06 Eppa 3023 Topic 6
06 Eppa 3023 Topic 6
TAXATION I
INCOME TAX:
SOLE PROPRIETORSHIP
BUSINESS
fatimahrashid@ukm.edu.my
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SECTION 4 ITA 1967: Gain or
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profit from
CLASSES OF INCOME a business
(a)
S4 (a) - (e)
Gain or
Gains or profits not falling
(b) profits from
under any of the foregoing
(f) an
paragraphs
employment
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SECTION 12(a) ITA 1967:
BUSINESS INCOME DERIVED IN MALAYSIA
Business income unrelated to business conducted outside Malaysia
is considered derived in Malaysia.
As an indication, business income is derived in Malaysia if it meets
one or more of the below:
a. contract made in Malaysia
b. stockpiles in Malaysia
c. surrender of ownership and risk in Malaysia
d. sales income received in Malaysia
e. services provided in Malaysia
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HOW TO CALCULATE BUSINESS INCOME FOR TAX
time.
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HOW TO CALCULATE BUSINESS INCOME FOR TAX
RM
Net income/ loss xx
Add: Non-allowable/ Non-deductible expenses xx
Add: Expenses under a specific section (donation) xx
Less: Other income (e.g. rental, dividend) (xx)
Less: Double deduction expenses (xx)
Adjusted income/ loss xx
Add: balancing charge xx
Less: balancing allowance (xx)
Less: capital allowance (xx)
Section 4(a): Business statutory income xx
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HOW TO CALCULATE BUSINESS INCOME FOR TAX
1. Identify business income
i. Income derived from the business’s main activities
[Example: Printing Business.... Main income???]
ii. Income refers to revenue income and NOT Capital
Income [example: Sale of fixed assets (printing
machine)]
iii. The income is derived or earned in Malaysia
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HOW TO CALCULATE BUSINESS INCOME FOR TAX
requires adjustment
adjustment
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HOW TO CALCULATE BUSINESS INCOME FOR TAX
i. Allowable expenses
WHOLLY &
EXCLUSIVELY REVENUE
EXPENDITURE
not capital
‘wholly and exclusively’ principles: expenditure
The purpose of the expenses must be applicable and solely for the
business.
The expenses involved must be directly related to the business.
Expenses to ensure that the business remains competitive and efficient.
Expenses must have been involved and accrued, even if they have not
been paid.
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HOW TO CALCULATE BUSINESS INCOME FOR TAX
i. Allowable expenses
Salary, travel allowance, employee
entertainment allowance:
allowed if not the owner
Employer's EPF contribution:
1. The cost of goods sold
The maximum allowed is the lowest: total
2. Salary, travel allowance, employee
contribution v 19% x employee's salary.
entertainment allowance Initial contributions to approved places are also
3. Employer's contribution to approved EPF allowed.
4. Water and electricity expenses Repair expenses:
5. Rental expenses of business premises If the replacement involves the entire asset, then
6. Repair expenses (partial refurbishment/non- it is not allowed.
renovation) If repair is involved when buying an asset then it
7. Replacement expenses is not allowed (the asset is purchased in a
8. Entertainment expenses for employees damaged state).
i. Allowable expenses
Question?
Petrol, toll and parking expenses for promotions
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HOW TO CALCULATE BUSINESS INCOME FOR TAX
ii. Non-allowable/ Non-deductible
expenses
Expenses that do not involve Capital
cash outflows, only expenditure
estimates Starting/ closing a business expenses
Depreciation expenses Admission fee (initial) to a club
Provision of doubtful debts & bad debts Legal and professional fees associated with:
Provision for retirement rewards/ benefits a. violation of the law (loss on transactions that do not
Provision for warranty costs/ obsolete follow normal practice, tax appeal expenses)
stock b. capital structure of the company
However, the portion of the allocation that c. acquisition of loans or assets
really involves expenses such as warranty Fines imposed for violation of the law
expenses and bad debt expenses is allowed. Trademark registration
Payment for designing a company logo
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HOW TO CALCULATE BUSINESS INCOME FOR TAX
RM
Net income/ loss xx
Add: Non-allowable/ Non-deductible expenses xx
Add: Expenses under a specific section (donation) xx
Less: Other income (e.g. rental, dividend) (xx)
Less: Double deduction expenses (xx)
Adjusted income/ loss xx
Add: balancing charge xx
Less: balancing allowance (xx)
Less: capital allowance (xx)
Section 4(a): Business statutory income xx
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THANK YOU
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