BUSINESS INCOME

INTRODUCTION
• Each business will prepare Income Statement to
record its profit/loss in each accounting period

• However not all incomes are assessable under S4(a)

and not all expenses are allowable for deduction
(deductible)under tax point of view.

 Any revenue receipts from business source = Section

4(a) of ITA1967.

 Business = includes profession, vocation and trade and

every manufacture, adventure or concern in the
nature of trade, but excludes employment.
(Sec 2, ITA1967)
 Business Income vs Non-business
Income
• Business income (S2)

Gain from profession, vocation, trade, manufacture

 Profession – any type of work that require skill (high level education)
 Vocation - type of work suits you
 Trade - the activity of buying and selling or exchanging goods
 Manufacture – to produce goods in large number

Gain from adventure or concern in the nature of trade

Versus…….

• Non-business income : Any income generated from other activities

not related to business
 i.e. Employment and capital gain*

*capital gain : a one-off gain due to non-business activities ie. profit

from sales of investment
 Derivation of business income
 Sec. 12 ITA ( 12 (1)(a), 12(1)(b), 12 (2))
 The following conditions must exists:
I. The existence of business source.
II. The business transaction is ‘income’ in
nature-revenue profit.
III. Such business income is deemed
derived from M’sia.
 Derivation of business income-
S12(1)a
 All business carried out in M’sia = deem derived
from M’sia.
 Business that carried on outside M’sia but one of
the following conditions are present shall be
considered deem derived from M’sia:
 Contract concluded in M’sia.
 Stocks are maintained in M’sia.
 Passing of ownership and risk of trading stock in
M’sia.
 Sale proceeds received in M’sia.
 Services rendered in M’sia.
 BUSINESS INCOME

GROSS INCOME EXPENSES

ALLOWABLE NON ALLOWABLE

SEC 22, 24 & 30
(deductible) (non deductible)

-SEC 33 & 34 SEC 39

General & specific

deductible expenses
BUSINESS EXPENSES
Allowable Expenses - ( Sec 33)

a) The expenditures should be REVENUE, not

capital in nature. The expenditure should NOT
be domestic / private in nature. (Eg: Payment of
salary to owner/donations to charitable
organization)
b) The expenditures must be incurred during the
basis period in respect of business activities
c) The expenditures should NOT be legally
prohibited (eg: penalty payment, fine imposed on
the business for environmental offences).
BUSINESS EXPENSES

Business Deduction

Revenue expenses Capital expenses

(deductible) (non-deductible)
 Format computation of business income
Net profit/(loss) as per Income Statement xx

(Add): Non-allowable expenses

-Depreciation xx
-Interest expense
-Entertainment for client (50%)
: Capital asset expensed off o P&l acc- renovation (xx)
(Less): Specific deduction items - s.34(6) & revenue expenses (xx)
- Child care centre provided to emp
(Less): Double deduction
- Cash contribution to Bantuan Pelajar Miskin 1Malaysia fund)
Adjusted business income xx
(Add) : Balancing charge Xx
(Less) : Unabsorbed capital allowance (xx)
(Less) : Current year capital allowance (xx)
(Less) : Balancing allowance (xx)
STATUTORY BUSINESS INCOME XX
 NON -ALLOWABLE EXPENSES
1. EXPENSES THAT ARE NOT INCURRED:
- Provision for bad or doubtful debt
- Depreciation
- Amortisation
 Depreciation
 Interest expense
 Entertainment for client (50%)
 Provision for repair and maintenancne
 preliminary expense
Capital Expenditure (Not deductible)

1. Initial Expenditure –
 pre-commencement expenditure = exp incurred b4
commencement of business.
 Exp. incurred to turn a newly acquired asset into a
usable state. = repair to a newly acquired asset.
2. Fixed Capital = fixed asset
3. Bringing into existence an Asset = asset
purchased for the long term benefit
4. Lump sum payment – the amt incurred once and
for all.
DISALLOWABLE EXPENSES (SEC. 39)
a) Domestic or private expenses
b) Expenses not being paid for the production of gross inc.
c) Capital withdrawn or to be employed as capital
d) Amt. Paid to unapproved scheme (e.g pension, savings, widow or
orphan)
e) With holding tax-interest/royalty, contract payment, special classes
of inc.
f) Leave passage – provided by the employer to the employee within
or outside Malaysia is not deductible. (Page 277)
g) Lease rental for passenger vehicle (not licensed under commercial
transport) not deductible if the accumulated rental exceeds: (Page
273, example 14.27)
-Cost of MV less than RM150,000 – max RM100,000 deductible
-Cost of MV more than RM150,000 – max RM50,000 deductible
SPECIFIC/SPECIAL DEDUCTION (S.34)
 Provision of equipment & renovation of building for disabled
person
 Translation/publication of book in Bahasa Malaysia from cultural,
literary, professional, scientific/technical books approved by the
Dewan Bahasa & Pustaka.
 Provision of library facilities:
◦ Donations in kinds restricted to the public library only (Library facilities
which are accessible to the public).
◦ Donations in cash is restricted to RM100,000 for each YA (S.34[6]) .
However, the employer may choose to claim cash contribution under
donation by virtue of S.44[8] & the amount restricted to RM20,000.
 Social responsibility payment in cash/kinds for provision of
services, public amenities or contribution to approved, public,
or community projects such as education, health, housing &
public facilities.
 Child care centre provided to employee.
 Entertainment Expenses
 Entertainment expenses :
 - expenses incurred directly on the trade suppliers, trade debtors, employees as
well as entertainment allowance paid to employees.
100% deductible:
 Entertainment provided to employees. Entertainment business (eg hotel &
restaurant)
 Promotional gifts at foreign trade fairs (outside Malaysia) for the purpose of
promoting Malaysian products.
 Promotional sample with logo or advertisement of the business.
 Cultural or sporting events that are opened to public to promote the business.
 Entertainment related wholly to sales provided to customers, dealers, and
distributors (exclude supplier).
50% deductible:
 Entertainment provided to employees incidental to provision of entertainment
to others. (eg: dinner provided to client & employees are invited).
 Gifts without business logo

Your name company, you slogan gose

here... 14
 # DOUBLE deduction #
 Employee training cost on GST implementation.
 Scholarship to university students (fees + educational aid + reasonable living cost).
(student must be Malaysia citizen and resident in Malaysia, study full time, parent
income of not exceeding RM5,000).
 Approved internship programme.
 Participation in approved career fair.
 Freight charges incurred to export rattan and wood based product.
 Provision and maintenance of child care centre & child care allowance.
 Cash contribution to Bantuan Pelajar Miskin 1Malaysia fund.
 Training cost to unemployed graduates. (for company participate in Skim Latihan
1Malaysia Programme – SL1M) – restricted to RM5,000 for each graduate & each
training scheme.
QUESTION 1 ANSWER:
Notes to the accounts:
RM
•Entertainment includes:
Gifts without a business logo for customer’s Net profit 543,000
annual dinner RM4,000. Add: Non allowable expenses:
Entertainment of employees of related
+Gifts without business logo (50% x 2,000
companies RM6400.
•Depreciation of plant and equipment RM690. 4,000)
•Training cost on unemployed graduates + Entertainment of employees of related 6,400
RM3,500.
companies
•Capital allowances for the year was RM2,100,
balancing charges was RM2,600, unabsorbed + Depreciation 690
capital allowance b/f RM850 and balancing
allowance RM930. Less: Double deduction:
N RM RM
ot Training cost on unemployed graduates -7,000
e
Sales 800,000
Less: Cost of sales (300,000 Adjusted income 545,090
)
Gross profit + Balancing charge 2,600
Less: Capital allowance:
Add: Other incomes -Unabsorbed capital allowance b/f -850
Dividend income 50,000

-Current year capital allowance 2100

Less: Expenses
- Balancing allowance -930
Entertainment 1 10,400
STATUTORY INCOME 545,710