Business expenses

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General Deductible expenses

 Allow to be deducted from gross income.
 Must be revenue in nature not capital
 Types of deductible expenses:
1. Outgoing and expenses
 Includes business loss due to defalcation of employees,
theft, bad debts
2. Solely for that purpose
 Expenses must be incurred wholly and exclusively for
business purpose
3. Incurred in the basis period for year of assessment
 Expensesmust be incurred in the basis year of
assessment.
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Con’t
4. For the purpose of producing income
 Any expenses that incurred in producing income
such as, salary, wages, advertisement, selling,
administration, entertainment on staff
5. Interest payable (CKF page 253-254)
 Upon any money borrowed and employed in the
production of gross income @ laid out on asset
used for the production of gross income. eg.
Interest on loan
 W.e.f YA2014, interest expense is deducted when
it is due to be paid by reference to the time where
the lender is able to obtain on demand such
interest
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Con’t
6. Rent payable (CKF page 255-256)
 In respect of land and building occupied for the
purpose of producing income
 Would be treated as deduction if it was:
a. Payable for occupying the land/buildings
(immovable properties)
b. Use in relation to the period
c. Incurred for the purpose of producing gross
income of that source
 Refer example 14.13 & 14.14
 Advance rental = is not allowed to be deducted
in the period received
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Con’t
7. Repair and renewal (CKF page 256-261)
 Solelyincurred for repair but not improvement
 see example 14.15, 14.16 & 14.17

8. Bad and doubtful debts (CKF page 261-

265)
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Cont….
9. Employer’s contribution to approved
scheme (CKF page 265-266)
10. Legal and professional expenses (CKF
page 266-267)
11. Advances to employees (CKF page 267)
12. Defalcation by employees/directors (CKF
page 268)
13. Key-man insurance premium (CKF page
268)
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Specific Allowable Expenses

1. Payroll and turnover tax
2. Mining expenditure
3. Replanting expenditure
4. Cost of the equipment and renovation of
building for the disabled employee to perform
his duties.
5. Expenses incurred by businesses for the
purposes of publishing or translating into the
National Language of cultural, literary,
professional, scientific or technical books
approved by DBP.
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Specific Allowable Expenses…

6. Provision of library facilities S34(6)(g)

─ incurred expenditure or contributed to build or
equip public libraries, libraries of schools or
institutions of higher education. Restricted to
RM100,000
─ Cash contribution?
Option is given of whether to claim under S34(6)(g)
OR as donation S44(8) restricted to RM20,000
7. Social responsibility payment
8. Provision and maintenance of a child care
centre for the benefit of employees.
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Specific Allowable Expenses….

9. Musical and cultural group
10. Sponsorships for any local or foreign arts or
cultural or heritage activity approved by the
Ministry of Tourism &Culture. (CKF page 279-
281)
11. Scholarships granted to needy full-time students
in local institutions. (company only)
12. Halal certification (only for company)
13. Expenses incurred in providing practical
training to non employees
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Specific Allowable Expenses….

14. Expenses incurred on International
standardization activities (only for company)
15. IT related expenditure
16. Statutory audit fees (effective from YA2006)
21. Cost of developing websites at 20% annually for
a period of 5 years. (w.e.f YA2002)
22. Incorporation expenses
 Authorised capital not exceeding RM2.5 million.
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Non-deductible expenses
 Domestic or private expenses
 Any disbursement or expense not being money
wholly and exclusively laid out or expended for
the purpose of producing the gross income
 Capital withdrawn
 Amount made to unapproved scheme
 Depreciation
 Unapproved donation
 Renovation
 Fines and penalties
 Bonus of employees (excess 2/12 of remuneration)
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Non-deductible expenses…
General provision for bad debt
Bad debt (other than trade debtor)
Bad debts written off
Specific allowance for bad debts
Insurance premium (own vehicle, life of
owner and family)
Holiday / leave passage to employee – w.e.f
YA2007 leave passage to facilitate a yearly
event within M’sia which involved the
employer, employee & immediate family will
be tax deductible.
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Non-deductible expenses…
 Purchase other products as a gift to
customer
 Interest paid for loan to buy share.
 Employer contribution to approved fund
in respect to an employee - subject to max
contribution of 19%
 Lease rental paid: (refer CKF pg. 273)
1. for passenger vehicles used in business -
LIMITED
2. for commercial vehicles - UNLIMITED
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Non-deductible expenses…

Entertainment expenses
─ W.e.f YA2004, 50% deductible (refer CKF pg 254-
255)
─ W.e.f YA2014, has been defined with wider scope to
include expenses incurred for the purpose of
promoting business with or without considerations

 Exceptions:
1. entertainment provided to employees
2. entertainment business
3. promotional gifts at foreign trade fairs
4. promotional samples
5. cultural/ sporting events opened to public
6. entertainment relates wholly to sales
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Non-deductible expenses…
 Pre-commencement expenditure
 Recruitment cost & training cost incurred within
1 year prior to the commencement of a business
 allowable for deduction in the 1st YA only
 Cash contributions to the Government, a State
Government and a Local Authority or an
approved institution/organisation provided that
the amount to be deducted shall not exceed 5%
of the aggregate income of the company.
 Contributions of local artworks to the
States/National Art Gallery.
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Double deduction
Expenses that can be allowed to be deducted
for the second time from adjusted income of
a business.
The expenses are:
1. Remuneration of handicapped employees
2. Approved internship program
3. Participation in an approved career fair
4. Freight charges for shipping goods from
Sabah/Sarawak to Peninsular Msia
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Double deduction
5. Child care centre
Effective YA2013
Refer CKF pg 298

6. Expenditure incurred for unemployed graduates

under Skim Latihan 1Malaysia Programme
(SL1M)
7. Vendor development programme
 Expenditure incurred up to RM300,000 per year by
anchor company approved by MITI
 Refer page 275
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Double deduction….
8. Revenue expenditure incurred in approved
research
9. Insurance premium for importing cargo
covered by insurance company of Malaysia.
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End of topic….