court has to apply the common law of England and the rules of equity together

with the statutes of general application, as administered or in force in England on 1 December

1951. In Sarawak, the court must apply the common law of England and the rules of equity,

together with statutes of general application, as administered or in force in England on 12

December 1949, subject however, to sub-section (2) (ii). This proviso states that the said

common law, rules of equity and statute of general application “shall be applied so far only as the

circumstances of the States of Malaysia and their respective inhabitants permit and subject to

such qualifications as local circumstances render necessary. Section 3(2) provides that subject to

the express provisions of this Act or any other written law in force in Malaysia or any part

thereof, in the event of conflict or variance between the common law and the rules of equity with

reference to the same matter, the rules of equity shall prevail.

The local trust case law is in turn replete with English common law, which is applied subject

to local legislation and circumstances. Unlike the Indian Trusts Act 1882, there is no legislation

in Malaysia defining or describing the trust obligation. In Malaysia, a principal statute that

relates to trustees is the Trustee Act 1949. It came into force in West Malaysia on 31 December

7
1965. There are also several statutes that contain the word ‘trust’ or ‘fund’ or ‘trust

fund’. According to the case of Iskandar Gayo v Datuk Joseph Pairin Kittingan7, these statutes

may merely contain governmental obligations that are non-justiciable before a court of

law. Therefore they are considered as trusts in a ‘higher sense’.

The applicability of the Civil Law Act 1956 to local situations has been highlighted in a

number of decisions. The general law is based on judicial precedent. In Warren v Tay Seng

Geok & Ors8, Lord Reid, Lord Hodson and Sir Benjamin Olmerod ruled by Section 3 of the

Civil Law Act 1956 (Act 67) the Courts of Malaya apply the common law of England and the

rules of equity as administered there, save in so far as other provisions are made by any written

law in force in the Federation. There is a proviso that such law and rules shall be applied so far

only as the circumstances of the States comprised in the Federation and their respective

inhabitants permit and subject to such qualification as local circumstances render necessary.

Where there is no written law in force in the Federation, the court will apply the common

law of England and rules of equity as administered in England by sub-section 2. Where there is a

conflict between common law and equity, equity prevails. Privy Council decisions up to 1984

are binding on the local courts.

By their very nature of perpetual duration, charities are not subject to the Rule Against

Perpetuities. In Malaysia, the Rule Against Perpetuity is found in Part VII, Sections 17 to 25 of

the Civil Law Act 1956. Property disposed of by Muslims and by the natives of Sabah and

Sarawak is exempted under the Civil Law Act 1956. In this context, the Singapore case of Hong

7 Iskandar Gayo v Datuk Joseph Pairin Kittingan [1996] 3 CLJ 713

8 Warren v Tay Seng Geok & Ors [1965] 1 MLJ 44

8
Kong Bank Trustee (Singapore) Ltd v Tan Farrer & Ors 9 does not apply to Malaysia as this

case relies on the Accumulations Act of 1800.

3.0 THE BENEFICIARIES’ RIGHTS IN A CHARITABLE AND RELIGIOUS TRUST IN

MALAYSIA

‘Beneficiaries’ mean any institution, person, community or class of persons deriving or

receiving or entitled to any benefit from a charitable trust. ‘Authorised investments’ refer to

authorised investments specified in Section 4 of the Trustee Act 1949 and includes any

investment authorised by the Board subject to the trust created under Section 3. Section 8 states

that no trustee of a charitable trust shall be personally liable for any act or omission done or

committed in good faith and without gross negligence for any debt, liability, act or omission of

the Board. Further, no trustee of a charitable trust shall be liable for breach neither of trust nor

for any loss or damage by reason only of his continuing to hold an investment that has ceased to

be authorised. Under Section 9 the Minister has power to institute inquiries either generally or

for particular purposes. The outcome of such an inquiry is dealt with in Section 10. Where

misconduct or mismanagement has been disclosed, Section 11 provides the Minister with power

to protect the trust property. The provisions of Section 12 to Section 19 deal with additions to

trust property, variation of charitable purposes, application to High Court, winding-up, rules of

High Court that apply to any petition under the Ordinance, rule on locus standi and regulations,

and repeal and savings10.

9 Hong Kong Bank Trustee (Singapore) Ltd v Tan Farrer & Ors [1988] 1 MLJ 485

10 Dr Guru Dhillon, Dr Noor Mohammed and Ng Yih Min, 'Equity & Trust’s Law Applications In Malaysia,UK

And US' <https://mafiadoc.com/equity-trusts-law-applications-in-malaysia-uk-

and_5c3bc34f097c47f1478b4656.html> accessed 10 January 2020.

9
 The trustee therefore owes a fiduciary duty to the beneficiaries. Beneficiaries are the

beneficial or equitable owners of the trust property. Depending on the terms of the trust,

beneficiaries will receive the income and/or the property itself at an appointed time. The terms of

the trust are written in the trust deed and they include what property is to be transferred to the

trust, who the beneficiaries are and the detailed powers and duties of the trustees power of

investment, power to vary the interests of the beneficiaries, power to appoint new trustees, and so

on.

Lord Eldon distinguished between powers and duty-powers in Brown v Higgs11 in the

following terms:

“It is clear that where there is a mere power, and that power is not executed, the court

cannot execute it. It is equally clear that wherever a trust is created, and the execution

of the trust fails by the death of the trustee or by accident, this court will execute the

trust. But there are not only a mere trust and a mere power, but there is also known to

this court a power which the party to whom it is given is entrusted with and required to

execute; and about that species of power the court considers it as partaking so much

of the nature and qualities of a trust, that if the person who has the duty imposed upon

him does not discharge it the court will, to a certain extent, discharge the duty in his

room and place. If the power be one which it is the duty of the party to execute —

made his duty by the requisition of the will — put upon him as such by the testator,

who has given him an interest extensive enough to enable him to discharge it, he is a

trustee for the exercise of the power, and not as having a discretion whether he will

exercise it or not; and the court adopts the principle as to trusts, and will not permit

11 Brown v Higgs [1800] 5 Ves

10
 his negligence, accident or other circumstances to disappoint the interests of those for

whose benefit he is called upon to execute it.”

A long line of cases including, in chronological order, Re Gestetner Settlement12, Re Coates13 

and Re Sayer14 make it clear that, in the case of a mere power, it is not necessary to ascertain

every member of the class of beneficiaries but only whether a particular praepositus can be

regarded as the object of the power such as whether he qualifies to be a member of the class. A

power may be good although in favour of an indefinite class. On the other hand, where it is

impossible to make a complete list of beneficiaries, a duty-power or a power like a trust to

distribute to members of such a class is void for uncertainty. In Ogden’s case15, all members of

the class were identifiable and the trust survived. After review of these authorities, the Court in

Re Chionh Ke Hu16, held that that clause 5 of the testator’s will did not create a valid or binding

trust, charitable or otherwise. Further, a trust cannot be saved by treating it as a power because,

as Lord Evershed MR said in Endacott’s case17,

“the proposition that if these trusts should fail as trusts they may survive as powers, is

not one which I think can be treated as accepted in English law”.

The Court said that it could not write the will for the testator.

Malaysia is a multi-religious society and the four main religions in Malaysia are Hinduism,

Buddhism, Islam, and Christianity. According to Article 3 of the Federal Constitution, Islam is

12 Re Gestetner Settlement [1953] Ch 673

13 Re Coates [1955] Ch. 495

14 Re Sayer [1957] Ch. 423

15 Gibbons v Ogden [1824] 22 U.S. (9 Wheat) 1

16 Re Chionh Ke Hu [1964] MLJ 270

17 Endacott’s case [1959] EWCA Civ 5

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the official religion of the State. During British rule, Mohamedan and Hindu religious and

charitable endowments fell within the scope of the repealed pre-Independence legislation,

namely the Mohamedan and Hindu Endowments Ordinance 1906 which thereafter came to be

known as the Hindu Endowments Ordinance. The State of Penang was competent to legislate

law on “Hindu Endowments” under Item 15(c) of the Federal List in the Ninth Schedule to the

Federal Constitution. All matters connected with Islam fall under state jurisdiction according to

the terms of the Federal Constitution.

In AG v Thirpooree Soonderee18, the court said that a gift to a person for the benefit of a

temple was a good charitable gift that the court could carry out. However, a gift of money to an

idol for the benefit of a temple was void as being an absurdity and not a charity.

In Ramasamy a/l Shanmugham v State Government of Penang and Government of

Malaysia19, the applicant, a Hindu by religion was the Vice-Chairman of the Hindu Sangam,

Seberang Perai, Penang. In this case, the Supreme Court had to decide whether the Hindu

Endowments Ordinance 1906 was invalid and void.

In Re Low Kim Pong’s Settlement Trusts 20, the deceased through a trust deed conveyed to a

Buddhist priest 12 acres of land for the construction of a temple to worship certain divinities and

the balance of the said 12 acres, if any, for growing an orchard or other purposes deemed fit by

the priest or his successors. After the construction of the temple, the local authority required a

portion of the remaining land. They contended that land given for the orchard was not a charity

and void as a gift in perpetuity, or in the alternative, such organisation caused the donor’s

intention to fail and so a cypres scheme could not be applied. The administrators of the deed

18 AG v Thirpooree Soonderee [1874] 1 Kyshe 377

19 Ramasamy a/l Shanmugham v State Government of Penang and Government of Malaysia [1986] MLJ 180

20 Re Low Kim Pong’s Settlement Trusts [1938] SSLR 144

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claimed this impugned land. The court, however, held that the whole purpose of the deed was a

good charity.

The expression “for religious or charitable purposes recognised by Islamic law” is

purposefully not explained in the Enactment for the objective of the Enactment is only to

administer Islamic law. In The Commissioner for Religious Affairs v Tengku Mariam 21, the

fatwa of the Mufti of Terengganu upheld the validity of a wakaf made in favour of the settlor’s

family and relatives with ultimate gifts for religious purposes. Both the High Court and the

Federal Court ruled that the fatwas were not binding upon the court. The Court came to this

conclusion by following the Privy Council decisions in Abul Fata Mahomed Ishak v Russomoy

Dhur Chowdhury22 and Fatumah v Mohamed bin Salim23. The Federal Court held that the

doctrine of estoppel had precluded the beneficiaries from challenging its validity because they

had by their conduct previous to the suit accepted the validity of the wakaf. But Suffian FJ, as he

then was, reaffirmed as did the East African Court of Appeal in Fatumah’s case that the decisions

of their Lordships of the Privy Council on wakaf were binding upon the court and suggested that

the embarrassing situation should be rectified by legislation.

In Veerasamy Krishnasamy & Anor v Jannaki Ammal24, two questions arose for

determination out of clause 8 of the will of a certain Mr. Narainasamy Veerasamy, which

provided that certain land and house situate at Bedok Road, Singapore, was to be held in trust for

a period of twenty-one years after the death of the survivor of the testator’s three sons, and a

grandson. The land was to be used as a family burial ground for the testator and his family

21 The Commissioner for Religious Affairs v Tengku Mariam [1970] 1 MLJ 222

22 Abul Fata Mahomed Ishak v Russomoy Dhur Chowdhury [1894] 22 I.A. 76

23 Fatumah v Mohamed bin Salim [1952] AC 1

24 Veerasamy Krishnasamy & Anor v Jannaki Ammal [1947] 1 MLJ 157

13
members as deemed fit and proper by his trustees. During this period, the trustees were

authorized to collect rents and profits of the said land and house and out of such rents and profits

were required to pay the assessment and quit rent, if any and repairs to the said house were to be

carried out and the balance, if any paid equally amongst his sons.

On the failure of the objects contained in clause 8 and subsequent application of the cy-pres

doctrine, the Court held that it would only be applicable if a general charitable intention was

disclosed. The Court could see no such intention disclosed in this clause and expressed the view

that the four principal divisions into which the word “charity” in its legal sense was divided was

given by Lord Macnaughten in the Commissioners for Special Purposes of Income-tax v

Pemsel. The only division which could have any bearing on this case was the last, viz. “trusts

for other purposes beneficial to the community”. The trust permitted the land to be used as a

family burial ground for the testator himself and such members of his family as the trustees

thought fit, that is, a class of beneficiaries that was restricted to certain members of the testator’s

family. The Court had no doubt that this was not a charitable trust, and on this ground ruled that

a cy-pres scheme could not be applied to save this trust, and the trust failed.

The trust also authorised the trustees to collect rents and profits of the land and house and,

after defraying certain outgoings, to pay the balance to the testator’s sons in equal shares. The

next issue was that the trust for the burial ground having failed, whether the land and house fell

into the residue of the estate. The beneficiaries argued that they were the ‘sons’ mentioned in

clause 8 who were entitled to receive the rents and profits and entitled to the property absolutely

under residuary clause 11, where they were referred to as “my male children living at my death”.

The Court affirmed their right after referring to the following authorities Saunders v Vautier25 ,

25 Saunders v Vautier [1841] 41 ER 482

14
Gosling v Gosling26 and Wharton v Masterman27. These cases are clear upon the principle that

where a testator has given the corpus to a devisee, the Court will recognise such devisee’s

immediate right to the corpus notwithstanding any directions by the testator that he is only to

enjoy the income of the property until after the expiration of a certain period or until the

happening of a certain event, unless the testator has not merely expressed a clear intention that

the devisee is only to have the income of the property until the period has expired or the event

has happened but has, during the interval, given the property for the benefit of another.

The jurisprudential basis of charities, particularly charitable trusts, involves a donor and

several voluntary recipients who have paid no consideration for the bounty that they receive. The

beneficiaries cannot compel the settlor to exercise the bounty in their favour. The critical legal

element is that like all other trust concepts the recipients are called beneficiaries and they are

voluntarily in that status. In some of the non-charitable purpose trusts discussed above, the

beneficiaries are non-human, and therefore, greater reliance is placed on the trustee and next-of-

kin of the settlor to see to the proper administration of the trust. However, in the context of

proper charitable trusts, since there is no loss of human dignity in having a bountiful donor and a

grateful beneficiary, the practice of establishing charities, particularly charitable trusts, should be

encouraged. When a charity is wound up, it is the Court that will determine whether the

proceeds will be applied cy-pres or not. The terms, “charity”, “public benefit”, “altruism”,

“benevolence”, “philanthropy”, and “not-for-profit” have been used at various times to define or

express an act of giving. All benevolent acts are not charitable, while all charities are

benevolent. The acquisition of rights by the needy under a charity, as originally understood, for

the maxim is that “charity begins at home”, comes from a higher moral order, something that

26 Gosling v Gosling [1896] 1 QB 669

27 Wharton v Masterman [1895] A.C. 186

15
religion encourages and which is godly to observe without boast. In such cases, there may be

beneficence in the act of giving and at other times there may be considerations of salvation. In

this sense, the receiver has a moral right only.

4.0 MALAYSIAN LAW ON CHARITABLE AND RELIGIOUS TRUST

4.1 Registration And Establishment Of Regulatory Body For The Administration Of

Charitable And Religious Trust In Malaysia

The Trustees Act 1949 focuses only on matters of trust, executorship and administrator of

the office of trustee. There is no provision stipulated under the statute concerning on the

charitable trust or duties of charity trustees. Although there is no equivalent charity legislation in

Malaysia, the state of Sarawak had their state legislation called as Charitable Trusts Ordinance

1994 which deals with the administration of the charitable trusts in the state. The charitable trust

in Malaysia is constituted in various ways and their constitution also varies and the establishment

of charitable trusts can be divided into three distinct platforms which are statutory charities,

charitable companies and charitable societies.

In regulating a charitable trust, charities need to be registered based on transparency. The

beneficiaries will be vulnerable because in Malaysia there is no requirement to register the trust

deed. Such argument is also agreed by other authors that the beneficiaries will be affected as

there is no registration of the charitable trust is required 28. The position is differed in United

Kingdom since 1961, there was a central register of charities that enabled the information of the

charities to be accessed and made available to public. Vaughan (2016) explains on the important

of centralized register of charities which he states that the government will immediately be aware

28 (Uitmprepo.uitm.edu.my, 2020) <http://uitmprepo.uitm.edu.my/90/1/Thesis%20on%20The%20Regulation%20of

%20the%20Administration%20of%20Charitable%20in%20Malaysia.pdf> accessed 14 January 2020.

16
if charities have failed to file their requisite reports and concurrently enabled the public to access

the information of the charitable entities. He argues that this is an effective method to strike a

balance between accountability and over-regulations. Cordery & Baskerville (2007) 29 argues that

registration is insufficient to achieve public assurance and suggested that continuous monitoring

and advice are needed to cater such problem. Vincent (2015) provides that unregistered

charitable trust will jeopardise the survival of charitable body because only through registration

will make them receive benefits. Therefore, this connotes the effectiveness of registering the

charitable trust for transparency and accountability.

4.2 Tax Concessions For Charitable And Religious Trust In Malaysia - (Exemption

Of Tax In Malaysia)

The issue that is significant to the charitable trusts is the exemption of tax. If the charitable

bodies fulfill the requirement of charitable purpose, the relief of tax will be granted by the

government. The main issue associated with the exemption of tax is about the legitimacy of

charity involvement in business activities. Breed (2009) states that the arguments’ relating to the

issue is for the complete separation between charitable trust and business. The contention is that

the charity which is engaged with business has enjoyed an unfair advantage because of the tax

exemptions afforded to charitable trust. The position in Malaysia is the income of any institution

or organisation which is not operated or conducted primarily for profit and are approved for

Section 44(6) of Income Tax Act 1967, will enjoy the relief of tax. The exemption of tax for the

29 Cordery, C. (2013). Regulating Small and Medium Charities: Does it improve Transparency and Accountability?.

[online] Wellington New Zealand. Available at:

https://pure.aston.ac.uk/ws/portalfiles/portal/29325454/Regulationincharitysectorpre_production.pdf [Accessed 14

Jan. 2020].

17
matters relating to non-for-profit organisation is governed under Part IX entitled “Exemptions,

Remission and Other Relief” under the Income Tax Act 1967. In granting the relief, the Malaysia

Department of Inland Revenue will stipulate certain conditions that the organisations need to

comply to qualify for tax exemption.

Meanwhile in United Kingdom, all charities are also entitled to relief of taxation by Part 10

of Income Tax Act 2007, except certain specific reliefs from Value Added Tax. The existence of

tax relief will affect the status of the charitable trust in two ways. Firstly, the Inland Revenue is

far more likely to endorse application from charitable trust than those beneficiaries under a will.

Secondly, the Charity Commissions and the Inland Revenue will work together at the initial

stage of registration. Compared to Malaysia, the exemption of tax will only be granted if it

fulfills the charitable purpose which approved by the Director General of Income Tax of

Malaysia. McGregor (2002) states that the charitable bodies which have been endorsed by the

Australia Taxation Office are not required filing any income tax returns and there will be no

relief granted if there is a commercial activity which is not incidental to charitable purpose. The

problems in granting the relief of tax in Malaysia is that the classification of charitable purpose

of certain charitable bodies when made by the Director General of Income Tax is not the same as

the common law position.

Taken as a whole, there is a need to regulate charitable trusts in Malaysia because the current

regulating laws are proven to be less practicable and effective as compared to other jurisdictions.

The laws can be said to be archaic as for the past fifty years passing of Trustee Act 1961, there

has been no amendment made involving charitable trusts, thus certain measures need to be taken

to cater the problems.

18
5.0 UNITED KINGDOM POSITION ON CHARITABLE & RELIGIOUS TRUST

In the United Kingdom, the Charities Act 2011 governs charities which gather text of

various Acts related to become a single Act. “Charity” is set out in section 1 of the Charities Act

2011 as an institution which is established for charitable purposes only and is subjected to the

control of the High Court in its exercise of jurisdiction. Charitable purpose is a purpose falling

within s. 3(1) of the Act and for public benefit are two requirements to be fulfilled for

registration of charitable trusts. Some categories under section 3(1) include the prevention or

relief of poverty, the advancement of religion and the advancement of environmental protection.

S.4(2) of the Act states in determining whether a public benefit requirement is satisfied. In

Gaudiya Mission v. Brahmachary30, only institutions and organisations established in England

and Wales are included with the definition of ‘charity’ stated earlier.

Formation of charitable trust is usually created by a trust deed for a charitable purpose.

The registration of charitable trust must compile with two requirements, charitable and public

benefit as stated earlier. For public benefit, two aspects are to be taken into view. Firstly, the

benefit aspect must be beneficial to the public at no cost of harm. The second is public, meaning

its benefits must have encompassed the general public. They are rigorous in law, following the

charity law & abide to restrict activities only charitable , non-profitable and capable of working

independently. If the income of the charity is below £5,000 per annum, then it does not have to

be registered, although application for recognition of “charitable” may be made to Her Majesty’s

Revenue & Customs to claim back tax. Then, the charity’s purpose must be determined, ensuring

it to be fully charitable . The powers or process of operation must also be stipulated along with

30 Gaudiya Mission v. Brahmachary [1997] 4 All ER 957

19
the trustees, voting and meetings, financial, membership, trustee benefit, amendment provisions

and dissolution provisions for its governing document.31

As the trust is for the benefit of large, potential beneficiaries may not enforce it and only

the Attorney-General may enforce it. The benefits of charitable trust are many, for instance

exemption of income tax, tax relief qualified under Income Tax Act 2007, exemption from

inheritance tax.32 Regulation of charity is made by the Charity Commission which includes the

power to remove and appoint trustees as well as temporarily hold the trust property for the

benefits of protecting the property itself.33 The Charity Commission is stipulated under the

provisions of Part 2 of the Act. The High Court is endowed similarly the power on regulating

charity when any problem is detected.34

The registration of charitable trust company in the United Kingdom requires several

processes of documentation and submission to appropriate bodies. After reaching the threshold

of £5,000, it’s compulsory to register with the Charity Commission itself. The Commission, in

deciding to grant the status of charitable trust, would decide based on details provided such as

documents, certificate of incorporation and bank details to secure whether that the income is

31'How To Write Your Charity's Governing Document (Cc22b)' (GOV.UK, 2014)

<https://www.gov.uk/guidance/how-to-write-your-charitys-governing-document> accessed 14 January 2020.

32 Lucy Trevelyan, 'Charitable Trusts' (In Brief : Helping with Life's Legal Issues)

<https://www.inbrief.co.uk/charity-law/charitable-trusts/> accessed 14 January 2020.

33 'UK: Charity Commission Freezes Bank Accounts Pending Investigation Into Grant-Giving Charities With

Common Trustees' (Herbert Smith Freehills, 2019) <https://hsfnotes.com/pwtd/2019/07/08/uk-charity-commission-

freezes-bank-accounts-pending-investigation-into-grant-giving-charities-with-common-trustees/> accessed 14

January 2020.

34 Trevelyan L, 'Defining Charitable Trusts: When Is A Trust Charitable? - Inbrief.Co.Uk' (InBrief.co.uk)

<https://www.inbrief.co.uk/charity-law/defining-charitable-trusts/> accessed 14 January 2020.

20
more than £5,000 annually.35 This is as per s. 30 of the Charities Act 2011 that stipulates every

charities must be registered except exempt charity, permanently or temporarily excepted by the

Commission for the time being and a charity whose gross income does not reached the £5,000

threshold yet.

As for religious trust itself, it is stipulated together under the category stipulated within s.

3(1) of “the advancement of religion”. The duty for religious bodies of charities to abide as per

the law is inseparable in the United Kingdom.36 Once the Charity Commission accepts the

charitable trust’s registration, a registration number will be given for future reference and inquiry

in tax concessions. This also makes the charitable trust seen as legally recognised and complied

with proper procedures that would consist of future supervision by the Commission itself. The

Charities Commission being an independent registrar, has six functions amongst them

supervising conducive administration of charitable trust and reviewing any misconduct in its

management, ensuring legal compliance are met to boost public confidence in the area charitable

trust.

6.0 THE AUSTRALIAN POSITION ON CHARITABLE & RELIGIOUS TRUST

The legislation governing Australia’s charity is the Charities Act 2013 and the Charities

(Consequential Amendments and Transitional Provisions) Act 2013. The requirements for an

organisation to be recognised as charity are not-for-profit nature and have charitable purposes for
35 Coddan Ltd., 'Start Up A Charitable Trust Company, Charitable Company Starting Up' (Coddan)

<https://www.coddan.co.uk/trust-registration-services/register-a-charitable-trust-company-in-uk/start-up-charitable-

trust-company/> accessed 14 January 2020.

36 'Faith in Good Governance' (Assets.publishing.service.gov.uk)

<https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/355533/faithgov

english.pdf> accessed 14 January 2020.

21
public benefits is by registration, which also includes certain tax concessions. It must not have

any disqualifying purposes and also not be an individual, governmental entity or political party.

Charitable purposes are ascertained either through governing documents or other documents

such as activities and annual reports. Some recognised categories of charitable purposes under

the Charities Act 2013 are promoting reconciliation, mutual respect and tolerance between

individual groups in Australia, preventing or relieving the suffering of animals & advancing

religion.37 As Australia carries its reform of charity law, the extension to what level religious

organisations need to prove that it provides public benefits so to obtain charitable status is an

issue.

Religious groups in Australia not only are exempted from income tax, reduction or even

elimination of fiscal expenses is also some privileges the religious groups could obtain.

Additional benefits such as Public Benevolent Institution (PBI) and the non-requirement of

directors’ report for charitable companies limited by guarantee to be prepared. Charitable trust

remains significant in validation of gifts made on trust for religious purposes. Registered

charitable trusts are automatically updated in the Australian Charitable and Not-For-Profits

(hereinafter referred to as ACNC) Register.

There are ongoing obligations for charitable trusts registered with ACNC, commonly

compliance with Governance Standards, annual reporting to ACNC, keeping of records and

notifications of any changes. Two key endorsements from the Australian Taxation Office (ATO)

exempts income tax under Division 50 of the Income Tax Assessment Act 1997 and tax

deduction for gifts made to entities the Commissioner of Taxation endorsed as ‘deductible gift

37 'Who Can Register with The ACNC | Australian Charities and Not-For-Profits Commission' (Acnc.gov.au)

<https://www.acnc.gov.au/factsheet-who-can-register-acnc> accessed 14 January 2020.

22
 38
recipients’ (DGR). Some of the other tax concessions offered are fringe benefits tax (FBT)

concessions and goods and services tax (GST) concessions.39 Some of the common function of

the ACNC includes registration, give guidance in aspect of compliance to the Australian

Charities and Not-For-Profits Commission Act 2012 as well as cooperate with other agencies and

bodies to minimise duplication of regulatory registration. They are required to act once risks are

posed to public confidence over the compliance of a charitable trusts to the Australian Charities

and Not-For-Profits Commission Act 2012. Areas outside of the Commission’s regulatory

responsibilities are not able to be exercised such as fundraising activities for instance.

7.0 COMPARISON BETWEEN MALAYSIA, UNITED KINGDOM AND AUSTRALIA’S

POSITION ON CHARITABLE TRUST

In aspect of registration of a charitable trust, regulatory body’s establishment for the

management of charitable trust and tax concessions, Malaysia regulates not one of these aspects.

In terms of registration, the United Kingdom allows only the trustee to register their charitable

trust and combined with the minimum £5,000 threshold put in place to ensure every charitable

trust are registered after achieving that amount, it puts in place simplicity in registration process

and does not showcase rigidity. This is a preferred option for efficiency in registration aspect.

For regulatory body’s establishment that manages charitable trust, Australia and United

Kingdom each have their own independent commissions to supervise and safeguard the

38 'Charitable Trust | All Trust Structures' (Alltruststructures.com.au) <https://alltruststructures.com.au/charitable-

trust/> accessed 14 January 2020.

39 'Registered Religious Institutions: Access to Tax Concessions' (Ato.gov.au) <https://www.ato.gov.au/Non-

profit/Getting-started/In-detail/Types-of-charities/Registered-religious-institutions--access-to-tax-concessions/>

accessed 14 January 2020.

23
management, dissolve of any governmental or political influences. Each of the bodies of

Australia and United Kingdom’s commissions being not conclusive in their decision prevents

arbitrariness and ensure just because may be sought.

Of the last aspect relating to tax concessions, as to avoid establishment of charitable

trusts for cause of tax evasion by any parties, compulsory registration is more preferable.

Australia’s approach of giving tax concessions on condition of registration makes it more viable

and supportive to prevent sham creation of charitable trust merely for evading tax.

Overall, Malaysia could incorporate certain aspects to further enhance the position of charitable

trusts in Malaysia and carefully supervise the administration of charitable trusts. This will then

strengthen accountability and boost public confidence in charitable trusts. Granting of tax

concessions is an initiative that could be oft taken advantage of if not properly regulated, hence

why registration of charitable trusts must be made compulsory to bolster our tax exemption as to

really give leniency to the credible charitable trusts.

8.0 RECOMMENDATION

As far as charitable trust registration in Malaysia is concerned, we suggest that the

Trustee Act 1949 be amended so that the trustee of charitable trust can register the trust with an

effective regulatory body regulating such matters. Registration of the charitable trust will ensure

that it is properly managed and thus protect the rights of the beneficiaries. Identification of

charitable trust in Malaysia should be mandatory by adopting the U.K. and Singapore definition

of identification. This is important for fostering transparency when handling the trust funds,

thereby controlling and overseeing through registration. In addition, valuable information can be

gathered to document all possible and established charitable trust in Malaysia. About the burden

24
of obligation to file, we propose that the charitable trust be registered with the trustees, settlers or

members of the charitable trust. It reflects the New Zealand policy introduced under the Charities

Act 2005. In addition, we would like to recommend that the Trustee Act 1949 be amended by

allowing the trustee to delegate the obligation to register the charitable trust to the settlor or to

any representative of the charity. Such leniency is necessary to ensure that any registration

rigidity can be minimized so as to facilitate registration through a clear registration process.

In addition, we recommend imposing the requirement to register a charitable trust.

Firstly, the objects of charity must be defined in compliance with Malaysian law. Secondly, there

needs to be sufficient public benefit and registration eligibility will only apply to charitable trust

founded in West Malaysia. The explanation for this is that both East Malaysian states have their

own law governing the charitable trust. Nonetheless, charitable trust established in Sabah and

Sarawak can register with their respective laws but can still enjoy tax concessions under the law

of Eastern Malaysia without registering with the national register. In terms of charitable trust

registration mode, United Kingdom's policy is also expeditious as set out in the Charities Act

2011. This is because the process is less difficult, as the red tapes are that. The registration

process should be as follows. Next, the founder must create a charitable trust and ensure that all

the requirements are met. Second, the trust instrument in the form of a trust deed is necessary by

which the trust deed may include all relevant information on the governance of the charitable

trust. Therefore we propose that only then can tax concessions be extended by registering the

charitable trust with the national registry. This method is used in the comparative analysis by all

the selected countries, and it is desirable that Malaysia will follow accordingly. This is because

only the reputable charities approved by the regulatory body will reap these benefits.

25
 We propose that the obligation to register a charitable trust be introduced under the

Trustees Act 1949, in which specific provisions controlling the trustee must be in effect. All the

relevant powers granted on the trustee under the Trustee Act 1949 are still applicable as given

and the powers of the court as provided for in Part V of the Trustee Act 1949 may still be

extended for charitable trust purposes. The qualifications and process for the registration of the

charitable trust may also be included under the Trustees Act. As regards the charitable trust tax

concessions, we are of the opinion that the amendment may have to be made pursuant to Part X

of the Income Tax Act 1967 to include a provision that only registered charitable trusts may

enjoy tax exemptions.

Besides, a tax concession for charitable trust is another suggestion. The charitable trust

that is licensed shall enjoy a tax exemption. The Department of Inland Revenue (LHDN) must be

consulted on the granting of such relief. This is to ensure the authenticity of the records, such as

the financial status of the trustee and the accounts of the trust funds for which consultation with

the Department of Inland Revenue is required.

About the establishment of a regulatory body, we agree that the charitable trust regulatory

body in Malaysia will probably follow the charity commission’s framework in the United

Kingdom, which is a corporate body. The regulatory body will have the members of the

Commission appointed by the Minister and will have their own Executive Leadership. The said

body is only to be accountable to the government. The best model available in terms of

administrative structure is the Suruhanjaya Syarikat Malaysia (SSM) because the body has the

same role as the Company Registrar who regulates the company law regulation in Malaysia

through the Company Act 2016. The best model available in terms of administrative structure is

the Suruhanjaya Syarikat Malaysia (SSM) because the body has the same role as the Company

26
Registrar who regulates the company law regulation in Malaysia through the Company Act 2016.

First, Lembaga Amanah Kebajikan Malaysia should have the task to assess the status of

charitable trust when they receive application for registration. Lembaga Amanah Kebajikan

Malaysia must assess the status of charitable trust based on the law of Malaysia and the

eligibility criteria as mentioned above. Second, Lembaga Amanah Kebajikan Malaysia should be

promoting and supporting the better management of charitable trust. As the only regulatory body

to oversee the charitable trust, Lembaga Amanah Kebajikan Malaysia will promote and assist the

trustee to ensure better management of the trust funds. Thirdly, in the administration of charitable

trust, Lembaga Amanah Kebajikan Malaysia will recognize and investigate obvious wrongdoing

or mismanagement. Lembaga Amanah Kebajikan Malaysia will investigate if the trust funds to

support the beneficiaries are mismanaged.

We propose that the representatives of Lembaga Amanah Kebajikan Malaysia that will be

named by the Minister should be made up of the person with a legal background relevant to the

trust law. The members of the said regulatory body may also be elected by the person who has

contributed and experience in developing the social welfare of the country. He or she may have

the skills and determination to persuade the public to create a sound governance of the charitable

trust that will help to build better social welfare in the country.

Despite the power bestowed on the regulatory body above all, it must enforce such

limitations. In the first place, we recommend that the decision of Lembaga Amanah Kebajikan

Malaysia concerning the acceptance or rejection of the application of charitable trust in the

national register should not be finalised. The trustee could bring the case before the court to

contest the decision.

27
 Establishing a regulatory body requires that Parliament of Malaysia pass a new law. In

controlling the law relating to the administration of the charitable trust, Lembaga Amanah

Kebajikan Malaysia can do so through the subsidiary legislation, which the Parliament in the

Trustee Act 1949 may have the power to regulate such law. We also suggest that Lembaga

Amanah Kebajikan Malaysia administer the charitable trust based on the Trustees Act 1949

which incorporated the requirement to register the charitable trust.40

9.0 CONCLUSION

One of the benefits of charitable trust is that the feeling that it creates, that is the great

feeling about giving. A trust allows a person to put his or her money into great use. If it is done

by a young beneficiary, the importance of charitable giving from the early days of adulthood can

be stressed upon.

Besides that, it also established that the charitable trust also ensures that there is always a

trust that allows us to, continuously attain a reasonable amount of income as well. The trust is

also a secured fund and thus will ensure that it the source of income is reliable and definite. A

fixed value of money that can benefit and help the beneficiaries of the trust will be continously

supplied to them in definite periods.

A charitable trust’s assets are considered to be a separate and are not part of the taxable

estate upon their death occurrence. The repercussions of this element are that the assets under a

charitable trust will not be have a estate tax imposed upon them. Adding to it, it can be stated that

40 Muhammad Syafiq Khairul Anwar, Bredlan Ericson Fred and Muhammad Aiman Mohammad Puzi,

'REGULATING THE ADMINISTRATION OF CHARITABLE TRUSTS IN MALAYSIA' (University Teknologi

MARA 2017) <http://uitmprepo.uitm.edu.my/90/1/Thesis%20on%20The%20Regulation%20of%20the

%20Administration%20of%20Charitable%20in%20Malaysia.pdf> accessed 14 January 2020.

28
the assets under a charitable trust are not entitled to capital gain taxes as well. In a whole, it can

be stated that the assets under a charitable trust do not have any external payments that needs to

be done in the name of taxes or anything else.

Fourthly, it is also of utmost beneficial whereby when a property isnt making a profit, what

the owner can do is that the property can be reinvested into a charitable trust without having to

pay the income tax that arises from it, as stated earlier. Capital gains tax is also exempted it we

transfer a stock that has been appreciated into the frame of a charitable trust. This will allow us

benefit from a piece of property that has not attained any beneficial value and also at the same

time attain a tax exempted privilege, for it being kept under the charitable trust.41

In comparison with some major Commonwealth countries, Malaysia is distinctly one

jurisdiction without a specific statutory body entrusted with the general responsibility to regulate,

maintain a register of charities. A case for its establishment is self-evident, in fact, its

establishment may be regarded as necessary in a civil society. The value of such establishment

may be regarded as necessary in a civil society. 42 It is evident that like most of the

Commonwealth countries, that a commission must be established to monitor the charity issues

and ensure that issue that arises from it is handled and proper resolutions are provided.

A commission must be established to promote public trust and confidence in the charitable

sector. Besides that, it is also essential that, through the construction such a commission, the

charitable resources’ effective use is encourage and promoted. As much as its important for us to

enact laws to govern the trusts and charities’ issues, it is equally important for us to ensure that

41 What Is A Charitable Trust And How Does It Work?' (Hml-law.net, 2020) <https://www.hml-

law.net/2019/10/charitable-trusts/> accessed 16 January 2020

42 'Business News India, LIVE BSE/NSE Sensex & Nifty, Share/Stock Market, IPO, Mutual Funds News'

(Livemint, 2020) <https://www.livemint.com/> accessed 16 January 2020

29
the laws that are enacted is being reached out to the ones that need it. It is important that the laws

and regulations formulated be educated to everyone as it’s essential that they know their rights.

These are one of the potential reasons why we need a commission to govern these

responsibilities.

Only with proper supervision can problems such as charity fraud be handled in the best

means possible. Charity fraud is when charitable organizations misuse the whole concept of

charitable trusts and try to gather funds from the public by the name of charitable trusts. This

fraud can be done by advertising that they are curing diseases and attaining donations in a

deceptive manner. The money collected though at the end will not be used for the purpose that it

was originally attained for.43

Phenomenon’s are charity frauds are vastly occuring in the global platform. Proper and

solid legal regulations are needed to ensure that continous monitoring and supervising is done to

ensure the best legal resolutions are provided to the ones that seek for it. Charitable trusts are

actually very noble. But the problem is that the rate of people misusing it just increase day in day

out. It is thus important that a proper legal backdrop is maintained to ensure that charitable trusts

are not misused and that they are used for the purpose that they were originally created.

43 Charity Fraud | Definition, Charity Misrepresentation, & Fake Foundations' (Encyclopedia Britannica, 2020)

<https://www.britannica.com/topic/charity-fraud> accessed 14 January 2020

30
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Re Syed Shaik Alkaff [1923] 2 MC 38

31
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32
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