Topic 7 Business Income

Topic 7
Business Income
Gains or profits from a business is
chargeable under S4(a)
Business :
Includes profession, vocation &
trade
&
every
manufacture,
adventure or concern in the nature
of trade, but excludes employment
Adapted from Dr Hijat (revised) 2010
Business Taxation
If a person has more than one
business
Each business is treated as
a
separate
source
of
business income
Derivation of Business
Income
Business
income
derived/deemed to be
from Msia if:
is
derived
the existence of a business/

source;
the
business
transaction
is 3
Business Basis Period

Since 2004, all business / non
business source of income of
individual will be assessed on
calendar year basis irrespective
of their year end
S21
Gross Income
Generally, all business income of
revenue nature are treated as gross
business income
ITA provide the following items also to
be treated specifically as gross income
(S22; S24)
credit sales/provision of services

a debt arising from the use of any
property in the course of carrying on
5
business Adapted from Dr Hijat (revised) 2010
Gross Income
the market value of stock taken
(withdrawal) for private use
recovery of bad debts
sums
receivable
by
way
of
insurances, indemnity, recoupment,
recovery & reimbursements
sums receivable under a contract of
indemnity
compensation for loss of business
6
income
Gross Income
to be excluded from gross income
income charged under sections
S4c-S4f
capital gains/loss (e.g.?)
unrealized FOREX gains
other!
Adjusted Income
Basic Concept
Gross Income
(-) Allowable Expenses
(XX)
XXX
YYY
Allowable Expenses ?
Adjusted Income
contd
relevant section
Sec 33, 34, 34A, 34B, 35 & 39
General principle [S33(1)]

all outgoings & expenses wholly &
exclusively incurred ...in the production of
gross income from that source (business)
Adjusted Income
contd
Specific Deduction [S33 & S34]

interest expense
rental expense
repairs & renewals of assets
- principles from case laws, see CKF2010, p 258
specific bad & doubtful debts

- see Public Ruling 1/2002
10
Adjusted Income
contd
Specific Deduction [contd]

contributions to an approved scheme
- restricted to 19%
practical training to non-employee
PC & broadband services (CKF 2010, p275)
11
Specific Deduction
contd
provision of (PO) equipment for

disabled employee
provision & maintenance of child
care centre for the benefit of
employees (capital exp excluded)
scientific research expenditure
12
Specific Deduction
contd
PO library facility & contributions

to public libraries & libraries of
school, IHL (up to RM100,000)
note : for non-business individual, the
amount shall be allowed as approved
donations & restricted to RM20,000
cost of establishing & managing a

musical/cultural activity approved
by Minister
13
Specific Deduction
contd
cost of sponsoring any arts/

cultural activity approved by the
Ministry
- up to RM500,000 in total
- restriction
(RM200,000)
applies
for
foreign
sponsorship
14
Specific Deduction
contd
PO services, public amenities &

contributions
to
a
charity/
community
project
wrt
education,
health,
housing,
infrastructure, & ICT
note : provided that, no further
deduction is allowed as donation
15
Specific Deduction
contd
cost of translation into / publication

(BM) of cultural, literary, scientific,
technical
/
professional
books
approved by DBP
Certain expenses are allowable to
company only, it will be covered in
advanced taxation, i.e.
S34(6)(I) - Sponsorship
S34(6)(m) Adapted
- Quality/halal
from Dr Hijat (revised) 2010Certification
16
Prohibited Deduction
Sec 39 prohibits the following:
domestic & private expenses
expenses not W & E incurred
capital withdrawn
contributions
scheme
qualifying capital expenditure

under Sch 2, 3 , 4 & 4A
to
non-approved
17
contd
50% of entertainment expenses (ENT)

are not deductible, but 100% is
allowable
in
the
following
circumstances :
-
ENT relates wholly to sales

ENT to employees
ENT business
Promotional gifts at foreign trade fairs
Promotional samples
Adapted from Dr Hijat
(revised) 2010
Cultural & sporting
events
18
Entertainment
Expenses contd
Guidelines on ENT expenses
Public Ruling 3/2008
Details Discussion
also refer CKF 2010, pp 268-271
19
contd
interest, royalty, contract payment,

special classes of income to non-resident
which do not comply with withholding
tax provision
- non-compliance with withholding tax provisions
Lease rental of non-commercial motor
vehicle in excess of RM100,000 (s.t. it is
new & the cost < RM150,000) otherwise, in
excess of RM50,000
20
Deduction Test
W & E incurred in the production of
gross income
incurred (not provision etc)
incurred in the relevant year
not specifically prohibited
a revenue expenditure
incidental in
carrying on a given21
business
Non-allowable expenses
- Case law
Example
cost of tax appeal
AGM expenses
(not in the production of gross income)
fines & penalty (violation of law)

acquisition of rights (capital)
FOREX loss on non-trading a/c
(not revenue)
22
Double Deduction
remuneration of disabled employee
approved R & D expenses
cash contribution to an approved
research institute/payment for the use
of the services of an approved
research institute/company, R & D
company/ a contract R & D company
cost of advertising Msian brand name

23
Double Deduction
cash contribution to an approved
research institute/payment for the use
of the services of an approved
research institute/company
insurance premium for the import/
export of cargo with insurance
company incorporated in Msia
export credit insurance taken with
MECIB
24
Double Deduction
freight charges for shipping goods
from Sabah/Sarawak to peninsular
export freight charges incurred by
manufacture of rattan & wood-based
product
others (available for company, see
advanced taxation)
25
Assessment : concept
Gross Income
Adjusted
allowable
expenses
prohibited
expenses
double
expenses
other income
Income
26
Format of Computation
Net profit/loss (as per a/c)
XXX
(+/- adjustment)
+ disallowable expenses
XXX
- double deduction
(XX)
- other source of income
(XX)
+/- non-taxable income/loss
27
Assessment : concept
Adjusted Income
Capital Allowance
etc
Statutory Income
28
Statutory Income
Adjusted Income
XXX
+ balancing charges
XXX
YYY
- capital allowance
- balancing allowance
(XX)
Statutory Income
XX
XX
29
Adjusted Loss
Adjusted loss (current year loss) is
deducted against aggregate income
(first) in arriving at total income
Aggregate Income
XXX
(-) : Current Year Loss
Approved Donations
(XX)
Total IncomeAdapted from Dr Hijat (revised) 2010
XX
XX
30
Adjusted Loss B/F

contd
The unabsorbed loss will be carried

forward and utilized only against
statutory income from ALL business
source
These business loss (B/F) cannot be
offset against non-business sources
31
Statutory Business
Income
Statutory income
Biz 1
Biz 2
- Business Loss B/F
Statutory Biz Income
YYY
+ Income S4c - 4f
ZZZ
XX
XX
XXX
(XX)
32
Capital Allowance
Depreciation (capital expenditure) is
not an allowable deduction
Instead,
capital
allowances
granted at various specified rates
are
balancing charge/allowance are also

relates to capital expenditure
See earlier chapter
allowance for details
on
capital
33
Capital Allowance
contd
CA are deducted against adjusted

business income
in case of adjusted loss/insufficient
adjusted income
the excess of CA (including
allowance) will be C/F
balancing
CA B/F can be deducted against the

adjusted income of the same
business source
only
Adapted from Dr Hijat
(revised) 2010
34
Example
Biz 1 (B1)
Adjusted Income B1
XXX
+ balancing charges B1
CY
- capital allowance B1
CY + BF
- balancing allowance B1 CY + BF
XXX
XX
(XX)
(XX)
Biz 2 (B2)
Adjusted Income B2
XXX
+ balancing charges B2
CY
- capital allowance B2
CY + BF
- balancing allowance B2 CY + BF
XX
(XX)
(XX)
35
Tax Computation
Format
Statutory Biz Income
- Business Loss B/F
Statutory Income S4a
+ S. Income S4b
+ S. Income S4c
+ S. Income S4d
+ S. Income S4 e f
Aggregate Income
- Current Year Loss
Approved Donations
Total Income
XXX
(XX)
YYY
XX
XX
XX
XX
XXX
(XX)
(XX)
(XX)
XXX
36
Tax Computation
Example 20.2 20.4

- page 403 410 (CKF 2010)
See also
e.g. 21.6 & 21.8 (CKF 2010)
These examples are for companies, some
cautious may necessary in the case of
individuals
37

Topic 7 Business Income

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Topic 7 Business Income

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Topic 7

the existence of a business/

Business Basis Period

credit sales/provision of services

General principle [S33(1)]

Specific Deduction [S33 & S34]

specific bad & doubtful debts

Specific Deduction [contd]

Adapted from Dr Hijat (revised) 2010

provision of (PO) equipment for

PO library facility & contributions

cost of establishing & managing a

cost of sponsoring any arts/

PO services, public amenities &

cost of translation into / publication

qualifying capital expenditure

Adapted from Dr Hijat (revised) 2010

50% of entertainment expenses (ENT)

ENT relates wholly to sales

Adapted from Dr Hijat (revised) 2010

interest, royalty, contract payment,

fines & penalty (violation of law)

cost of advertising Msian brand name

Adapted from Dr Hijat (revised) 2010

Adjusted Loss B/F

The unabsorbed loss will be carried

Adapted from Dr Hijat (revised) 2010

balancing charge/allowance are also

CA are deducted against adjusted

CA B/F can be deducted against the

Example 20.2 20.4

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