CHAPTER 7

BUSINESS
INCOME

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 • To define Business Income
according to S4(a), ITA 1967
• To distinguish between revenue
and capital income
• To identify allowable [Sec. 33(1)]

OBJECTI and non-allowable [Sec.39(1)]

deductions from the business

VES OF
income
• To determine gross business,

STUDY: adjusted income, statutory income

and total income
• To compute tax liability from the
business income

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 COMPUTATION OF ADJUSTED BUSINESS INCOME
Net Income/loss as per account xxx
Add:
Business income not yet added in P&L (if any) xxx
Non-allowable expense xxx
Less:
Non-business income that was added in P&L (xxx)
Allowable expense not yet deducted in P&L (xxx)
Specific deduction not yet deducted in P&L (xxx)
Double deduction expense (xxx)
Adjusted Business Income/Losses xxx

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  Business income is
chargeable under S4(a) of
ITA.
 Sec 2 of the Act defines
‘business’ to include
profession, vocation and
trade and every
DEFINITION OF manufacture, adventure or
BUSINESS INCOME concern in nature of trade,
but excludes employment.
 The definition of business is
however not exhaustive.

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  In order for the business
income to be taxed in M’sia,
one must first determine
whether the following
conditions exist:
 The existence of business;
 The business transaction is
DERIVATION OF ‘income’ in nature (Revenue
Profit); and
BUSINESS INCOME  Such business income is
deemed derived from M’sia.

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Business Includes: Examples?
• Sole Proprietorship/Self Employed Sundry business
• Individual carrying on a business
on his own Direct selling
• Partnership
• Includes any business venture of Agriculture and farming
two or more individuals combining
ownership, authority, work force Stalls
or skill in running a business
where profits are shared.
Partnership can exist between : Clinics, Law Firms or other Professional
practitioners
• Individuals
Writers and Actors
• Two companies
• Individual and Company
Remisiers  
• Individual and trustee

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RESPONSIBILTIES AS
BUSINESS OWNERS
• To register as a taxpayer (if eligible) – Register File
• To get a copy of Income Tax Return Form from the nearest LHNDM Branch (if the form does not reach on time)
• To complete Form B (Sole Proprietor) and Form P (Partnership)
• To prepare statement of accounts and other statements such as rental statements and commission statements.  
• To engage qualified tax agent to prepare business accounts (if required)  
• Refer to supporting documents such as life insurance receipts, donation receipts, receipt books, zakat receipts for
deductions, reliefs and rebate
• Refer to Explanatory Notes as guide – Form B Explanatory Notes / Form P Explanatory Notes
• Additional Information on Partnership  
o The Precedent Partner is responsible for filling up Form P and issuing Form CP30 to each and every
partner- CP30 Form
o CP30 shows distribution of income (profit/loss) to each partner.
o Every partner has to report his share of partnership income in his Form B.
o Precedent Partner is also responsible for informing LHDNM officially if the partnership ceases/changes
to a sole proprietorship/private limited company
• Husband and wife have to fill separate Income Tax Return Forms.
• To compute their tax payable.
• To check and  SIGN duly completed Income Tax Return Form
• To submit the Income Tax Return Form by the due date.
• All supporting documents like business records, CP30 and receipts need not be submitted with Form P.
• Keep all business records, supporting documents for deductions, reliefs and rebate for a period of 7 years.
• Business records include profit and loss account, balance sheet, sales records, purchase records, stock receipts, bills
and bank statements.
• The last date for submission of Form B and P is 30th June.
• Payment of tax due (if any) should be made on or before 30th June.
• To comply with the installment scheme  (CP500) - link Installment Scheme CP500

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 Cash Receipts from sale of goods or from
services provided.

WHAT ARE All debts incurred from sale of goods and

services provided.

THE GROSS Receipts in Kind

INCOME
FROM Recovery of Bad Debts

BUSINESS? Insurance compensation received for

business loss

Withdrawal of business stock or stock taken

for personal use

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ADJUSTED INCOME FROM
BUSINESS SOURCE

Is derived from gross income after

deduction of business expenses
such as :
• Allowable business expenses
• Allowable specific expenses 
• Double deduction expenses
allowable under Income Tax Act
1967
• Export Allowances

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 BUSINESS EXPENSES:
REVENUE EXPENDITURE Vs
CAPITAL EXPENDITURE

Revenue expenditure: Capital expenditure:

(deductible)
Repairs of premises, plant,
machinery, fixtures employed
in the production of gross
income.
 Replacement on part of the
assets
Renewal
 Maintaining the
commercial viability of an
asset
(not deductible)
 Initial Expenditure
(before production)
 Connected with Business
Structure
 Improvement of an asset
 Fixed Capital
 Once and for all

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 NOT ALLOWABLE EXPENSES (S39 (1) ITA)

1. Domestic or private expenses.

2. Expenses not being wholly and exclusively laid out or expended
for the purpose of producing the gross income
3. Capital withdrawn or any sum employed or intended to be
employed as capital (payment for capital nature)
4. Any amount in respect of any payment to any pension,
provident, savings, widows and orphans or other similar fund or
society which is not approved scheme
5. Any expenditure incurred in relation to a business, being
expenditure which is: (to prevent double claim, cap allowance)
 Qualifying mining expenditure for the purpose of Sch 2
 Qualifying expenditure, qualifying agriculture expenditure or qualifying forest
expenditure for the purpose of Sch 3
 Qualifying prospecting expenditure for the purpose of Sch 4, or
 Qualifying farm expenditure for the purpose of Sch 4A
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 • Withholding tax
• Interest/royalty
CONTIN • Contract payment
UED… • Special classes of income
• where the payer fail to pay the withholding tax to
(non- tax authority.

allowable • Sums payable for the use of a license or permits

to extract timber from a forest in Malaysia other
expenses) than sums payable to a State Government or
statutory authority or body approved by the
Minister.
• Entertainment expenses incurred on clients
and/or suppliers (only 50% allowable)
• Leave passage provided by the employer to the
employees is not tax deductible. However, wef YA
2007, leave passage to facilitate a yearly event
12 within Msia will be tax deductible (which involves
the employer, the employee and immediate
family members of employee).
CONTIN
UED…
(non- • Initial expenditure (before production)
allowable • Cost of tax appeal.
expenses) • Expenses incurred of violation of law –
for example, fine, penalty or traffic
summonses (i.e overloading or
exceeding speed limit)

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Non-Business Income
•Non-business incomes are any other income that is not from the
activities of the main business. For example:
• Interest Income;
• Rental Income;
• Gain from disposal of assets

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ALLOWABLE EXPENSES S33(1)

Revenue expenditure that is “wholly and exclusively” incurred in

the production of business income:
 Salaries and wages for employees
 Rental expense on land and business premise
 Interest paid on money borrowed and employed in producing
income
 Repairs and renewals on business premise/plant/machinery
or fixtures employed in the production of gross income.

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 Insurance premium paid on
policy covering the
business from any losses
caused by
Continued… fire/theft/defalcation etc.
allowable
expenses
Transportation cost for
distributing goods or
rendering services.

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BUSINESS EXPENSES

Allowable Not Allowable

•Expenses incurred in the production
of income
Example :Payment for wages/ salary
•EPF Payment   •Payment of telephone bills
•Rental of business premise  
•Interest on business loan
•Expenses for repair of premise and
vehicles used for business purpose
•Personal expenses
Example :Accommodation benefit
 
•Purchase of personal assets
Example :Personal Car
•Furniture
Initial Expenses
Example :
•Expenditure on incorporation of
business venture
•Advertisement expenses

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 Bad debts written off.

Specific allowance for bad debts.

Contribution to EPF @ approved fund in respect to an employee-subject

to max contribution of 19%

SPECIFIC Cost of the equipment and renovation of building by the employer for
DEDUCTION the disabled employee to perform his duties.

Expenses incurred in providing practical training to not employees.

Bonus paid to employees (wef. YA2002)

Entertainment given to employees except where such provision is

incidental to the provision of entertainment for others (suppliers and
clients).

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CONTIN Cost of developing website, 20% of total costs, deduction are spread
throughout 5 years.
UED… Expenses incurred on the recruitment of employee. Even though this
specific cost incurred prior to the commencement of business, but it is
deductible.
deduction
Secretarial fee and tax filing fee.

Compensation paid to dismissal of unsatisfactory employee.

Cash contributions up to RM100,000 to build or equip public libraries,

libraries of schools or institutions of higher education. Donation in

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kind, however, restricted to the provision of library facilities.
 • Expenses incurred by businesses for the
CONTIN purposes of publishing or translating into
UED… the National Language of cultural,
literary, professional, scientific or
specific technical books approved by DBP.
deduction • Provision of entertainment for cultural
or sporting events open to members of
the public wholly to promote the
business.
• Payment for the benefit of employee:
• Monthly bill of broadband,
phone/pager
20 • Personal digital assistance, telephone,
mobile phone or pager
CONTINUE • An amount equal to the infrastructure
D… specific expense for public facilities – road, car
deduction park, toilet, jogging tracks, garden, etc.
(additional • Sponsorships for any arts or cultural
deduction activity approved by the Ministry of
for Culture, Arts and Tourism, up to
RM200,000.
company)
• Sponsorships for any arts or cultural
activity approved by the Ministry of
Culture, Arts and Tourism, up to
RM200,000.

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  Scholarship to University Students
 Approved internship program
 Participation in an approved career fair.
DOUBLE  Cash contribution to Bantuan Pelajar
DEDUCTIONS Miskin 1Malaysia Fund (needy students)
 Training cost to unemployed graduates.
 Expenditure on the maintenance of child
care centre; and child care allowance to
the persons employed
 Insurance premium for importing cargo
covered by insurance company of
Malaysia.
 Salaries/wages of disabled employees.
22  Freight charges for exporting rattan or
wood based products.
CONTIN • Research expenses:
UED… • Cash contributions to an approved
research institution
Double • Payment for the service used from
deduction R&D company or an R&D contract
• Overseas expenses incurred by hotel
and tourism business to promote
tourism.
• Expenses incurred by manufacturers,
trading company, hotel and tourism
business on approved training.
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 STATUTORY BUSINESS INCOME

Adjusted business income xxx

Add:
Balancing charge xxx
Less:
Balancing allowance (xxx)
Unabsorbed Capital allowance (xxx)
Capital allowance (xxx)
Statutory business income xxxx

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 • Is given as deduction from business income in place of depreciation
expenses incurred in purchase of business assets.
• Examples of assets used in a business are motor vehicles, machines,
office equipment, furniture and computers.
• Conditions for claiming capital allowance are  :
CAPITAL • Operating a business  

ALLOWAN •
•
Purchase of business assets
Assets are being used in the business
CE • Owner of the assets
• Subtracted from adjusted business income to derive statutory income
• The rate depends on the type of assets
• Any equipment for disabled employees are not entitled for capital
allowance if deduction is given under specific deduction
• In the case of disposal of asset, gain or loss will arise
• The gain/loss will be ignored but replaced with balancing charge or
balancing allowance
• Balancing charge – selling price > residual value: considered as gain
and taxable
• Balancing allowance – selling price < residual value: considered as loss

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and deductible from adjusted business income
• Capital allowance and balancing allowance can be brought forward to
the subsequent years until they are fully absorbed
 TYPES AND RATE OF
CAPITAL ALLOWANCE
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TYPES OF ALLOWANCES TYPES OF ASSESTS RATE (%)

Initial Allowance All types of assets 20 %

Annual Allowance Motor Vehicles and Heavy Machinery 20 %

Plant and Machinery 14 %

Office Equipment , Furniture and Fittings 10 %

Computer 20 %
ADJUSTE
D Adjusted loss: allowable
Current adjusted loss can
be deducted against
BUSINES expenses > gross
business income (s.40)
other income in the
S LOSS same basis year [s.44(2)]

Any unabsorbed adjusted

Unadjusted loss can be
loss can be brought
brought forward to
forward and deducted
subsequent years until it
against business source
is fully absorbed
only [s.43(2)]

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 BUSINESS AND NON BUSINESS SOURCE INCOME
 In case of there are other incomes apart from business income,
the statutory business income should first be determined.
 The format:
Statutory business income xxx
Less: Adjusted business loss b/f [43(2)] (xx)
Add: Non-business income xxx
Aggregate income xxxx
Less: Current year adjusted loss [44(2)] (xxx)
Approved donation (xxx)
Total Income xxxx
Less: Relief entitled (xxx)
Taxable/Chargeable income xxxx
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End of Chapter 7

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