CHAPTER 5: CORPORATE TAX

Learning Objectives

After completing this chapter, student should be able to:

 Determine the scope of business income and badges of trade
 Differentiate between allowable expenses (s 33, 34(2), 34(4) and 34(6)) and
prohibited expenses s 39
 Identify the treatment of current year and brought losses or capital allowances
 Calculate the adjusted and statutory business income of a sole proprietor
 Describe the commencement and cessation of business

INTRODUCTION

The companies Act 2016 requires a company’s financial accounts to be audited by

approved auditors. The SOPL and SOFP must reflect the true financial position of a
company as at the end of financial year.

Tax computation of a company would then be constructed based on the audited

accounts and additional schedules provided by the company. Prior YA2001, the IRB
would require the tax return ( Form C) , tax computation together with the audited
accounts to be submitted for raising an assessment.

Companies are placed on self – assessment from the YA 2001. Under Self
assessment, a company is required to submit only the Form C within 7 months after
the closing the company’s year end. The tax computation and audited accounts are
kept by the company for the inspection of IRB inspection during a tax audit:

(a) Computation of statutory income for:

(i) Business
(ii) Interest
(iii) Rents (with details properties)
(iv) Royalties
(v) Other income

(b) Current year business loss

(c) Witholding tax payment to non resident
(d) Information on 5 directors and 5 shareholders who are controlling the company.

CORPORATE TAX | MADAM SYIRA

Adjusted income

Section 33 of the Act lays down the principles for determination of adjusted income,
which is:-

RM
Gross income xx
Less: Wholly and exclusively outgoings and (xx) (not prohibited by s39)
expenses
Adjusted income xx

The derivation of gross income from business is determined by virtue of s12. Business
income is assessed on an accrual basis and not on cash basis. As such, whether income is
received during the year is of no relevance as to its taxability.

Gross income of the business would be the ‘ revenue’ that is shown in the statements of
comprehensive income.

In practice the tax computation begins with the ‘profit before taxation’ as shown in the
statements of comprehensive income and appropriate adjustment is made to arrive at the
‘adjusted income’ or ‘adjusted loss’.

Derivation of business income (section 12) states that, any gross income of a person
derived from Malaysia from a business of his, then_,

a) Whatever gross income is not attributable to operations of the business carried

on outside Malaysia* shall be deemed to be derived from Malaysia.

*Operation of business carried on outside Malaysia:

a. Contract concluded in Malaysia.
b. Stocks are maintained in Malaysia from which orders are fulfilled.
c. Passing of ownership and risk of trading stock in Malaysia.
d. Sales proceeds received in Malaysia.
e. Services rendered in Malaysia.
b) Applies to the business like manufacturing, plantation and mining (wholly/partly)
in Malaysia. The income shall consists of;
i. Sales value of the product sold overseas.
ii. If sales vale is not applicable, the market value (for sale within the same group
of the company).

Commencement of business:
It is important for you to determine the commencement date of the business
because:
i. Pre-commencement revenue expenses are not deductible (permanent loss).
ii. QPE of the capital allowance will be given in the first basis period from
the date of commencement.

CORPORATE TAX | MADAM SYIRA

 iii. It would affect the selection of the year-end. The first YA that is subjected
to income tax would be vary depending on whether a calendar or non-
calendar year-end is chosen.

Single or separate business?:

i. Separate income will be treated as separate business sources.
ii. Capital allowance from one business source cannot be set-off against
income from another business income.

Gross income from business:

i.All debts arising while carrying on the business as provided under section
24(1).
ii.Section 22(2) non-refundable advance received (insurance, recoveries,
compensation received).
iii.Dividend income from a share dealing business (section 24(4)).
iv.Market value of stock withdrawn for personal use [section 24(2) & (3)].
v.Interest from bank, financial institution and money lender.
vi.Recoveries from bad debts [section 30(1)]

FORMAT *

In ascertaining the chargeable income of a company , the following approach is

suggested :

Steps 1 : Start with net profit / loss before taxation

Steps 2 : Exclude the following receipt which have been included in (1) above :
(a) Non business income , for example , rental , dividend , interest
(b) Capital receipt or capital gains for example , profit on sale of fixed
assets
(c) Foreign source of income
Steps 3 : Consider the relevant tax adjustments required based on the notes to the
accounts given in the examination question
Steps 4 : Check any other expenditure in the Profit and Loss Account which need to be
adjusted where no notes being given in the question , for example , depreciation and
donation
Company’s name
Computation of Statutory Business Income for YA 20xx

RM RM

Net Profit/(Loss) before tax xx /(xxx)

Add back: Disallowed expenses (Section 39)
 Domestic and private expenses xx
 Expenses not wholly and exclusively incurred in

CORPORATE TAX | MADAM SYIRA

 production of gross business income: xx
o Drawings included at cost (mkt value – xx
cost)
o Drawings not included (market value) xx
xx
o Entertainment (non staff) xx
o Gift to non staff xx
o Personal salary/EPF (owner) xx
o EPF staff in excess of 19% xx
xx
o Bonus to non staff
xx
o Zakat
xx
o Other personal expenses xx
o Penalty and fine xx
o Income tax (non staff) xx
o Loan to employee
o Leave passage xx
o Bad debts written off (no reasonable xx
justification) xx
 Donations (approved and unapproved) xx
 Provision for doubtful debts (general) xx
 Stock obsolescence
 Initial subscription xx
 Depreciation xx
 Capital expenditure xx
o Loss on disposal of assessment/invest
o Losses from foreign exchange (capital)

Less: Capital Receipts/Gain

 Gain on disposal of fixed assets/investment (xx)

Less: Income not under Section 4(a)

 Rental income Section 4(d) (xx)
 Dividend income Section 4(c) (xx)

Less: Expenses entitle for double deduction

 Remuneration/salary of disabled employees (xx)
 Cash donation to approved research institute (xx)
 Insurance premium on imported cargo insured (xx)
with co incorporated in Malaysia
 Interest payable on loans to small business (xx)
(xxx)
ADJUSTED BUSINESS INCOME/(LOSS) xxx

Add: Balancing charge Xxx

Less: Capital allowances (current year and brought (xxx)
forward)

CORPORATE TAX | MADAM SYIRA

STATUTORY BUSINESS INCOME xxx
Less: Business loss b/f (xxx)
NET STATUTORY BUSINESS INCOME xxx

BUSINESS INCOME – REVENUE / SALES FROM GOODS

Business income is chargeable under section 4(a) of the Income Tax Act 1967. It
includes profession, vocation and trade and every manufacturer, adventure, or
concern in the nature of trade, but excludes employment.

Business income includes insurance compensation for loss of trading stock,

compensation from trade creditors for defective goods as these receipts are received
in the ordinary course of business.

Vocation is a person who places bets systematically was held in a decided case law
to be carrying on a vocation. The gains derived were chargeable to tax even if the
vocation was unlawful.

Trade normally consists of a series of transactions where there is continuity and

repetition of buying and selling or manufacturing.

It is important to distinguish whether the income is a business or employment as:

 Capital allowances are available or given to a person carrying on a business.
 Certain deductions are given to a person carrying on business by way of
concession.

The meaning of “profession” generally refers to a person using his intellect to

obtain the end product. It would also refer to a professional person who carries on
business on his own account.

The badges of trade may be used to determine whether the receipt or gains derived
from an insolate transaction constitute an adventure or concern in the nature of trade.

BADGES OF TRADE

The following badges maybe used to determine whether a receipt is considered to be

capital or income. If that receipt is income, then shall be chargeable to tax under the
ITA 1967.

 Purpose/Intention:

CORPORATE TAX | MADAM SYIRA

 A good test to determine whether the subject matter held is investment or stock-
in-trade is to establish the intention of the acquirer at the time of acquisition of
such subject matter.

In Pilkinton v Randall, the court examined the motive of the taxpayer in

deciding whether the receipt was capital or income. The gain derived was held to
be income as the taxpayer’s intention of purchasing his sister’s share of the
property was to sell it after developing it by building roads and sewers.

Where an asset purchased for investment, was subsequently sold, the gain derived
is not taxable. If there were facts to show that there has been change of intention,
the gain derived would be taxable, as the investor has changed his intention to be
a trader.

In GDIR v LCW, the court took the difference between the selling price and the
market value of the land at the time when the change of intention took place.

 Repetition/Frequency of Transaction - cakes

Where the same object or article is repeatedly bought or sold, it would generally
lead to inference that there is trading in that article. In Pickford v Quirke, the
court held that although the transaction, considered separately, was capital, they
together constituted the carrying on of a trade.

There is no general rule laid down in deciding on the number of transactions for a
person to be considered a trader rather than investor. In Page v Pagson, the court
held that the profit of the second bungalow to be taxable but not for the first one,

 Organization/Transaction by companies:
A company incorporated for the purpose of making profits for its shareholders,
any gainful use to which it put any of its assets prima facie amounts to the
carrying on of a business. As such, a company may hold a property for a long
period of time, any subsequent disposal may still be viewed as business income
because such a long holding may be viewed as waiting for the right opportunity to
realize profits.

The court would examine the nature of the company’s operation and not just the
capacity of the company alone. In CIR v Eccentric Club, it was always
presumed that a company was formed with the intention of carrying on a business.

 Financing/Mode of acquisition:
The mode of finance placed great importance in determining whether the taxpayer
is trading in property or merely realizing its investment. If a company had the
intention to hold the asset as a long term investment, then the company should
inject more funds into the project rather than borrowing funds.

For example, a person may purchase an asset for purpose of development. His
financial position indicates that he does not have the adequate resources or fund to

CORPORATE TAX | MADAM SYIRA

 carry out the development and that asset was subsequently realized at a gain. Such
gain would normally be considered to be trading adventure, unless he could prove
otherwise.

 Improvement/ Supplementary Work:

Supplementary work such as modification, processing, packaging, renovating of
the item sold would suggest that a trade is carried on. In Cape Brandy Syndicate
v CIR, the company, after purchasing a quantity of brandy, proceeded to blend
and recase the brandy before selling it in lots; it was held that there is a trade.

 Timing/ Length of Ownership:

If the period of ownership between acquisition and disposal of asset is long, there
is a strong assumption of investment. The gain derived would not be taxable as it
is a capital gain.

Where there is a quick resale there will be an impression that a trade was
conducted and the gain would be taxable as decided in Turner v Last (1965).

 Surrounding Factors/Circumstances Responsible for Realization:

A forced sale, to provide cash required in an emergency, negates the idea that an
item was purchased with the intention of dealing.

Selling marukku – Revenue

Selling your asset – capital income

In KLE Sdn Bhd v Ketua Pengarah Jabatan HDN (1995), the Special Comm.
held that the subject land’s commercial potential together with its good location,
being near developed areas was very good ready made advertisement in itself.
Therefore, there was no necessity to have a specialized organization with skilled
staff, and there was no further exertion needed to promote its resale. As such, the
disposal of land was held to be an adventure into nature of trade.

 Ways of disposal of an article:

Organized activity employed in disposing of an asset such as advertisement,
setting up an office, employment staff, would favour the presence of a profit
making scheme or a trading adventure.

 Interest in similar field:

It is a settled law that accounting evidence is not conclusive as to whether the
taxpayer is trading or not, merely a factor to be taken into consideration. [CGIR v
LFY Sdn Bhd (1983)].
It was held in the case of International Investments Ltd v Comptroller of
Inland Revenue (1975) that “the courts have always been assisted greatly by the
evidence of accountants. Their practice should be given due weight: but the court
has never regarded themselves as being bound by it. It would be wrong to do so.
The question of what is capital and what is revenue is a question of law for the
courts. They are not to be deflected from their true course by evidence of
accountants, however eminent”.

CORPORATE TAX | MADAM SYIRA

 Nature/subject matter:

A person engaged in trade frequently does so by buying and re-selling articles or

objects with a view of making profit. There are three reasons for purchasing an
article:
i. For the purchaser’s own use or the use of its family or friend
ii. For investment which includes not only things which yield income but
also articles which give aesthetic pleasure;
iii. For resale at a profit

Purchasing a large quantities or articles is obviously not considered to be personal

enjoyment or for investment. In Martin v Lowry, the court found it difficult to
accept that a man could possibly utilize 45 million yards of surplus aircraft linen.
In Rutledge v CIR, the gain derived from disposing a million toilet papers was
held to be a trading adventure.

In another decided case, IRC v Fraser, the court held that the gain so derived was
trading receipt as a large quantity of whisky was purchased greatly in excess of
what could be use by himself, his family and friends, a commodity which yield no
pride of possession and which cannot be turned to account except in the process
of realization.

The above badges of trade are only broad guidelines in determining whether a
particular set of circumstances constitutes a trade. You may be able to remember
the various badges of trade by the words “PROFITSWIN”.

P = PURPOSE
R = REPETITION
O = ORGANIZATION
F = FINANCING
I = IMPROVEMENT
T = TIMING
S = SURROUNDING FACTORS
W = WAYS OF DISPOSAL
I = INTEREST IN SIMILAR FIELD
N = NATURE

CORPORATE TAX | MADAM SYIRA

TRY THIS

Question 1

Julian retired at the age of 55 in 2018 and received a gratuity of RM100,000. She used
his gratuity and his EPF withdrawal of RM 150,000 to partly finance the cost of
acquisition of a piece of agricultural land costing RM300,000. The balance of the
acquisition cost was financed through borrowings from a bank.

Part of the agricultural land was developed into a durian plantation and the balance of the
land was rented out.

In 2020, he and his wife migrated to Melbourne to be with their children. Before he left
Malaysia, he sold the agricultural land for a gain of RM300,000. The sale was made
through a real estate agent. Neither he nor his wife disposed of any real property.

Required:

State, with reasons, whether the gains derived is taxable. (Whether this is a capital gain
or revenue receipt)

DETAIL OF DEDUCTIONS
 Deductible and non-deductible expenses:
Types of expenses which qualify for deduction (section 33 and section 34):
Must be revenue expenditure in nature and not capital expenditure. Capital assets are
not deductible for tax purposes. Thus, this capital expenditure expensed off to the
profit and loss account has to be excluded. There are 4 characteristics o differentiate
between capital and revenue expenditure.
1) Initial expenditure.
 Pre-commencement expenditure (all expenses incurred before the starting of
the business) for examples, legal fees to set up business, renovation to rented
property, etc.
 Expenses incurred to a newly acquired assets.
2) Fixed capital or revenue expenditure?
 Fixed assets are used for production which there will be no intention for resale
in the near future whereas a revenue expenditure is what the owner makes
profit by parting with it.
3) An asset is brought into business for the long-term benefit of a trade; it will be
classified as capital expenditure. E.g. purchase of plant and machinery.

CORPORATE TAX | MADAM SYIRA

 4) Lump sum payment.
 The amount incurred once and for all will also be treated as capital
expenditure.

 SECTION 33: GENERAL DEDUCTION

All outgoings and expenses income that incurred wholly and exclusively in the
production of income can be deducted in order to help the taxpayer to reduce his
business income so that he pay less tax.
Expenditure to be tax deductible must satisfy the following:
1) Outgoings and expenses (exclude private or domestic expenses) must be
revenue in nature. Thus it would include theft, bad debt, business losses due to
defalcation of employees, etc.
2) It must be incurred solely for that purpose, that is, it should not be for dual
purpose where business purpose is secondary.
For example, Georgette rented a two-storey building partly used for her
business and the other is for private purpose. Only the portion used for the
business is allowed for deduction.
3) It must have been incurred during the basis period for a year assessment.
Expenditure which is payable or becoming payable would also rank for
deduction.
4) It must be for the purpose of producing income, that is, it must be linked with
the income-earning operation. For example, any expenses incurred with the
purpose of producing income for a business are salaries and wages for
employees, advertisement, stationeries and printing, bonus etc.

5) Repair or maintenance of fixed asset.

6) Renewal of license, rental agreement, or contract agreement relating to
business.
7) Rent payable in respect of any land or building occupied for the purpose of
producing the gross income.
8) Interest payable on money borrowed and employed in the production of gross
of income.

CORPORATE TAX | MADAM SYIRA

 9)

Summary of repair of premises and machinery

CAPITAL REVENUE
(Not deductible) (Deductible)
Improvement on an asset /
Acquisition repair /
Replacement on whole of the asset /
Repairs of any fixed assets used in the /
business
Replacement on part of the asset /
Renewal /

Summary of legal and profesional expenses

DEDUCTIBLE NOT DEDUCTIBLE /

ADD BACK
Debt collection (trade debt) /
Renewal of loans /
Preparation of accounts /
Defending title to property /
Statutory audit fees /
Collection of non-trade debts /
Annual general meeting expenses /
Preparation of income tax return /
Cost of income tax appeal /

 SECTION 34: SPECIAL DEDUCTIONS

In ascertaining the adjusted income of a person from a business source, the following
shall be deducted from the gross income of that person:
a) Any trade debts which are reasonably estimated to be wholly irrecoverable or if
party irrecoverable, the amount which is estimated to be irrecoverable.
Public Ruling 1/2002 issued on 2nd April 2002 deals with the following:
a. Specific provision for bad debts
b. General provision for bad debts
c. Bad debts written off

CORPORATE TAX | MADAM SYIRA

 Bad Debts

Bad debt written off Bad debts recoveries

Provision for bad debts
Non-trade Trade Non-trade Trade

ADD NIL Specific General MINUS NIL

Non-trade Trade Trade/ Non-trade

ADD NIL ADD

b) Contribution made to an approved scheme in respect of an employee the lower

of:
o The amount of contribution.
o 19% of employees’ remuneration (ceiling %).

Example: Wright Sdn Bhd incurred RM113,800 for the year ended 31.12.2020.
Details are as follows
RM
Salaries 60,000
Employer’s EPF contribution 23,800

Answer
EPF contribution 23,800
19% ( 60,000) (11,400)
Non-deductible expenses 12,400 (add back)

c) Expenditure incurred up to RM100 000 on provisions of library facilities to the

public and contribution to public library of schools and higher education
institution [section 34(6)(g)].

d) W.e.f. 2007, expenditure incurred for sponsoring any local or foreign arts, cultural
or heritage activity approved by Ministry of Culture, Arts and Heritage will be
given tax deduction of up to RM500 000. However, the amount of the expenditure

CORPORATE TAX | MADAM SYIRA

 incurred in sponsoring foreign arts, cultural or heritage activities shall not exceed
RM200 000
[section 34(6)(k)].

 Stock Adjustments – section 35:

The value of any particular stock at the end of the relevant period shall be taken to be:
i. The amount of its market value
ii. The amount acquiring to that item and bringing it to its condition and
location at that time.
Provided that in the case of any item of the stock consisting of immoveable
properties, stocks, shares, or marketable securities, the value thereof at the end of the
relevant period shall be taken to be amount equal to its cost price to that relevant
person or its market value at the time, whichever is lower.
Where there is a reserve or provision being made in the accounts, the adjustment to
revert back to cost shall be;
% of stock reserve x Book value of Stock
Balance of 100% (after netting off the reserve)

 DOUBLE DEDUCTIONS

Double deduction refers to revenue expenses incurred that is given twice the amount as
deduction in arriving at the adjusted income of a business. This is a tax incentive
provided by the government to provide tax relief to business persons to encourage the
used of promoted activities such as research , local facilities, etc. To qualify for double
deduction, such expenses must be:

- Revenue expenses
- Not prohibited by s 39 of the Act
a) Remuneration for disabled employees.
b) Revenue expenditure incurred on research.
c) Cash contribution to approved research institution or payment use of services of
approved research institution or company. This includes payment for the use of
R&D Company.
d) Premium paid on export credit insurance taken with a company approved by the
Minister of Finance or any local insurance company.
e) Expenditure incurred in international trade fair held in Malaysia for promotion of
export.
f) Cost of a new personal computer as a gifts given by the employer to employees in
ascertaining the adjusted income of that company
g) Double deduction of for qualifying advertising expenditure
h) Double deduction for the promotion of exports of goods agriculture produce
i) Double deduction for promotion of export of services
j) Double deduction for promotion of international or private school
k) Child care centre
l) Vendor development programme

CORPORATE TAX | MADAM SYIRA

 m) Remuneration paid to senior citizen, ex-convict , parolee, supervised person and
ex drug dependant.
n) Skim Latihan 1 Malaysia
o) Expenditure incurred on approved training
p) Expenditure incurred in obtaining certification for recognised quality systems and
standards, halal certification.
q) Expenditure incurred for the registration of patents, trademarks and product
licensing overseas.
r) Ship freight charges for shipping goods from Sabah/Sarawak to Peninsular
Malaysia.

 CAPITAL EXPENDITURE

Capital expenditure incurred in the production of business income not tax

deductible as it prohibited by s39 of the Act. Therefore, the Government has to
legislate gazette orders to grant special deduction to relief the business person. It
is deductible to arrive at adjusted income of the business.

 PROPRIETARY RIGHTS (Available to manufacturing company)

The cost of acquisition of proprietary rights incurred by a manufacturing company

for the use in manufacturing process will be given 20% of the cost as deduction in
the YA against business income. This cost includes:

- Purchase consideration of the proprietorship rights

- consultancy fees
- legal fees
- stamp duties

The manufacturing company must be 70% Malaysian owned. Proprietor rights mean
patents, industrial design or trademarks.

 SECTION 39: DISALLOWABLE EXPENDITURE

Section 39 (1)(a) to (m) of the ITA list out the deductions which are not allowed for
the business income:
(a) Domestic or private expenses - Expenditure incurred for the private used of
business owner such as telephone bill for personal use.

CORPORATE TAX | MADAM SYIRA

(b) Any disbursement or expenses not being money wholly and exclusively lay out or
expended for the purpose of producing the gross income.

(c) Any capital withdrawn or any sum employed intended to be employed as capital.

(d) Any amount made to any unapproved scheme.

(e) Any capital expenditure incurred in relation to a business which would qualify for
Schedule 2,3, or 4 Allowances.

(f), (i), (j) Any payment (income in nature) made to a non-resident person where
withholding tax provision under section 107A,109 and 109B have not
been complied with.

(g) Any sum by whatever name called made otherwise than to the State Government,
a statutory authority for the use of license or permit to extract timber from a forest
in Malaysia.
(h) Deleted
(k) Lease rental paid in respect of a motor vehicle other than commercial vehicles for
goods or passengers in excess of RM50 000 or RM100 000.

It is provided that the maximum amount of the deduction of rental in respect of

such motor vehicle in the YA shall not be more than RM50 000 or RM 100 000.

Deduction of lease rental for non-commercial vehicle have increased to RM100,

000 per vehicle but is subjected to the following conditions:
 It is a brand new vehicle (no second hand)
 The cash price is equal or less than RM150 000
Where conditions are not fulfilled then the lease rental will subject to restriction
of RM50 000.
(l) Entertainment expenditure including entertainment allowance. The following are
the exceptional items where entertainment expenditure shall continue to be
allowable;
1) Entertainment given to employees (I.e. annual dinner).
2) Entertainment provided by a business where it is in the course of its business
to provide entertainment. E.g. airline company that provided meal, services to
entertain its clients.
3) Expenditure on promotional gifts at trade fair or industrial exhibition held
outside Malaysia for the promotion of exports.
4) Expenditure on promotional samples of products of the business.
5) Expenditure for cultural or sporting events opens to member of the public,
wholly to promote the business.
6) Promotional gifts within Malaysia consisting item or articles incorporating a
conspicuous advertisement or logo of the business would qualify for
deductions.

CORPORATE TAX | MADAM SYIRA

 Entertainment expenses which are related wholly to sales arising from the
business will be given full deductions. Other entertainment expenses will be given
a 50% deduction.

Entertainment here includes the provision of food, drink, recreation or hospitality

of any kind; or the provision of accommodation or travel in connection with or for
the purpose of facilitating entertainment.
Entertainment expenditure Allowable Disallowed
1 Private or domestic purpose 0% 100%
2 Wholly and exclusively incurred in the
production of gross income, for example 50% 50%
entertain trade supplier, clients, distributors
3 Wholly and exclusively incurred in the
production of gross income for example, 100% 0%
entertain employee, clients, dealers or
distributors (relating wholly to sales)
4 Promotional gift at foreign trade affairs, 100% 0%
promotional samples, cultural or sporting events

(m)Expenditure of employees consisting of a leave passage within or outside

Malaysia.
However, the provision of a benefit or amenity to an employee consisting of a
leave passage to facilitate a yearly event within Malaysia which involves the
employer, the employee and the immediate family members of that employee
will be tax deductible.

TAX TREATMENT OF LEGAL AND PROFESSIONAL EXPENSES

Public Rullings 6/2006

Effective from YA 2006

Generally, legal or professional expenses are deductible where these are incurred in the
maintenance of trade rights trade facilities, existing or alleged to exist. And legal or
professional expenses are not deductible, as being of a capital nature, where incurred for
the purpose of acquiring new rights or facilities. The deductibility of expenses incurred to
maintain alleged trade rights does not depend on whether the action is successful or not.

Example of deductible legal and professional expenses

 Debt collection
 Renewal of loans
 Preparation of accounts
 Defending tittle to property
 Legal expenses incurred by landlord
 Defending an action connected with a trade or breach of trading contracts

CORPORATE TAX | MADAM SYIRA

  Legal or professional cost incurred in disputes over trading contracts
 Legal or professional expenses incurred by a developer or a dealer in property
 Other legal expenses

Example of non-deductible legal and professional expenses

 Cost of appeal against income tax assessment, ie to the Special Commisioners of

Income Tax and the courts
 Legal expenses incurred by a landlord when a property is let for the first time by
the owner
 The cost of depending criminal prosecution or in connection with unlawful acts in
the operation of a business
 Legal expenses incurred in connection to vary licences.
 Legal expenses incurred by a trading or commercial company for renewal of loan.
 Legal expenses on renewal of a mortgage on premises
 The formation, renewal, variation or dissolution of partnership
 The transfer of a mortgage on business premises
 Obtaining a trading license
 Floatation, registration, winding up or liquidation of a company
 Legal fees relating to income already earned, eg income tax appeals

Secretarial fee and tax filing fee

In ascertaining the adjusted income of a person resident in Malaysia from his business in
the basis period for a year of assessment, a deduction shall be allowed:

(a) Secretarial fee not exceeding RM5,000 in respect of secretarial services provided
by a company secretary registered under the Companies Act 1965 to comply with
the statutory requirements under the Act.
(b) Tax filling fee not exceeding RM10,000 charged by a tax agent approved under
Income Tax Act 1967 (ITA) in respect of:-
i. Preparation and submission of tax return under Section 77,77A,77B, 83
and 86 of the ITA for the basis period for the immediate preceding year of
assessment; and
ii. Preparation and submission of prescribed forms for purpose of Section
107c of the ITA

Fees allowable for the above exclude out of pocket disbursements.

APPROVED DONATIONS

The gift of money made to the Government, State Government, local authority or an
approved institution or organisation shall be given a deduction in arriving at total income.

Where there is no sufficient aggregate income or the current year business loss exceeds
the AI, ant excess approved donations made during the year made during the basis period
is not permitted to be carried forward and thus result in a permanent loss for such
donations incurred.

CORPORATE TAX | MADAM SYIRA

The Finance (No.2) Act 2000 has imposed a restriction on the deduction of approved
donation. The amount of cash donation to approved institution, organisation or fund is to
be limited to 10% of the company’s aggregate income for that year.

However, there is no limit on cash donation to the Government, a State Government or a

local authority.

Gift of artefact, manuscript or painting

Generally, the donation has to be in cash and not in kind. However, with effect from YA
1997, any gifts of artefacts, manuscript or painting to the Government or State
Government would be given a deduction. The amount deducted would be based on
valuation by the Department of Museum or National Archives.

Donations to approved libraries

A deductions not exceeding RM20,000 (cash contribution) made by the company for the
provision of library facilities which are accessible to the public and in respect of
contributions to public libraries and libraries of schools and institutions of higher
education shall be given a deduction in arriving at the total income.

Donation of painting to National or State Art Gallery

A deduction equal to the value of painting (as determined by National Art Gallery or any
State Art Gallery) for the donation of painting to the National Art Gallery or any State
Art Gallery would be allowed a deduction against aggregate income.

Zakat Perniagaan

Zakat Perniagaan paid to Pusat Zakat of the various states in Malaysia shall be given tax
deduction provided such amount does not exceed 2.5% of AI of the company.

In short, the deduction will be lower of

- Zakat perniagaan paid OR

- 2.5% x AI

Approved sport activity, activity, project of national interest or wakaf contribution

Cash contribution to:

- Any sport activity by the Minister

- Project of national interest approved by the Minister
- Wakaf contribution or endownment to public universities
Is allowed a deduction. Donation in kind is also accepted on project of national interest.

With effect from YA 2020, the total amount of the cash donations to approved institution,
organisation of fund and shall not exceed 10% of the AI of the company.

CORPORATE TAX | MADAM SYIRA

CORPORATE TAX | MADAM SYIRA