Académique Documents
Professionnel Documents
Culture Documents
The Act provides general deductibility test and the list prohibited expenses, but this not exhaustive General deduction test is provided under S33. The conditions laid out to enable allowable business expenses are:
a. b. c. d. e. Each business source has to be accounted separately Scope of expense refers to outgoings and expenses Expenses have to be wholly and exclusively Incurred In the production of gross income from that business source
Apportionment of expenses
Sometimes expenses maybe incurred partly not for the benefit of the business. In this case, the expenses relating directly to the business maybe deductible as long as tax payer can show proof. Eg: Company A is renting a three storey building as a business premise whereby the third floor is occupied by one of the owners of the company. In cases like this, IRB would allow the rental portion paid for the 1st and 2nd floor provided the tax payer can show proof that these two floors are in fact used for the generating income for the business.
Incurred
Expenses must have a legal liability before it can be tax deductible. Provisional expenses are not deductible. Eg: Co A expensed off forex losses. This is tax deductible. If Co A only provide for forex losses because the actual loss cannot be determined yet, this provision is not tax deductible.
Accrual
Accrued expenses are tax deductible provided it has fulfilled the other conditions. Tax deductions would still be given even if there are no disbursements made. Eg: Monies set aside to meet retirement sum for staff retirement are accrued liabilities and be allowed tax deduction in the year of accrual and not in the year of payment.
Capital expense
Capital expenses is not deductible expense even though it has fulfilled other conditions. Expenses which relate to fixed capital is usually treated as capital expenditure while expenses which relate to circulating capital is usually treated as revenue expenditure. Expenditure incurred to acquire fixed assets whether tangible or not is considered capital expense (eg: patent) Capital expenses are incurred to obtain assets that in turn will produce income. Eg: machineries
Entertainment Expenses
Entertainment is defined as:
Entertainment Expenses
Fully deductible entertainment expenses are:
(a). entertainment to employees such as meals, refreshments, annual dinners, gifts to employees - however if lunch or dinner provided for clients and some employees are also invited, expenditure is only 50% deductible (b). entertainment business such as hotels, restaurants that provide entertainment to their patrons will be fully deductible (c). promotional gifts at foreign trade fairs such as souvenirs and bags at trade fairs, trade or industrial exhibitions held outside Malaysia
Entertainment Expenses
(d). Promotional samples however expenditure of gifts given away upon purchase of taxpayers products is not deductible unless affixed or embossed with the companys logo (e). Cultural or sporting event must be open to public. If restricted to members only not deductible (f). Entertainment related wholly to sales provided to customers, dealers and distributors but exclude suppliers. Included are: - food and drinks for the launching of a new product - redemption vouchers given for purchases made - discount vouchers, shopping vouchers, concert or movie tickets, meal or gift vouchers and cash vouchers
Entertainment Expenses
- free gifts for purchases exceeding a certain amount
- redemption of gifts based on a scheme of accumulated points - lucky draw prizes to customers for purchases made - expenditure on trips given as an incentive to dealers for achieving the sales target - light refreshment to trade customers at the business owners premises
Entertainment Expenses
Incurred RM 10,000 5,000 50,000 Allowed RM 5,000 (50%) 2,500 (50%) 50,000(100%)
Employees entertainment allowance Entertainment to suppliers Sponsorship of a cultural show at a sporting event Gifts to customers for purchases above RM100 Launching of new product Meals provided for employees during staff meeting
15,000
20,000 25,000
15,000(100%)
20,000(100%) 25,000(100%)
Leave passage
Section 39(1) prohibits deduction of leave passage BUT Exception: Leave passage expenditure incurred by employers for their employees and their immediate family members to attend a yearly event held in Malaysia is deductible if it involves the employer, the employee and the immediate family members Where leave passage expenditure incurred by the employee includes cost of food, accommodation or other incidental expenses, only the amount relating to fares is treated as leave passage cost. Cost of food and accommodation is deductible as entertainment expenses in arriving at the adjusted income of the employers business. Amount deductible is restricted to the amount on his employees only.
Redundancy payments
Redundancy or retrenchment payments made due to cessation of business is not deductible However payments made to employees that resulted in increased or retention of source of income is deductible
Repairs on acquisition
If a new asset is acquired and the asset is in need of repairs, these repairs will not be considered as revenue expenses The four conditions that cause acquisition repairs considered as capital are: a. the purchase price was materially affected by the propertys dilapidated state b. the acquisition cannot be use for the trade until it was repaired c. the acquisition cannot continue to be used in the trade without being repaired shortly after the acquisition d. the terms of the lease (if relevant) require the new tenant reinstate the property to a good state of repair
Specific deductions
Interest paid on capital used to acquire income Rent payable in respect of any land or building occupied Repairs to premises, plant, machinery or fixtures used to produce income Bad debts Employers contribution to approved funds or schemes (max 19%) Employers expenditure on equipment to assist disabled employees Expenditure for translating or publishing books in Bahasa Malaysia approved by Dewan Bahasa and Pustaka Contributions to libraries Expenditure in providing services, public amenities and contributions to charity or community projects Expenditure to provide and maintain childcare centres for the benefit of the employees
Specific deductions
Contributions to establishing and managing a musical or cultural group Sponsorship to any approved arts or cultural activity Scholarships Certification and accreditation expenses Practical training in Malaysia to an individual Scientific research expenses Pre-operational expenses incurred by companies undertaking approved overseas investments Certain deduction related to small business incorporated in Malaysia with authorised capital not exceeding RM250,000 International Standardisation Activities Equipment of disabled employees
Interest expense
Interest expense on debt is not governed under S33,therefore deductibility depends on wholly and exclusively test. Should be allowed under two circumstances:
Loan is employed in the production of gross income Loan is laid out on asset used or held in the production of income Interest expenditure incurred on loan made out to purchase capital assets used in the production of income would qualify for deductions. However amount that can be deducted will be restricted if the asset is partly used for non business purposes, If the loan or money were borrowed for the purpose of paying dividends, the interest would not qualify for deduction for tax purposes
Rental expense
Rent would be deductible if: a. payable for occupying land/buildings (immovable) b. used in relation to the period c. incurred for producing gross income Rent is deductible on an accrual basis For rent to qualify as a deduction, there must be a source of income or the asset on which it is paid should be producing income For example: warehouse rented for the storage of goods but which has not been brought into use yet, the rental may not qualify.
Donations
Donations are not revenue expense and therefore not deductible against gross income. Considered as social responsibility expenses. Effective YA 2009, cash donation to approved institution or organisation is restricted to: Company 10% Non-company 7% (Non company includes individuals, trust, club, co-operative society and trade association) However the limitation does not apply to cash donation to the Government, a state government or local authority
Donations
Example: ABC Sdn Bhd incurred the following donations: RM RM Aggregate Income 200,000 Less: donations (a) Cash donation to approved institution 12,000 (b) Approved sport body 11,500 (c) Project of national interest 13,000 (d) Cash donation to school libraries 20,000(restricted to RM20,000) (incurred RM31,000) ______ 56,500 (Restricted to 10% of aggregate income 20,000 or the lower of) Total Income 180,000
Double deductions
Insurance premiums for import/export - insurance premiums paid to insurance companies incorporated in Malaysia on cargo imported into Malaysia - insurance premiums paid by exporters to local insurance companies for cargo exported HALAL certification expenditure deemed to incur in YA where certificate is obtained (effective YA2005, inclusive of ISO certification) Export credit insurance premiums double deductions given for premiums paid to Malaysia Export Credit Insurance Berhad Freight charges manufacturers importing goods from Sabah and Sarawak to Peninsular Malaysia using the ports in Peninsular Malaysia (effective YA 2000) Services sector with regards to promotion of the export of services, R&D and training
Double deductions
Local advertising advertisement of Malaysian branded products both in Malaysia and abroad. Advertising channel include through the internet on local website, magazines/newspapers, licensed TV stations, approved hoardings, trade publications, sponsoring international sporting event, sponsoring international trade conference/exhibition approved by MATRADE Promotion of export advertising, free samples, market research, overseas travel for negotiations and contracts, expenses for giving technical information to buyers, preparation of tenders Research & Development projects must be approved by the Minister Incorporation Expenses for companies incorporated in Malaysia with authorised capital not exceeding RM2.5 million (eff YA 2004) Eg: prepare and print M&A, costs of circulation and advertising the prospectus, company registration, stamp duty, drawing up preliminary contracts, debentures, share certificates, company seal, underwriting commission
Double deductions
Training incentive Manufacturing, non manufacturing and hotel or tour operating companies are allowed double deductions for staff training who are Malaysian citizens provided: a. the training programme is approved b. training done by recognised training institution Double deduction also given for training of handicapped persons Remuneration paid to handicapped employees.
Double deductions
Employment of disabled persons and graduates - wholly and exclusively in the production of income Example: ABC Sdn Bhd paid a blind operator (using special equipment in his work) RM 6,000 wages for the year. The tax computation: RM Profit for the year 20,500 Less: wages to disabled employee * 6,000 Adjusted income 14,500 * this expense has been deducted when deriving profit for the year.
This expense is deducted for the second time in deriving at adjusted income
Capital market graduate training scheme - allowance paid to unemployed graduates endorsed by SC from 1/10/2005 to 31/12/2008 for companies in capital market industry