Notes UnderstandingTaxDeductibility

UNDERSTANDING
TAX
DEDUCTIBILITY OF EXPENSES
Presented by:
Kularaj K. Kulathungam
For
Malaysian Institute of Accountants
Copyrights of KR Tax Consultants Sdn

Sdn.. Bhd. 1
2021 - Not to be reproduced or disseminated
without written permission
DISCLAIMER

All views and opinions expressed in this presentation either in writing or
verbally are those of KR Tax Consultants Sdn
Sdn.. Bhd
Bhd.. and they do not in any
way reflect the official view of the relevant taxation authorities in
Malaysia..
Malaysia

The information being presented are based on the Malaysian Income Tax
Act 1967
1967,, Income Tax Public Rulings, tax cases and Gazette Orders
applicable together with facts as per queries issued either verbally or
otherwise..
otherwise

For further in
in--depth clarification, kindly seek written advice from various
experts in the relevant field
field..

KR Tax Consultants SdnSdn.. Bhd
Bhd.. will not be liable for any form of loss
suffered as a result of reliance placed on this presentation without prior
expert consultation
consultation..
Copyrights of KR Tax Consultants Sdn. Bhd. 2

WORKSHOP OBJECTIVES
OBJECTIVES..
 Understand provisions of the ITA

1967 related to expenses
 Understand regulations in respect
of deductibility of expenses
 Examine selected Public Rulings
related to expenses

Scope of Charge To Tax
Tax..
 Sec. 3 ITA 67 – The charging section

Sec.
states that :
– Income tax shall be charged for each Y/A
upon the income of any person
accruing in or derived from
Malaysia or received in Malaysia
from outside Malaysia

Deductions of Expenses
 Two types of deductions
– General deductions
– Specifically disallowed deductions
 Provisions for deductible and non non--deductible

expenses are found in sections 33
33,, 34
34,, 34
34A,
A, 34
34B,
B,
35 and 39 of the ITA
ITA67
67
Expenses..
 General deductions  deductions

not confined to a business source
 Sections 33 and 39 of ITA 1967
provide the rules that relate to
general deductions

 Sec. 33 (1) ITA 1967-
1967- General Principle of
Deductions
Adjusted Income = Gross Income - Deductible
Expenses .
Sec. 33(1)(a) – (d) - Specific Deductions
 Sec. 39
Sec. 39((1)(a)
)(a)––(r) - Lists out the Specifically
Non--Deductible Expenses
Non Expenses..
DEDUCTION OF EXPENDITURE
ALLOWABLE SPECIFIC DISALLOWABLE

SECTION 33 (1) SECTION 39(1)
S. 33(1)(a) - INTEREST S. 39(1)(a) – (r)
S. 33(1)(b) - RENT
S. 33(1)(c) – REPAIRS / RENEWAL
S. 33(1)(d) - OTHERS
 Sec. 33 (1) – Sets out the General Deduction
Sec.
formula to arrive at the Adjusted Income
Income..
 Sec.. 33 (1) (a) - (d) – Set out some Specific
Sec
Deductions which can be made provided the said
expenses were wholly and exclusively incurred in the
production of gross income
income..
– Sec. 33 (1) (a) – Interest expense
– Sec. 33 (1) (b) – Rent
– Sec. 33 (1) (c) – Repairs & Renewals
– Sec
Sec.. 33 (1) (d) – Other prescribed deductions
(made by Minister under SecSec..154
154))
 Note : The expenses under Sec Sec.. 33 apply to both
income is from a business or non
non--business source
Expenses..
 Sec. 33
Sec. 33((1) – Subject to this Act, the Adjusted
Income of a person from a source for the
basis period for a year of assessment shall be
ascertained by deducting from the gross
income of that person from that source for
that period all outgoings and expenses
wholly and exclusively incurred during
that period by that person in the
production of gross income from that
source

Section 34 ITA 1967
 Details the specific deductions allowable in
calculating adjusted income from a business
and includes :
– Debts which at the end of a basis period are
reasonably estimated to be wholly or partially
irrecoverable
– Contributions by employers to an approved
scheme not exceeding 19 19%% of an employees
remuneration (w.e.f. YA 1998
1998))
– Schedule 2 deductions i.e. mining allowances
– Expenses incurred in providing equipment or
alteration of premises for disabled employees
employees…….
Refer s.34
34((6).
Section 35 – ITA 1967
 Provides rules on the treatment of stock-
stock-in
in--trade
 Stock in trade means movable or immovable
property, being either
– Property, which is being sold in the ordinary course of the
business or will be sold when its manufacture, preparation
or construction is complete
complete;; or
– Material used in the manufacture, preparation or
construction of the property mentioned
 Stock therefore comprises of
– Finished goods
– Work
Work--in
in--progress, and/or
– Raw material
 Valuation of Stock – s. 35(3)(a)
– provides rules for valuing physical / tangible stock in trade
 Market value, or
 Cost of acquiring stock and bringing it to its present
condition and location
 NOTE:
– Provision made for stock obsolescence is not deductible as
an expense for tax purposes because its considered
unrealised loss
– Can be allowed when expense is eventually incurred i.e.
realised loss

 Power to DGIR to direct special treatment

in computing business income
– Applies to certain cases
 Hire purchase transactions
 Debts payable by instalments
 Lease transactions on movable

property .. etc
1967..
 Specifies types of expenditure that
specifically cannot be allowed as a
deduction in ascertaining the
adjusted income of any person from
the gross income from any source
for the basis period for a year of
assessment
Expenditure – Capital or
Revenue?
 ITA 1967 does not provide definitions of
what constitutes capital expenses or
revenue expenses
expenses..
 Therefore principles or guidelines must be
obtained by reference to case laws BUT
when applying these principles, we must
be fully aware of the facts of the case to
be decided upon
Revenue?
Revenue ?.
 Is expenditure considered capital if :
– Payment is via a lump sum ?
 Is expenditure considered revenue if :

– Payment is periodic or recurring ?
 Are the above considered conclusive

evidence?
Revenue?
 Is expenditure incurred in relation to profit
structure or is it for business process ?
– If expense was towards the profit profit--

yielding structure, it could be deemed a
capital expenditure
 Refer Sun Newspaper Ltd v FC of T
[1938
1938]] 61 CLR 337

PUBLIC RULINGS TO BE DISCUSSED
 PR 4/2012
– Deduction for Loss of Cash and Treatment of Recoveries
 PR 11/2013
– Allowable Pre
Pre--Operational and Pre
Pre--Commencement of
Business Expenditure
 PR 3/2015
– Failure to Furnish Information Within a Stipulated Period
 PR 4/2015
– Entertainment Expenditure
 PR 8/2015
– Loan or Advances to Director by a Company
 PR 9/2015
– Deduction of Interest Expense and Recognition of Interest
Income for Loan Transactions Between Related Persons
 PR 1/2019
– Professional Indemnity Insurance
 PR 3/2019
– Business Expenses in Respect of Disabled Persons
 PR 4/2019
– Tax treatment of Wholly or Partially Irrecoverable Debts
and Debt Recoveries
 PR 6/2019
– Tax Treatment on Expenditure for Repairs and Renewals of
Assets Copyrights of KR Tax Consultants Sdn. Bhd. 20
 PR 12/2019
– Tax Treatment on FOREX Gains or Losses
 PR 4/2020
– Tax Treatment of Any Sum Received and a Debt Owing in
Respect of Services Rendered
 PR 5/2020
– Tax Treatment of R&D Expenditure Part I
 PR 6/2020
– Tax Treatment of R&D Expenditure Part II
 PR 7/2020
– Appeal Against an Assessment and Application for Relief

WHAT ARE PUBLIC RULINGS
 DGIR’s interpretation of application of
ITA 1967 provisions
 First Public Ruling – 01
01//03
03//2000
 Law:: s. 138
Law 138AA
– inserted w.e.f. 01
01//01
01//2006
– No prior specific provision in ITA

ADVANCE RULINGS
 Law: s. 138B
– Inserted w.e.f
w.e.f.. 01/01/2007
– DGIR issues statement on tax treatment of
arrangement to be undertaken by taxpayer
– Applies only to specific taxpayer
– Can be withdrawn by DGIR at anytime with
notice to taxpayer
– Will not apply if actual arrangement differs
materially, or if there is misrepresentation

Public Ruling 4 / 2012
Deduction for Loss of Cash and
Treatment of Recoveries
 Issue:
Issue:
– Deductibility of loss of cash in the course of
business
– Loss caused by theft, defalcation or embezzlement,
and
– Income tax treatment of recoveries in respect of
loss of cash given a deduction
 Law:: s. 22 and s. 33 ITA 1967
Law
 Replaces:: Public Ruling 5/2005
Replaces
 Meaning of words used in PR
– “Employee”
 Subordinate employee but excludes an employee in
a managerial capacity,
– “Recoveries”
 Monies received in connection with loss of cash
caused by theft, defalcation or embezzlement

– “Director”
 Any person who occupies the position of a director
or any person in accordance with whose directions
or instructions the directors or staff of a company
are accustom to act,
– “Cash”
 Cash and cheques in respect of trading transactions

 Deductibility of Loss of cash
– Causes:
 theft,
 Defalcation, or
 embezzlement
– in the course of business

 Allowable deduction if
– Loss is incidental to business carried on
 Basis of Deductibility
– Loss must be supported by sufficient evidence
 Factors to consider before making claimclaim::
– Person involved
 Embezzlement or defalcation
– Employee
 Theft or robbery
– Employee or 3rd party

 Factors (continued)
– Action taken against person involved:
 Police report,
 Termination of service,
 Recovery of loss
– Situation in which loss occurs

occurs::
 Incident is a recognised incident of the taxpayers
business
 Occurs in ordinary course of carrying on business

Recoveries..
– Amount of loss
 Not out of proportion to the reasonably expected
risks of the business
 Deductibility
– May be allowed in computing adjusted income
– Examine conditions / circumstances according
to reasons loss occurred

 Circumstances for Deductibility
– 3rd Party caused Theft / Embezzlement
 If banking of cash takings is necessary part of
business operations
– Loss of cash while in transit to bank =
ALLOWABLE
 If agent assigned to collect cash embezzles
– Loss of cash = ALLOWABLE

– Example
Example:: agent collects installments from clients
 Agent absconds and cannot be traced

– Theft or embezzlement by employee
 If loss arises directly from necessity to
delegate duties of business to employee
 Loss is ALLOWABLE
– Example
Example::
 Bank teller stealing money from
customer accounts
accounts..
 Bank discovers theft
 Bank terminates services of teller

Recoveries..
 Circumstances for Non Non--Deductibility
– Employee involved in theft, defalcation or
embezzlement
 is relative of proprietor / employer
 Proprietor chooses to overlook matter
 proprietor continues to employ offender
– NOT REGARDED AS A TRADE LOSS

 Circumstances for Non- Non-Deductibility
– Loss caused by theft, burglary or robbery not
incidental to business
 Example
Example:: Sole
Sole--proprietor routinely stores business
collections in a safe / strong room at his house
House gets burgled and cash lost
Loss NOT ALLOWED
 Loss fallen on owner of cash
 Cash temporarily not used in business

 Types of Supporting Evidence
– Police report,
– Bank statement,
– Proof of responsibility of staff involved,
– Letter of termination of staff involved,
– Minutes of BOD meeting,
– Proof of recovery action, or
– Other relevant actions
 NOTE:: More than one of above required
NOTE
 Tax Treatment of Recoveries
– If loss of cash is allowed as deduction => any
recovery will be taxed as gross income of business
– Types / method of recoveries
 Insurance
 Agreement of payment from employee

concerned
 Legal action, or
 Other recovery actions

 Section 22(2) ITA 1967
– Recovery of cash is gross income from a
business for a YA in which it is receivable or
deemed to have been received
received..
– Actual date cash is received is irrelevant
 NOTE
NOTE:: PR 5/2005 states gross income
“when received”

 Example 1
Employee, a cashier of Company A whose
accounts close on 30 June each year, embezzles
RM60
RM 60,,000 from company in 2009
2009..
Company claimed insurance claim on 25 June
2009 for loss of cash
cash..
Insurance company paid RM 50 50,,000 on 31
January 2012
2012..

 Tax Treatment
– Loss of cash allowed as deduction in YA 2009
– Insurance receipts of RM RM50
50,,000 taxed as
income of business in YA 2013

 Example 2
– Facts similar to Example 1 except Company A
settles claim with insurance company for
RM45
RM 45,,000 on 14 June 2011 and received
payment cheque on 31 January 2012
2012..
– Tax treatment
 RM
RM4545,,000 deemed receivable on 14 June
2011 and taxed in YA 2011

Public Ruling 11/2013
Allowable Pre-
Pre-Operational & Pre
Commencement of Business Expenditure
 Issue::
Issue
– Treatment of pre
pre--operational or pre
pre--
commencement of business expense
 Law: Sch
Law: Sch.. 4B ITA 1967 & Rules issued
by MOF
 Effective:: November 2013 onwards
Effective
(replaces PR 2/2010
2010))

Allowable Pre-
 Rules Covered in PR 11/2013
– IT (Deduction for Incorporation Expenses) Rules 2003 & Rules
2005
– IT (Deduction for Approved Training) Rules 1992 & Rules 1995
– IT (Deduction of Pre Pre--Commencement of Business Training
Expenses) Rules 1996
– IT (Deduction for Establishment Expenditure of REIT or Property
Trust Fund) Rules 2006
– IT (Deduction on Expenditure for Establishment of an Islamic
Stock Broking Business) Rules 2007
– IT (Deduction of Pre Pre--Commencement of Business Expenses
Relating to Employee Recruitment) Rules 2008
– IT (Deduction for Expenditure – Franchise Fees) Rules 2012
Allowable Pre-
 Definition of Terms
– “Pre
“Pre--operational” - refer Sch 4B Para 2
– “Pre
“Pre--commencement” – refer relevant
conditions in Rules issued by MOF
– “Date of commencement” – based on fact
 General Rule
– Expenses prior to commencement NOT
ALLOWABLE
Allowable Pre-
 Sch 4B ITA - General

– Pre
Pre--operational business expenditure related
to investment in business venture outside
Malaysia
– Claimable if
 Claimant company resident in Malaysia,
and
 MOF approved the business venture

Allowable Pre-
 Sch. 4B – Qualifying Expenses
– Cost of feasibility studies,
– Cost of market research or market survey
– Cost of travel outside Malaysia
 for a representative
 for conducting feasibility / market survey
– Cost for accommodation and sustenance

 Not exceeding RM RM400
400 per day
 From date of departure from to date of return to
Malaysia
Allowable Pre-
 IT (Deduction for Incorporation Expenses)

Rules 2003 & Rules 2005
 W.E.F YA 2004 – Qualifying Conditions:
– Companies incorporated in Malaysia
 On or after 13 13//09
09//2003 with authorised
capital not more than RMRM2 2,500
500,,000 or
 On or after 01 01//01
01//1973 but before
13//09
13 09//2003 with authorised capital not more
than RM
RM250
250,,000
Allowable Pre-
Expenditure..
 Allowable incorporation expenses
– Preparing and printing M&A, prospectus as well as
circulating & advertising prospectus,
– Co
Co.. registration cost, including
 Statutory documents related to registration,
 Fees, stamp duty payable on above
– Cost to draw up preliminary contracts and related stamp

duties
– Cost to print debentures and related stamp duties
– Cost to prepare share certs and allotment letters,
– Company seal
– Underwriting commission
Allowable Pre-
 IT (Deduction for Approved Training) Rules 1992 & Rules
1995
– Double deduction given to manufacturing companies
w.e.f. YA 1992
 Conditions for incentive
– Expenditure incurred during pre pre--commencement
period
– Expenditure for training employees for acquiring
 Crafts, supervisory skills or technical skills
 Training must contribute directly to future

production of company products
Allowable Pre-
– Training programme approved by MIDA, or
– Conducted by MOF approved training institution,
– Employees are Malaysian citizens
– w.e.f. 1.7.1993 HRDF contributors NOT eligible
 Qualifying expenditure
– Double the actual expenditure paid to training
provider
– Supporting documents - MIDA approval letter or
Training provider’s confirmation letter
Allowable Pre-
 IT (Deduction of PrePre--Commencement of
Business Training Expenses) Rules 1996
- Single deduction w.e.f. YA 1996
- Training prior to commencement
 Training must be to impart basic skills to enable
company to commence business
 Training expenses incurred within one year prior
to commencement of business
 Training expenses are s. 33 ITA allowable
Allowable Pre-
 Companies which do not qualify

– Receiving grants from government
– Claim double deduction of training under IT
(Deduction for Approved Training) Rules
1992 & Rules 1995

Allowable Pre-
 IT (Deduction of Pre Pre--Commencement of

Business Expenses Relating to Employee
Recruitment) Rules 2008
– w.e.f. YA 2009 - Single deduction given to
person incurring expenses of recruiting
employees prior to commencement of
business

Allowable Pre-
 Allowable Expenses
– Expenses on recruitment to enable
business to commence
– Expenses as allowed under s. 33 ITA
1967
– Expenses incurred within one year prior
to commencement of business

Allowable Pre-
 Allowable expenses include:

– Expenses incurred in participating in job
fairs
– Payment to employment agencies
– Payment to “head hunters”
 Expenses will be deemed incurred on
day business commences

Allowable Pre-
 Franchise Fee
– One
One--off payment payable by franchisee to franchisor
payable for the grant of rights by franchisor
 Payment should not include royalty or other
periodical payments
 Deemed incurred in basis period for YA when
franchise business commenced
– Income Tax (Deduction For Expenditure On Franchise
Fee) Rules 2012 [P
[P..U. (A) 76
76//2012
2012]] w.e.f. YA 2012

Failure To Furnish Information Within A
Stipulated Period
 Issue:
Issue:
– Clarifies Income tax treatment of a
taxpayer or person who fails to furnish
information within a stipulated period
 Law:: s. 2, s. 33(1), 39(1A), 81, 82, and
Law
82A ITA 1967
 Effective:: YA 2014
Effective

Stipulated Period
 S. 39
39((1A) – w.e.f. YA 2014
– in ascertaining adjusted income, no
deduction of expenses from gross
income shall be allowed if the person fails
to comply with a notice issued by DGIR
under s. 81
– requiring the furnishing of information in
respect of deduction claimed within a
specified time as allowed by DGIR
Stipulated Period
Period..
 DGIR will in the notice
– specifically identify the type or types of
expenses for which information is
required, AND
– specify the verification documents
required to be submitted
 Deductions only allowed if records or
documents submitted meets requirement of
DGIR as specified
Stipulated Period
 Should records be unavailable due to
circumstances beyond taxpayers control, must
submit supporting evidence
– Refer supporting evidence list as per PR
4/2012 “Loss of Cash and Treatment of
Recoveries”, OR
– Obtain 3rd party confirmation
 If obtainable but not produced by taxpayer,
deduction will be disallowed
Entertainment Expense
 Issue:
Issue:
– Tax treatment of entertainment expense as deduction
against gross income of a business
– Steps for determination of amount of entertainment
expenses allowable
 Law:: s. 18, s. 33(1) and s. 39(1)(l) ITA 1967
Law
 Effective:: YA 2014 onwards
Effective
 Replaces: PR3/2008

 Meaning of terms
– “Entertainment
Entertainment”” includes
 Provision of food, drink, recreation or hospitality of
any kind, or
 Provision of accommodation or travel in connection
with or for the purpose of facilitating entertainment of
the kind mentioned above
by a person or an employee of his, with or without
consideration paid whether in cash or kind, in
promoting or in connection with a trade or business
carried on by that person
– “entertainment related wholly to sales
sales””
 Entertainment directly related to sales provided to
customers, dealers and distributors but excluding
suppliers
– “recreation and hospitality
hospitality”” includes
 Trip to a theme park or recreation centre,
 Stay at a holiday resort,
 Tickets to a show or theatre, and
 Gifts and give

give--aways

– “immediate family members
members”” means employee’s
wife or wives and his children or employee’s husband
or children
– “child
child”” means legitimate child or step child or legally
adopted child
– “promotion
promotion”” means an activity to inform and to offer
a product or service which is to be marketed to
customers, dealers and distributors but excludes
suppliers and an activity undertaken to advertise the
sale of the product or service

 Principles to Determine Deduction for
– Check if expense falls within definition in s. 18
ITA 1967
1967,,
– Subject the expense to s. 33
33((1) ITA
 If s. 33
33((1) allowable, check if expense falls within
proviso (i) to (viii) in s. 39
39((1)(l)
 if YES, allow 100
100% % of expense
 If NO disallow 50
50% % of expense
Expense..
s. 18 expense
s. 33(1) test passed?
YES NO DISALLOW
s.39(1)(l) proviso (i
(i) – (viii) ?
YES NO
ALLOW 100% DISALLOW 50%

 S. 39(1)(l) proviso (i
(i)
– Expenditure on food, drinks and recreation
provided to employees
 EXCEPT where expenditure is incidental to
provision of entertainment to others
– E.g. annual dinner, family day, free meals and
refreshments or club membership for
employees

 Example
AB Sdn Bhd held an annual dinner for
employees and some of the company’s suppliers
were present
present.. Total cost of annual dinner
RM30
RM 30,,000
000..
Entertainment to suppliers incidental to

provision of entertainment to employees =>
RM30
RM 30,,000 allowable
 S. 39(1)(l) proviso (ii)
– Entertainment for payment in ordinary course
of business
– Examples
Examples::
 Cultural shows by hotels at their premises to
entertain their customers
 Meals provided by airlines or other transport
companies to its passengers

 S. 39(1)(l) proviso (iii)
– Promotional gifts at trade fairs or trade
exhibitions or industrial exhibitions outside
Malaysia
 For promoting exports from Malaysia
– Examples
 Product samples,
 Small souvenirs, bags and travel tickets as

gifts to customers or visitors
 S. 39(1)(l) proviso (iv)
– Provision of promotional samples of
business products
– Example
 Free samples of drinks to schools
 Free samples at functions /

conventions / sporting events etc.

 S. 39(1)(l) proviso (v)
– Provision of entertainment for cultural
or sporting events open to members of
public wholly to promote the business
 NOTE
NOTE:: if event is only open for
members it is not considered as “open
to public”

 S. 39(1)(l) proviso (v)
– Examples
 Promoting arts e.g. music, painting, dance
etc
– Cost of passage, accommodation,
food/drinks for artistes
 Promoting sports
– Sponsorship of food, drink, sports attire,

sport equipment for sportsmen
 S. 39(1)(l) proviso (vi)
– Provision of promotional gifts within Malaysia
of articles incorporating the logo of the
business
 Gifts does not have to be products of the
business
 Logo can either be affixed or embossed on
gift article
 Logo = company logo or company’s product
logo Copyrights of KR Tax Consultants Sdn. Bhd. 73
Expense..
 S. 39(1)(l) proviso (vi)
– Promotional gifts must be given to the public
on non
non--discriminatory basis
– NOTE
NOTE::
 giving expensive or special gifts to selected
persons or to persons with no business
relationship to gift giver NOT considered as
promotional gifts under proviso (vi)

Expense..
 S. 39(1)(l) proviso (vii)
– Provision of entertainment wholly related to
sales arising from business
– Examples
 Food and drinks for new product launch
 Redemption vouchers for purchases made
 Cash vouchers, discount vouchers, shopping

vouchers, meal vouchers, concert or movie
tickets
 S. 39(1)(l) proviso (viii)
– Provision of leave passage benefit by employer
to employees
 Leave passage benefit provided by employer
to employees to facilitate a yearly event
within Malaysia
– Involves employer, employee and
immediate family members of employees
 NOTE
NOTE:: refer PR 1/2003
Expense..
 Entertainment Expenses Qualifying for
50%
50 % deduction
– S.33
33((1) allowable expenses
– Not falling within provisos to s.39
39((1)(l)

Loan or Advances to Director By a
Company
 Issue:
Issue:
Tax treatment of
– company that provides loans or advances to director of
the company without interest or with interest rate
lower than the arm's length rate; and
– interest income deemed to be received by the company
from the loans or advances
 Law
Law:: sections 2, 4(c), 21
21A(
A(8
8), 29
29((3), 75
75A(
A(22), 140
140((2) and
140B
140 B ITA 1967
 Effective
Effective:: YA 2014
Company
 Selected Interpretation:
Interpretation:
– “interest
interest”” - the return or compensation
for the use or retention by a person of a
sum of money belonging to or owed to
another
– “director
director”” - director of a company as
defined under s.75
75A(
A(22)

Company
 Tax Treatment
– Company that provides loans or advances to
directors
 without interest or with interest rate lower
than the arm's length rate
– deemed to receive interest income from the
loans or advances for the basis period for a YA
– taxed under s.4(c) ITA

Company
 Tax Treatment
– Co
Co.. provides loans or advances to directors which are
fully funded from internal funds
funds,,
 company deemed to have a gross income consisting
of interest
– s.140
140B B of the ITA will become applicable
– s. 29
29((3) and s. 140140A(
A(2
2) will not apply eventhough
related party transaction
 NOTE:: if loans or advances financed from external funds
NOTE
or third party
party,, s.140
140B
B NOT applicable
Company
 Internal Funds
– surplus funds that may arise from the injection of
capital, retained earnings and company reserves
 Interest income
– deemed to be received by the company
– based on prescribed formula [s[s..140
140B(
B(2
2)] with the
Average Lending Rate (ALR) published by BNM
– Taxed under s. 4(c)

Company
 External Funds
– financial resources acquired by a company
through loans from third parties e.g. banks or
related companies
– Loans not subjected to s.140
140B
B
 Mixed Funds
– Source - both internal and external funds
– Deemed interest computed on portion of
internal funds only
Company
 Loan to Directors who are employees
– Interest cost incurred by company (employer)
– Interest cost = perquisite from an employment
– Report as s. 13
13((1)(a) income for director / employee
 Loan to Directors via Partnership
– Partners are directors of company providing loan
– s. 140
140BB will apply
 Partnership not a separate entity
 Loan to partnership deemed loan to directors

Company
 Computation of Interest Income
– Formula
1 x A x B
12
Where
A= total amounts of loans and advances outstanding at
end of each calendar month
B= ALR published by BNM at end of each calendar month
or other lending rate prescribed by DGIR

Company
 NOTE::
NOTE
– S. 140B took effect from YA 2014
– Loans and advances provided to Directors
before YA 2014 will also attract deemed
interest effective from YA 2014

Company
 Company charges interest on loans
and advances to Directors
– Compare interest rate charged by company
with interest computed via formula s.140
140B(
B(2
2)
– Apply the higher rate to compute deemed
interest
– S. 140
140B(B(2
2) will not apply if interest rate
charged is higher than that derived from
formula
Company
 Dormant Company providing loans
and advances to Directors
– s.21
21A(
A(8
8) will apply
– Company will be deemed to have commenced
operations
– s. 140
140BB will apply and deemed interest income
will be triggered

Deduction of Interest Expense &
Recognition of Interest Income
Loans between Related Persons
 Issue:
Issue:
– Explains when a deduction is allowed in respect
of interest expense and recognition of interest
income in relation to loans between related
persons
 Law:: sections 2, 4(c), 27
Law 27,, 29
29((3), 33
33((1)(a), 33
33((2),
33((4) ITA 1967
33
 Effective:: YA 2014
Effective

 Selected Interpretation
– “relative
relative”” - means a parent, a child (including
a stepchild and a child adopted in accordance
with any law), a brother, a sister, an uncle, an
aunt, a nephew, a niece, a cousin, an ancestor
or a lineal descendant
– “related person
person”” – refer definition in s. 29
29((3)
w.e.f. YA 2015

 Claim of interest expense
– s. 33
33((1)(a) and s. 33
33((2) would generally apply
– Only deductible when interest is due to be paid –
s.33
33((4)
 Interest paid and expenditure claimed in future year
of assessment
– need to inform IRB via letter with amended tax
computation
– Refer Examples 1 – 3 in PR

 Loan Agreements prior to YA 2014
– Interest due to be paid only occurs on or after
YA2014
YA 2014
 s.33
33((4) rules will apply w.e.f. YA 2014
 Any interest expenditure incurred and allowed
in prior years will be maintained
 Interest due to be paid but no payment made
– Allowed as deduction under s. 33 33((1)(a)
– Liability to pay has arisen on due date
 Income Recognition – Interest
– S. 27 – interest income taxable on a receipt basis
– S. 29
29((3) - deemed received principle may also
apply
 lender is deemed to be able to obtain on
demand the receipt of interest from a loan
transaction between related persons in the
basis period for a YA where such interest is due
to be paid by the borrower in the said period
 Time bar cases
– DGIR only becomes aware of interest income
after 4 years had elapsed
– s. 91
91((1) will be triggered
– DGIR will find remedy in proviso (b) and (c)
of s. 27
27((2)
– Refer Examples 9 and 10 in PR

Professional Indemnity Insurance
 Issue::
Issue
– Deductibility of premium expenses for
professional indemnity insurance (PII) policy
– Taxability of insurance proceeds
 Law: s. 33
Law: 33((1) & s. 22
22((2) ITA 1967
 Effective::
Effective supersedes PR 8/2017
2017,,
PR3
PR 3/2009

 Interpretation of terms
– Profession includes
 Lawyers, accountants, architects, doctors, engineers
and surveyors, or
 Any other profession where its professional status is
recognised by written law or statute
– Professional means
 Person belonging to a profession where membership
in that profession is an essential prerequisite for
carrying on the business of that profession

 Body corporate governing a profession

and recognised by government
– Person still recognised as “Professional”
– E.g. Malaysian Medical Council created under
Min of Health vs vs.. Malaysian Medical
Association representing the medical
profession
 Person registered with MMC and not MMA still
recognised
Insurance..
 Why PII ?
– Protects service provider from
 Risks and costs due to breaching duty of care in
providing service to clients
 General Rule
– Wholly and exclusively principle
 Premiums paid to recover money that would
meet expenses of a revenue nature on an event
insured against happening
 Allowed as deduction from gross income
 Reasons for Purchase
– Required by written laws / statutes
governing a profession
 E.g. lawyers, accountants, doctors etc
etc..
– Required by way of a professions rules / by by--
laws
– For prudence

 ITA 1967
– Premium paid – NOT ALLOWABLE
 Policy taken to cover personal risk or liability
 Expense to cover claim against persons personal
assets
 NOT wholly and exclusively incurred in
production of income

 Tax Treatment
– Professional carries on a business related
to his profession
– Purchase of insurance required to
maintain registration with professional
bodies => ALLOWABLE
 Rationale
Rationale:: NO Registration = NO
Practice

 Non- Deductible PII Premium
Non-
– Professional not engaged in the
profession’s business (not in practise
practise))
– Professional engaged as a “locum”
– Professional in employment or doing
other type of business

 NOTE: Concession given if:
 Membership is a statutory requirement in order
to practice as a professional
 Purchase of PII is a requirement regulated by
statute or by
by--laws
– Concession also applies if
 Professional body allows members to practice
in the form of a company
 Company allowed deduction of PII premium
paid by company
 Insurance Proceeds
– Proceeds received will be TAXABLE –
s.22
22((2)(a)(ii)
– Compensation NOT s. 33(1) deductible
 Rationale
Rationale::
– Premium had been allowed as
deduction
– Compensation was towards loss of the
professionals personal assets
 NOTE:
NOTE:
– If premium NOT Deductible => Proceeds
NOT TAXABLE
– No difference in treatment if insurance
proceeds paid to client directly instead of to
Professional
 Insurance co
co.. pays to professional who
onwards pays to claimant
claimant;; or
 Insurance co
co.. pays directly to claimant
 Insurance Proceeds
– Professional incurring additional claim expenses
is allowable in cases of shortfall of proceeds v
claims
– Full amount of the proceeds will be taxed
 Even though the payment of compensation is
less than the amount of the proceeds
 Even if no PII premium expenditure is
claimed by professional

Business Expense in Respect of
Disabled Persons
 Issue: Tax treatment of business expenses
Issue:
incurred for
– Employing disabled persons
– Providing training to disabled persons who are
not employees
 Law:: s.2, 18
Law 18,, 34
34((6)(e) ITA 1967 and
– IT Rules P.U.(A) 7373//1982
1982,, P.U.(A) 61
61//1992
1992,,
P.U.(A) 111
111//1995 and P.U.(A)
(A)204
204//2019
Disabled Persons
 “Disabled person
person”” means any individual
who has been
been::
– certified in writing by the Department of Social
Welfare to be a disabled person
– certified by the Social Security Organization
(SOCSO) as a disabled person that is capable
to work within his or her capabilities

Disabled Persons
 Deductions allowable against gross income
from a business
– in employing the disabled person
– Training programe for the disabled person,
who is not an employee, aimed at enhancing
employment opportunities for the disabled
person

Disabled Persons
 P.U.(A) 73/1982 and P.U.(A) 204/2019
– Provides for additional deductions i.e. in addition to
s.33
33((1) deduction
– NOTE
NOTE::
 P.U.(A) 204204//2019 extends coverage from just
physically and mentally disabled to physically and
mentally disabled due to an accident or critical
illness
 Type of remuneration paid does not include
s.13
13((1)(b) and s. 13
13((1)(c) income
Disabled Persons
 P.U.(A) 61/1992 and P.U.(A) 111/1995
– Provides for double deduction for training a
disabled person who is not an employee
– Training programme must be approved by MOF
and conducted by an MOF approved training
institution
– Expenses do not qualify under s. 3333((1)
 Not in the production of gross income

Disabled Persons
 Documents required:
required:
– Approval letter from relevant authority
approving the training
– Letter from training institution confirming
disabled person attended the training
 Companies contributing to HRDF do not
qualify for double deduction under P.U.(A)
61//1992 – w.e.f. 01
61 01//07
07//1993
Disabled Persons
 Single deduction – s. 34(6)(e)
– purchase of any equipment necessary to assist
disabled persons employed – w.e.f
w.e.f.. YA 1992
– alteration and renovation of a business premise to
enhance convenience and comfort for disabled
persons (no requirement the disabled person is an
employee) – w.e.f. YA 2008
 Capital expenditure => s.33
33((1) and Sch
Sch.. 3 cannot claim

Treatment of Wholly or Partially
Irrecoverable Debts & Debt Recoveries
 Issue:
Issue:
– Deductibility of wholly or partially
irrecoverable debts
– Taxability of wholly or partially irrecoverable
debt recoveries where deductions given
 Law:: s. 2, 22
Law 22((2), 24
24((5), 30 & 34 ITA 1967
 Effective:: date of PR (replaces PR 1/2002
Effective 2002))

Recoveries..
 General Treatment
– ITA allows trade debts to be written off
 To qualify for tax deduction
– Debt must be or had been included in the
gross income of the person for the basis year
 for the relevant YA or
 for prior YA

 NOTE:
– Condition that debt should be included in
gross income prior to write off will not apply
to cases where the taxpayer habitually
makes loans or advances in ordinary
course of business e.g. money lenders
 Both interest an loan amount can be considered
for deduction if written off as bad

 Basis of writing off
– Person carrying on business must use own
judgement based on sound commercial
considerations i.e. “reasonable consideration”
– Person must consider
 Likelihood of recovery, and
 Cost of recovery

 Reasonable Steps (DGIR’s Opinion)

– Issuing reminder notices
notices;;
– Debt restructuring scheme
scheme;;
– Debt settlement rescheduling
rescheduling;;
– Negotiation or arbitration of disputed debt
debt;;
– Legal action – file civil suit / obtain
judgement / execute judgement

 Reasonable steps depends on

– Size of debt
– Actual or anticipated cost of recovery
for each debt.
 If no recovery action to be taken
– Must provide IRB with proper reasons
– Must provide IRB with documentation of
reasons
Recoveries..
 Evaluation of debt to be written off
– Provide evidence of
 Each debt being evaluated separately
 Details of person evaluating debt and date

evaluation done
 Document criteria / specific information
used to evaluate possibility of debt
recovery

 General Provision of Bad / Doubtful Debts
– No tax deduction allowed as
as::
 Provision is arbitrary
 Based on percentage of outstanding trade debts
– Increase in general provision

 Not allowable
– Decrease in general provision

 Not taxable

 Waiver or Forgiving of Trade Debt

– Not allowable for tax deduction
 Cannot be regarded as valid business
or commercial reason
 Must make adjustments in tax
computation if expensed in P&L

Recoveries..
 Specific Provision for Doubtful Debts
 Allowable if at end of accounting period:
– Doubtful that trade debts can be recovered
– Reasonable grounds established i.e.
 Valid commercial considerations
 Valid business considerations
 Not allowable:
allowable:
– Personal or private reasons
– Other reasons i.e. non-
non-business

 NOTE:
NOTE:
– Specific bad debt provision allowed in a
relevant basis period for a YA, and
– Subsequent changes to specific provisions
occurred
 Must make adjustments in tax
computation in the basis period where the
change occurred

 Specific Bad Debt Adjustment

Movement of Specific Adjustment in Tax Com
Provision
Increase in provision Make deduction against
gross income
Decrease in provision Make an addition to gross

income as specific provision
written back

 Non--Trade Debts
Non
– Examples:
 Employee loans – written off due to employee
being not traceable
 Partnership advance to partner – written off when
partner retires / leaves
 Personal loans given to suppliers not in relation to
trade

 Treatment of NonNon--Trade Debts Written Off
– Debts written
written--off / Specific or General Provisions
 Non
Non--tax deductible
– Recoveries
 Non taxable
 NOTE::
NOTE
– If included in P&L – make adjustments

Recoveries..
 Debt Due From Related or Connected

Person
– More stringent examination of debt before
consideration to write off
– Conditions to consider
consider::
 Similar to other bad debts
 All decisions must be made on an arm’s length
basis

 Debt Recoveries
– Specific or General provisions for bad debts
 DO NOT change amount owing in a debtors
accounts
– Bad debts written off
 Reduces amount owing in debtors account
 Recovery must be shown in P&L in the

period received and brought to tax
 Settlement of Trade Debts With Assets
– Assets held as security for a debt could be
foreclosed
– Debt could be settled by way of exchange
with another property / asset
 Use market value or net proceeds from sale of
asset as settlement amount
 Balance of debt, if any, may be written off
provided reasonable steps have been taken to
recover
Treatment on Expenditure for Repairs
and Renewals of Assets
 Issue: Explains the tax treatment on
Issue:
expenditure for repair and renewal of an
asset
 Law:: s. 33 and s. 39 ITA 1967
Law
 Effective:: 26 November 2019
Effective

 Interpretation::
Interpretation
– “Asset
Asset”” includes buildings, premises, plant,
machinery or fixtures employed in the
production of income
– “Building
Building”” includes any structure erected on
land not being P&M

 S. 33
33((1)(c) – deduction of expense wholly and
exclusively incurred in the production of gross
income for
for::
– repair of premises, plant, machinery or fixtures
fixtures;;
– Renewal, repair or alteration of any implement,
utensil or article
 Does not include those that qualify as
qualifying P&M expenditure for Schedule 3

 Non-qualifying Expenditure
Non-
– Cost of rebuilding or reconstruction
related to
 any premises, buildings, structures or
works of a permanent nature
 any P & M; OR
 any fixtures

 What does “repair
“repair”” mean?
– No definition in ITA
– Dictionary meaning applied
 To restore to good condition by renewing or
replacing the damaged parts
– Implies should not have any element of
improvement, addition and alteration

 Type of repairs
– Restore asset to original condition – no enhancement
– Initial repairs – refer case of Law Shipping
 expenditure on repairs which is incurred to place an
asset that has just been acquired into a
commercially--usable state is considered as initial
commercially
expense and is not allowed
 Defects arising from operations of a previous
business can only be allowed against that earlier
business

 Type of repairs
– Replace entirety or part of entirety
 Does it involve a subsidiary part of the asset?
– Important to distinguish as it will determine if

expenditure is of a capital nature or revenue
nature
– Replacement v Improvement
 Improvement would normally indicate “capital”
expense
– Assets with lifespan of less than 2 years
 If allowed as deduction base decision on facts
Public Ruling 12/2019 – Tax Treatment
FOREX Gains or Losses
 Issue:
Issue:
– Guidance to explain the tax treatment for
businesses in respect of forex gains or losses
arising from cross border transactions in
foreign currency
 Law:: s. 2, 4(a), 4(c), 24
Law 24((5), 33
33((1), 39 and Sch
Sch..
3 ITA 1967
 Effective:: 13 Dec 2019
Effective

 Interpretation
– “Currency” – any form of money issued by a
government or central bank and used as legal
tender and a basis of trade
– “Foreign Currency” – currency other than the
functional currency of the entity
– “Functional Currency” – currency of the primary
economic environment in which the entity operates
– “Presentation Currency” – currency in which the
financial statements are presented
 Interpretation:
Interpretation:
– “Foreign Exchange Differences” -
collective of foreign exchange gains or losses
 NOTE:
– Above interpretation of words/terms are not
defined in the ITA and are mere
interpretations by DGIR

 Foreign exchange gains or losses
– arise due to variation of the value of one currency
over another over a period of time,
– May arise due to cross border transactions in the
course of a business
 Factors influencing an entity’s functional currency –
MFRS 121 (effects of changes in FOREX Rates)
– influence on sales price for goods and services
– influence on labour
labour,, material and other costs of
providing good/services
– Generating funds from financing activities
 Conversion of foreign currency into functional
currency normally occurs when
when::
– An invoice is recorded,
– A payment is made, or
– End of financial reporting period
 Recognition of FOREX Gain or Loss
– Recognised when a payment of a transaction is settled
– Arises when value of an asset or liability in foreign
currency compared to value in RM at different dates
 Transaction date v date of settlement of payment

NOTE:
NOTE:
 Payments made in subsequent financial period
– Refer Guideline on tax treatment related to

implementation of MFRS 121 dated 16 May
2019
 Entity translates financial statements from
functional currency to presentation currency
– FOREX differences not taxable nor deductible

 Taxability / Deductibility of FOREX Gains or
Losses
– the character of the gain or loss has to be
ascertained
– ascertain how a foreign exchange gain / loss
arose are taxable / deductible
– only FOREX gains / losses from realised revenue
transactions are taxable / deductible
– FOREX gains/losses of a capital nature, whether
realised or not are not taxable / deductible
FOREX Gains or Losses.
Losses.
 Examine underlying nature of transaction
– Revenue or capital
– Trade or non
non--trade
– Realised or unrealised
 Revenue (trade) -> realised -> deductible
 Revenue (trade) -> unrealised -> non non--deductible
 Revenue (non
(non--trade) e.g. s.4(c) interest
– Realised -> deductible
– Unrealised -> non
non--deductible
 FOREX item is attributable to circulating capital
– in the ordinary course of business operations,
– receipts / expenses would be regarded as
trading in nature
 FOREX gains / losses – purchase of P&M
– Adjust when claiming CA
– Actual outlay in RM = Cost of P&M for CA
– Refer PR 6/2015 for examples

 FOREX gains / losses – Borrowing Costs
– Depends on nature of underlying transaction
– Refer
 Guidelines on Tax Treatment of MFRS 123
– issued 04
04//06
06//2013
 PR 2/2011
 Guideline – Restriction on Deductibility of

Interest – issued 05
05//07
07//2019

Public Ruling 4/2020 – Tax Treatment of
Any Sum Received and A Debt Owing in
 Issue:
Issue:
– Guidance to explain the relevant period a sum
received and a debt owing in respect of
services to be rendered be treated as gross
income of a person from a business
 Law:: s. 2, 4(a), 23
Law 23(a),
(a), 24
24((1)(b), 24
24((1A) and
34((7A) ITA 1967
34
 Effective:: 16 June 2020
Effective

 Interpretation
– “Debt
Debt”” – a debt in a liquidated sum whether or
not due or due and payable
– “Person
Person”” - includes a company, a body of
persons, a limited liability partnership and a
corporation sole

 Effective YA 2016 2016,, following sections were
amended::
amended
– s. 24
24((1)(b) – to provide “a debt owing to a
person”;; and
person”
– s. 24
24((1A) – to provide “any sum received by a
person, notwithstanding that there is no debt
owing to the person”
that arises in respect of services to be rendered is
to be treated as gross income of the person from a
business for the relevant period
Respect of Services Rendered.
Rendered.
 Law prior to the YA 2016
– s.24
24((1)(b) of the ITA
 only addressed a debt owing to a person in
respect of any services rendered where
the amount of the debt is treated as gross
income of the relevant person from the
business for the relevant period
– s. 24
24((1A) – did not exist

 Refund of Advance Payments
– s. 34(7A) applies
– Condition:
 Sum treated as gross income in accordance
with s. 21
21((1A)
– MAY claim deduction of refunded sum in the
basis period for a YA when refund made

 Non-Application of s. 24
Non- 24((1)(b) and 24
24((1A)
– Services governed by specific IT Rules
 Construction contract
 Property development
– S.4A income
 Refer s. 24
24((8) ITA
– Refundable deposits
 If forfeited, tax amount forfeited under
s.4(a
(a))
R & D Part I
Qualifying R & D Activity
 Issue: To clarify the definition of research
Issue:
and development (R&D) and its qualifying
criteria
 Law:: s. 2, 7, 8, 33
Law 33((1), 34
34((7), 34
34AA and 34
34BB
ITA 1967
 Replaces:: PR 5/2004 and Addendum 2008
Replaces

R & D Part I
 R&D
– any systematic, investigative and experimental
study
– involves novelty or technical risk carried out in
the field of science or technology with the
object of acquiring new knowledge or
– using the results of the study for the production
or improvement of materials, devices, products,
produce, or processes
R & D Part I
 R & D Exclusion
– quality control or routine testing of materials,
devices or products
– research in the social sciences or the
humanities
– routine data collection, efficiency surveys or
management studies, market research or sales
promotion … etc.

R & D Part I
 “In
In--house R&D
R&D”” - R&D activity carried out
in Malaysia by a person within his business
for the purpose of using the results of the
R&D activity for furthering his own business
 “Science
Science”” is the systematic study of the
nature and behaviour of the material and
physical universe

R & D Part I
 R&D covers
– Basic research
 Experimental or theoretical in nature
– Applied research
 Additional research on an original work
– Experimental Development
 Systematic work drawing on existing
research results
R & D Part I
 R & D Incentives
34((7) ITA – single deduction for R&D expenditure
– s.34
which is non
non--capital in nature
– s.34
34AA ITA – double deduction for in in--house R&D
expenditure which is nonnon--capital in nature
– s.34
34BB ITA – double deduction for contribution in
cash to approved research institute, payment for
use of services of approved research institute or
approved research company, R&D company or
contract R&D company
R & D Part I
 Incentive Qualifying Criteria
– Resident for tax in Malaysia
– Carry on a business in Malaysia
– Undertake R&D in respect of business in Malaysia
– Undertake R&D which fulfills the definition of R&D
– Satisfy qualifying criteria of a qualifying R&D activity
– Obtain DGIR approval on R&D activity
activity-- s. 34
34A,
A, or
– Engage services of approved R&D institute / company
– s.34
34BB

R & D Part I
 R&D Activity
– Specific facts and circumstances of each R&D
activity must be examined
 Does it fall within definition?
 Have qualifying criteria been satisfied?
 Do the above satisfy the definition per s. 2

ITA 1967
1967??
– Refer para 7 of PR
R & D Part I
 Eligibility for a tax incentive
– double deduction or single deduction under the
ITA
– must be ascertained at the qualifying R&D
activity level and not project level
 Note: each R&D project consists of a set
Note:
of R&D activities

R & D Part I
Qualifying R & D Activity.
Activity.
 Qualifying R&D Activity
– Effective 2828..12
12..2018
2018,, an activity for R&D has to fulfil
the qualifying criteria under the new definition of R&D
under section 2 of the ITA
 Must fulfill 3 criteria
– Objective to acquire new knowledge, create new
products / processes, improve existing products /
processes
– Involve something new
– systematic
systematic,, investigative and experimental study
R & D Part II
Special Deductions
 Issue: To explain the expenditure that
Issue:
qualifies for special deduction (R&D)
 Law:: s. 2, 7, 8, 33
Law 33((1), 34
34((7), 34
34A,
A, 34
34B,
B,
140A
140 A and Sch
Sch.. 3 ITA 1967
 Replaces:: PR 5/2004 and Addendum
Replaces
2008

R & D Part II
Special Deductions
 R & D Incentives
34((7) ITA – single deduction for R&D
– s.34
expenditure which is non
– s.34
34AA ITA – double deduction for in in--house R&D
expenditure which is non
– s.34
34BB ITA – double deduction for contribution in
cash to approved research institute, payment for
use of services of approved research institute or
approved research company, R&D company or
contract R&D company
R & D Part II
Special Deductions
 Criteria to claim Incentive – s. 34A
– Resident for tax in Malaysia
– Undertakes R&D activity in respect of his business
– Incurs direct revenue expenditure on the R&D
 If a double deduction in respect of an approved qualifying
R&D activity has been claimed under section 34 34A
A of the
ITA, no deduction in respect of the same expenditure can
be claimed under subsection 33 33((1), subsection 34
34((7) or
section 34
34B
B of the ITA

R & D Part II
Special Deductions
 Pioneer Company
– Not eligible to claim double deduction under s. 34
34A
A
 Direct revenue expenditure can be claimed
under proviso to s. 34
34A(
A(44) ITA
 S.34
34A(
A(44A) allows for pioneer company which
incurred R&D expenditure during pioneer period
to elect to claim in first basis period post
post--
pioneer..
pioneer
– Election must be made for in each year for
each relevant YA
R & D Part II
Special Deductions
 Criteria to claim Incentive – s. 34B
– Eligible person pays for use of R&D services
– Payment to approved R&D company or contract R&D
company
– Must fulfill R&D definition and qualifying criteria
– Must be revenue expenditure related to R&D activity
 Note:: related company of a R&D company enjoying
Note
Investment Tax Allowance Incentive cannot claim double
deduction
– BUT may claim single deduction – s. 34 34((7)
R & D Part II
Special Deductions
 Documentation
– Ensure the relevant claim forms – Borang 3 or
Borang 4 are completed and retained should
an audit be initiated by DGIR
– Refer to Guidelines on The Application
Procedure for A Special Deduction in Respect
of A Qualifying Research and Development
Activity dated 13
13..8.2020

Public Ruling 7/2020 – Appeal
Against an Assessment And
Application for Relief
 Issue:
Issue:
– Procedures regarding appeals and application
for relief
– Form Q and Form N procedures
– Procedure and application for relief
 Law:: s. 97A, 99, 99(1A), 100, 101,102,131, 131A
Law
and 132 ITA 1967
 Replaces:: PR 7/2015 and PR 12
Replaces 12//2017
 Interpretation
– “Tax Agent
Agent”” - any professional accountant or any
person approved by the Minister of Finance
– “Notice of Assessment
Assessment”” - best judgement
assessment under subsection 90 90((3) or 91
91((1) of
the ITA, assessment, additional assessment,
deemed assessment, notification of non non--
chargeability (NONC) (section 97 97AA of the ITA),
notification of refund of over
over--payment (section
111 of the ITA)
 S. 99 ITA – person aggrieved by an assessment entitled
to appeal but does not apply in following circumstances
circumstances::
– deemed assessment under subsection 90(1) of the
ITA; or
– deemed assessment for amended Income Tax Return
Form (ITRF) under section 91A of the ITA
– unless the taxpayer disagrees with the treatment
stated in PR or known stand
stand,, rules and practices of
the DGIR prevailing at the time when the assessment
is made
– Composite assessment – s.96
96AA
 Known stand means
– private rulings or advanced rulings
– IRB Guidelines
– Decided cases SCIT or Court
– Other written evidence
 appeal must be made by submitting Form Q not later
than thirty (30
30)) days after the notice of assessment
has been served as provided under subsection 99 99((1)
of the ITA
 Appeal Against Non Non--Chargeability – s. 97
97A(
A(11A) or
97A(
97 A(2
2) ITA
– ITRF furnished within stipulated period – no
chargeable income
 Appeal within 30 days from the date DGIR notified –
furnishing date = deemed notice date
– ITRF NOT furnished within stipulated period – no
chargeable income
– NOT entitled to appeal under s. 97
97A
A ITA

 Appeal Against Non-
Non-Chargeability – s.
97A(1A) or 97A(2) ITA
– ITRF not required to be furnished
 person must furnish the ITRF for that year
of assessment and submit an appeal in
writing within thirty (30
30)) days after the
submission of the ITRF or after receiving the
Notice of Non
Non-- Chargeability (NONC
(NONC))

 Appeal Against Reduced Assessment
– S. 2 ITA – a reduced assessment is not an
“assessment”
– Not appealable under s. 99 ITA except
 in respect of an amended assessment that is a result
of the issuance of the reduced assessment if there
are issues in the amendment of assessment that are
disputed by the taxpayer
 e.g. claim for ITA after audit due to MIDA
confirmation arriving after adjustment made by IRB
 Appeals Against Advance Assessment
– MUST be made within the first 3 months of the
YA following YA assessment was made
– OR any extended period allowed – s. 100 ITA
Example:
Example:
 Advance assessment raised 15 June 2019
2019..
Appeal must be made not later than 31
March 2020
 Appeals Against Best Judgement Assessments – s.
90((3) ITA
90
– Company, LLP, Trust Body or CoCo--operative
 S. 99
99((1A) w.e.f. YA 2019
 Must submit Form Q and Return Form (ITRF) for YA
concerned not later than 30 days from date of
service of NA
– Other persons
 Must submit Form Q for YA concerned not later than
30 days from date of service of NA
 Appeals – Partnerships
– If issue disputed is the same for all partners,
only 1 appeal (Form Q) is required
– Decision by SCIT or any Court will apply in full
to all other partners of the partnership

Application for Relief.
Relief.
 Appeal Procedure
– 4 copies of Form Q for each YA
 1 copy must be original other copies can
photocopy
 Grounds of appeal with attachments must be
provided
 Submit Form Q to IRB Branch office where
file located

 Late Appeal Procedure
– Appeal has not been submitted within the specified
period
– apply for extension of time for appeal - Form N – 2
copies to IRB Branch
– Must have acceptable and valid reasons
 IRB may allow or disallow extension
– If disallowed can appeal to SCIT within 21
days of notification
 DGIR Review – No Mutual Agreement
Procedure [MAP] Appeal Lodged
– Allowed 12 months from date of receiving notice
of appeal (MOF can extend a further 6 months)
– Appellant may be asked to provide further
documents or attend dispute resolution sessions to
settle case
– If case remitted to SCIT, appellant will be notified
by DGIR
 MAP Lodged
– Form Q submission to SCIT postponed – s.102
102((1A) ITA
– If t/p disagrees with MAP decision, t/p MUST submit
application to DGIR to forward Form Q to SCIT within 30
days
 DGIR shall forward case within 3 months from date
application received
 No application from t/p Form Q will not be forwarded to
SCIT
– If t/p agrees with MAP decision a letter to DGIR to cancel
Form Q must be submitted

 Appeal against error or mistake – s. 131 ITA
– Question of both fact and law – onus on t/p to prove
– Error or mistake not defined in ITA
– General meaning
 Unintentional act arising from ignorance, imposition or
misplaced confidence
 Error, misconception, misunderstanding and
erroneous belief
 Ignorance of a relevant thing
– Refer paragraph 13 for examples of “errors/mistake”

“errors/mistake”

 Appeal Other Than Against Error or Mistake
– s. 131
131A A ITA
– Examples
 exemptions, reliefs, allowance etc gazetted
after YA ITRF is furnished
– Application within 5 years after end of
year exemptions, reliefs etc
etc.. published in
Govt.. Gazette
Govt

 Appeal Other Than Against Error or Mistake – s.
131A ITA
 Approvals for exemptions, reliefs, allowance etc
granted after YA ITRF is furnished
– Application with 5 years after end of year
exemptions, reliefs etc
etc.. granted
 Disallowed deduction – payment not due to be
made – WHT cases
– Application with 5 years after end of year in
which payment is made
Application for Relief .
 Application for Relief
– Use letter or Form CP
CP15
15C
C
– State reasons in detail – no incorrect details to avoid
rejection by DGIR
 If application rejected by DGIR
– T/P will be notified by DGIR in writing with reasons
– If aggrieved, can request DGIR to submit application to
SCIT within 6 months from date of rejection
– DGIR must submit to SCIT within 3 months from
request
THANK YOU


Notes UnderstandingTaxDeductibility

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Notes UnderstandingTaxDeductibility

Uploaded by

Copyright:

Available Formats

UNDERSTANDING

Copyrights of KR Tax Consultants Sdn

Copyrights of KR Tax Consultants Sdn. Bhd. 2

 Understand provisions of the ITA

Copyrights of KR Tax Consultants Sdn. Bhd. 3

 Sec. 3 ITA 67 – The charging section

Copyrights of KR Tax Consultants Sdn. Bhd. 4

 Provisions for deductible and non non--deductible

 General deductions  deductions

Copyrights of KR Tax Consultants Sdn. Bhd. 6

Sec. 33(1)(a) – (d) - Specific Deductions

ALLOWABLE SPECIFIC DISALLOWABLE

S. 33(1)(a) - INTEREST S. 39(1)(a) – (r)

S. 33(1)(c) – REPAIRS / RENEWAL

Copyrights of KR Tax Consultants Sdn. Bhd. 10

Copyrights of KR Tax Consultants Sdn. Bhd. 13

 Power to DGIR to direct special treatment

 Debts payable by instalments

 Lease transactions on movable

 Is expenditure considered revenue if :

 Are the above considered conclusive

– If expense was towards the profit profit--

Copyrights of KR Tax Consultants Sdn. Bhd. 18

Copyrights of KR Tax Consultants Sdn. Bhd. 21

Copyrights of KR Tax Consultants Sdn. Bhd. 22

Copyrights of KR Tax Consultants Sdn. Bhd. 23

Copyrights of KR Tax Consultants Sdn. Bhd. 25

Copyrights of KR Tax Consultants Sdn. Bhd. 26

– in the course of business

– Employee or 3rd party

– Situation in which loss occurs

Copyrights of KR Tax Consultants Sdn. Bhd. 29

Copyrights of KR Tax Consultants Sdn. Bhd. 30

– Loss of cash = ALLOWABLE

Copyrights of KR Tax Consultants Sdn. Bhd. 31

 Bank terminates services of teller

 Proprietor chooses to overlook matter

 proprietor continues to employ offender

– NOT REGARDED AS A TRADE LOSS

Copyrights of KR Tax Consultants Sdn. Bhd. 33

 Cash temporarily not used in business

Copyrights of KR Tax Consultants Sdn. Bhd. 34

 Agreement of payment from employee

 Other recovery actions

Copyrights of KR Tax Consultants Sdn. Bhd. 36

Copyrights of KR Tax Consultants Sdn. Bhd. 37

Copyrights of KR Tax Consultants Sdn. Bhd. 38

Copyrights of KR Tax Consultants Sdn. Bhd. 39

Copyrights of KR Tax Consultants Sdn. Bhd. 40

Copyrights of KR Tax Consultants Sdn. Bhd. 41

 Sch 4B ITA - General

Copyrights of KR Tax Consultants Sdn. Bhd. 44

 for conducting feasibility / market survey

– Cost for accommodation and sustenance

 IT (Deduction for Incorporation Expenses)

 Fees, stamp duty payable on above

– Cost to draw up preliminary contracts and related stamp

 Training must contribute directly to future

 Companies which do not qualify

Copyrights of KR Tax Consultants Sdn. Bhd. 51

 IT (Deduction of Pre Pre--Commencement of

Copyrights of KR Tax Consultants Sdn. Bhd. 52

Copyrights of KR Tax Consultants Sdn. Bhd. 53