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06 Eppa 3023 Topic 6

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0% found this document useful (0 votes)
15 views18 pages

06 Eppa 3023 Topic 6

Uploaded by

shawnkao20021024
Copyright
© © All Rights Reserved
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EPPA3023:

TAXATION I
INCOME TAX:
SOLE PROPRIETORSHIP
BUSINESS
fatimahrashid@ukm.edu.my

1
SECTION 4 ITA 1967: Gain or
2

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

Pentions, annuities or other


periodical payments not (c) Dividend, interest or
falling under any of the (e) discount
foregoing paragraph
(d)

Rents, royalties and premiums 2


3
SECTION 2 ITA 1967:
DEFINITION OF BUSINESS INCOME
Including income:
from profession, vocation and trade
and from every manufacturing, venture or business in the form of trade
but does not include employment
Section 4(a):
revenue income is subject to this section
capital income is not subject to this section
VOCATION:
PROFESSION: involves a 'call' made on a TRADE: Separate
jobs that involve skills which person due to his abilities. involves solely sales transactions,
are controlled by those who and purchase activities whether one
involves solely sales solely. sale per
practice.
and purchase purchase or
activities. one purchase
CRITERIA:
Consists of the sequence of transactions, there of multiple
is a continuation and repetition of sales and sales.
purchases or manufacturing and sales Profit oriented
Business income subject to Section 4(a) includes professional
SECTION and capable individuals who use their profession and abilities for
4(a) ITA profit.
1967: For tax assessment, if an individual owns a sole business or
WHO IS partnership, it is necessary to fill out Form B.
TAXED Basis period of sole proprietorship & partnership
calender year (1 Jan - 31 Dec)
Partnership businesses are not counted as 'persons' who have to pay taxes. Partners who have to pay taxes for themselves.
However, partners need to fill out a P form for the partnership as an IRBM record.
Company – either Berhad or Sdn. Bhd. must fill in Form C for company tax assessment (basic period: date of closing of company
account)

4
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

5
HOW TO CALCULATE BUSINESS INCOME FOR TAX

If a company makes a profit, then it will be taxed

If a company suffers losses, then it is not taxed.

The profit or loss of a company is indicated by the

financial statements prepared for a certain period of

time.

6
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

7
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

8
HOW TO CALCULATE BUSINESS INCOME FOR TAX

2. Identify the expenses involved


i. Allowable expenses - no adjustment required

ii. Non-allowable/ Non-deductible expenses -

requires adjustment

iii. Double deduction expenses - requires

adjustment

9
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.
10
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).

9. Promotional expenses Entertainment expenses for employees:


100% allowed: if it involves only staff for official duties
10. Research & development (R&D) expenses
(annual dinner, secretary's day, place of recreation).
11. Interest on loans (purpose of loan to
50% allowed:
generate income) if involved an outside party but for official duties (a
12. Uncollectible bad debt expenses ceremony celebrating employees whose customers are
13. Specific capital expenditure involved)
customer/ supplier (outside parties) entertainment
11
expenses
HOW TO CALCULATE BUSINESS INCOME FOR TAX
i. Allowable expenses
1. The cost of goods sold Promotional expenses includes:
2. Salary, travel allowance, employee Expenses for promoting goods outside Malaysia
entertainment allowance Expenses for preparing samples of goods for
3. Employer's contribution to approved EPF promotional activities
4. Water and electricity expenses
5. Rental expenses of business premises Capital expenditure allowed under Section 34(6):
6. Repair expenses (partial refurbishment/non- Mining expenses
Replanting expenses
renovation)
Purchase of support equipment for disabled workers
7. Replacement expenses Expenses related to the project of translating books or
8. Entertainment expenses for employees works recognized by the government
9. Promotional expenses Expenses for providing a library for public use
10. Research & development (R&D) expenses Expenses of providing facilities for public use, such as
11. Interest on loans (purpose of loan to halls, hospitals, which are recognized by the government
generate income) Expenses of providing a nursery for employees children
Expenses for preparing or managing a government-
12. Uncollectible bad debt expenses
recognized music and cultural group but limited to
13. Specific capital expenditure
RM200,000 per year
12
HOW TO CALCULATE BUSINESS INCOME FOR TAX

i. Allowable expenses
Question?
Petrol, toll and parking expenses for promotions

Wages of part-time employees of promotional activities

Purchase of a van for promotional purposes

Interest expenses for a loan to do business

13
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

14
15

HOW TO CALCULATE BUSINESS INCOME FOR TAX


ii. Non-allowable/ Non-deductible
expenses
Expenses prohibited under Asset-related capital
Section 39 expenditure
"Private and domestic" expenses (dual purposes)
Expenses that are not fully and exclusively for the purpose of Renovation of factories, office premises
generating gross income Improvements for major repairs
Example: Small value capital goods e.g. chairs, calculators
overpayment paid to family members and others
Personal expenses of a company director Machine installation costs charged in repair and
private phone bill maintenance accounts
holiday fare Deposit paid for phone or utilities
cash drawings by the director Replacement of the electric alarm system
Owners holiday expenses (leave passage, other than the annual Note of advance payments to employees:
leave passage given to employees) 1. for the reason of carrying out the job-related task is allowed to
be deducted.
If there is a 'dual-purpose' between business and non-business, and
2. loss from lending to employees is not allowed because it is not
business expenses is the majority, then all expenses are eligible to be related to the income of the business.
deducted.
HOW TO CALCULATE BUSINESS INCOME FOR TAX
iii. Double deduction expenses

1. Insurance premiums for importer

2. Insurance premiums for exporters

3. salary or wages of disabled workers

4. Expenses for promotion of manufactured goods for export

5. Research and development (R&D) for the export market

16
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

17
THANK YOU

18

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