Question 6

a) Cost of developing and maintaining websites.

The cost of developing is capital in nature, therefore it is not deductible. However,

based on specific deduction rules, the cost of developing website is allowed a
deduction at 20% per annum (five years) of the total cost, so the cost of developing is
allowance to deduction in tax purposes. Cost of developing a website includes the
cost of acquiring a domain name. Cost of maintaining websites is deductible as it is
revenue expenditure.

b) RM10,000 incurred to replace uniform of a company’s factory workers.

As the uniform is for the purpose of the business of the employer and there is no
benefit to employees who have to wear them, so the cost of replacing is a revenue
expense and would be tax deductible. It also being the expenses wholly and
exclusively incurred for the purposes of the business.

c) RM20,000 cash had been embezzled from a customers’ account by an accounting

officer.

As loss of cash caused by theft, defalcation or embezzlement by an employee arises

directly from the necessity of delegating certain duties of the business to employee, so
it is allowable as a deduction.

The RM20,000 is a loss of cash, so it allows to deduct as the officer embezzled the
money in the course of his/her duties as an employee and the loss was incurred during
the business. Any claim for a deduction for loss of cash caused by theft, defalcation
or embezzlement should be substantiated by police report, bank statement,
responsibly of the staff involved, letter of termination of employment, the minutes of
board of directors meeting, proof of recovery action or other relevant documents.
d) A sum of RM50,000 paid for the exclusive rights to publish and distribute a
compact disc. The company is also required to pay a royalty of RM20 for every
copy of the compact disc sold.

The amount of RM50,000 paid for the exclusive rights to publish and distribute the
CD is not a deductible expense as it represents an outlay to acquire a capital asset. By
acquiring such rights, no other person can publish and distribute the CD.

As the royalty paid is an expense wholly and exclusively incurred in the production of
gross income of the company, so it is a tax deductible. It is also not a once and for all
payment, but a recurring charge based on the number of copies sold. Therefore, the
royalty paid is revenue expense being a payment for the used of a right to publish and
distribute the CD.

e) A sum of RM30,000 was paid for the medical expenses of the company director.

The medical expenses of the company director are the tax deductible. This is because
the expenses are incurred by the company for the well being of the company’s
employees which includes its director and also incurred wholly and exclusively in the
production of the gross business income.