AQ062-3-3-ATAX

ADVANCED TAXATION

COMPANY
TAXATION
 LEARNING OBJECTIVES

• Deduce corporate income tax computation

• Conceive section 33 and section 34 on
allowable & statutory expenses
• Evaluate disallowed expenses under
section 39 and double deductions
• Measure a comprehensive income tax
computation and understand the treatment
of capital relief

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 Topic & Structure of the lesson

• Discussion of corporate income tax

computation
• Discussion of section 33 and section 34 on
allowable & statutory expenses
• Discussion of disallowed expenses under
section 39 and double deductions
• Discussion of comprehensive income tax
computation and understand the treatment
of capital relief
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 Key Terms you must be able to
use
• Allowable expenses
• Non-allowable expenses
• Statutory deduction
• Double deduction
• Prohibited expenses
• Entertainment expenses
• FOREX gain
• FOREX loss
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 INTRODUCTION
• The Companies Act 2016 requires a company's financial
accounts to be audited by approved auditors. The
statements of comprehensive income (commonly known
as 'profit and loss statement') and the statements of
financial position (commonly known as 'balance sheet')
must reflect the true financial position of a company at
the end of the financial year.
• The tax computation of a company would then be
constructed based on the audited accounts and
additional schedules provided by the company. Prior to
YA 2001, the IRB would acquire the tax return (Form C),
tax computation together with the audited accounts to be
submitted for raising an assessment.

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 INTRODUCTION
• Companies are placed on self-assessment from the
YA2001. Under self-assessment, a company is required
to submit only Form C within 7 months after closing the
company's year-end. The tax computation and audited
accounts are kept by the company for the inspection of
IRB tax audit personnel in future years.

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 ADJUSTED INCOME
• Section 33 of the Act lays down the principles for the
determination of adjusted income
• The derivation of gross income from the business is
determined by virtue of section 12. Business income is
assessed on an accrual basis and not on a cash basis.
As such, whether income is received during the year is
of no relevance as to its taxability. The gross income of
the business would be the ‘revenue’ that is shown in the
statements of comprehensive income.
• In practice, the tax computation begins with the “profit
before taxation” as shown in the statements of
comprehensive income, and appropriate adjustment is
made to arrive at the “adjusted income” or “'adjusted
loss”.
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 FORMAT

RM RM NOTES

- +
SECTION 4(a)
Profit before taxation XXX 1
(+) Non-allowable expenses 2
Depreciation XX
Interest expense relates to rental
income XX
Entertainment for a client (50%
allowable) XX
(+) Capital asset expensed off to profit and 3
loss account
Renovation XX

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 FORMAT
RM RM NOTES

- +
(-) Expenses qualified for double deduction 4
Double deduction for training XX
(-) Revenue expenses capitalized 5
Interest expense XX
Lease rental XX
(-) Non-taxable items credited to profit and
loss account
Gains on the disposal of the long XX 6
term investment
(-) Investment income separately assessed XX 6
XX XX
(XX)
ADJUSTED INCOME XX
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 NOTE 1 – LOSS BEFORE
TAXATION
• If there is a net loss before taxation, such an amount
would then be shown in the negative column.

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 NOTE 2 – NON-ALLOWABLE
EXPENSES
• Non-allowable expenses that are shown in the profit and
loss account are non-tax deductible. Such expenses
have to be added back. Non-allowable expenses can be
categorized into four groups:
– Expenses that are not incurred
– Capital expenditure
– Expenses related to investment income
– Prohibited expenses under section 39

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 EXPENSES THAT ARE NOT
INCURRED
• General provision for bad and doubtful debts;
• Provision for gratuity/ retirement benefits;
• Provision for warranty cost, stock obsolescence;
• Depreciation;
• Amortization for the renovation of premises, lease
amortization;
• Unrealized exchange loss in relation to acquisition of raw
materials;
• Provision for repair and maintenance;
• Preliminary expenses written off.

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 CAPITAL EXPENDITURE
• Cost of printing and distribution of annual reports;
• Stamp duty and secretarial fees for increased share
capital;
• Stock listing expenses;
• Pre-commencement business expenses;
• Entrance fees to the club;
• Legal and professional fees relating to violation of laws,
the capital structure of the company, acquisition of loan
or assets;
• Donations (irrespective of whether approved or
unapproved donations);
• Lump sum payment for early termination of the lease;

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 CAPITAL EXPENDITURE
• Loan written off in relation to that of employees' or
suppliers’;
• Fine imposed for violation of law;
• Penalty on withholding tax;
• Foreign exchange gain/ loss on the acquisition of plant
and machinery, repayment of a foreign loan;
• Registration of trademark;
• Fees for designing company logo;
• Compensation to the competitor to restrict competition
(restrictive covenant);
• Loss on disposal of long-term investments.

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 EXPENSES RELATED TO
INVESTMENT INCOME
• The Act requires an adjusted income of each source of
income to be computed separately. Therefore, any
expenses relating to the investment income are not
deductible against business income. It has to be added
back. These expenses will be set off against individual
investment sources of income.

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 PROHIBITED EXPENSES
UNDER SECTION 39
• Private and domestic expenses (dual purpose);
• Expenses that are not wholly and exclusively laid out or
expended for the purpose of producing gross income, for
e.g. excessive remuneration paid to family members;
• Capital employed or money withdrawn as capital;
• Contribution to unapproved pension/provident/saving
scheme;
• Withholding tax and penalty on late payment on
withholding tax imposed on interest, royalty, contract
payment, s 4A payment, public entertainers'
remuneration, s 4(f) payment (to non-resident) not paid
to the tax authorities;

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 PROHIBITED EXPENSES
UNDER SECTION 39
• Leave passage (other than yearly leave passage
provided to employees);
• License or permit fees to extract timber to persons other
than State Government, statutory authority or body
approved by Minister;
• Lease rental exceeding RM50,000 (or RM100,000 in
special circumstances) in aggregate on passenger
vehicle;
• Entertainment to non-employees (including
reimbursement to staff in relation to the entertainment of
client or entertainment allowance to employees) is given
50% deduction. However, entertainment which is related
wholly to sales will be fully deductible;
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 NOTE 3 - CAPITAL ASSET EXPENSED
OFF TO PROFIT AND LOSS ACCOUNT
• Capital assets are not deductible for tax purposes. Thus,
this capital expenditure expensed off to the profit and
loss account has to be excluded. Some of the examples
are:
– Renovation of factory, office premises;
– Improvements for repairs;
– Small value capital items e.g. chairs, calculators, etc.;
– Installation cost of machines charged in repair and
maintenance account;
– Cost of stand used in advertising;
– Deposits paid for telephone or utilities;
– Replacement of electrical alarm system

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 NOTE 4 – DOUBLE
DEDUCIONS
• Double deduction refers to revenue expenses incurred
that are given twice the amount as a deduction in
arriving at the adjusted income of a business. This is a
tax incentive provided by the government to provide tax
relief to business persons and to encourage the use of
promoted activities such as research, local facilities, etc.
To qualify for the double deduction, such expenses must
be:
– revenue expense; and
– not prohibited by section 39 of the Act.
• Expenses qualified for double deduction are normally
gazette, legislated in the Act or in PIA 1986.
• Please make an internet search for the list of expenses
which qualify for double deduction
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 NOTE 5 - REVENUE EXPENSES
CAPITALIZED
• The deductibility of revenue expenses is not affected by
the accounting treatments. Revenue expenses would be
given a deduction notwithstanding it is capitalized in the
balance sheet. This capitalized expense will be given
revenue deduction if it satisfies:
– the 'wholly and exclusively' test under section 33; and
– such expense is not prohibited by section 39 of the
Act.
• Common capitalized expenses are lease rental paid on
finance lease and interest expense.

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 NOTE 6 - VARIOUS INCOME
• Business income includes insurance compensation for
loss of trading stock, compensation from trade creditors
for defective goods as these receipts are received in the
ordinary course of business.
• Gains on the realization of long-term investments such
as shares, residential properties, motor vehicles are
capital gains and would be excluded from income tax.
• Investment income such as rental income, dividend
income, and interest income are separately assessed
and thus should be excluded in arriving at the adjusted
income of the business.

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 SECTION 34 – STATUTORY
DEDUCTION
• Section 34 of the Act specifically allows statutory
deduction as a tax deduction against the business
income.
• Please make an internet search for the list of statutory
deductions under section 34 of the Act.

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 ADJUSTED LOSS
• The Act recognizes that only business sources can have
adjusted loss in the basis year. This arises when
deductible revenue expenses incurred exceed gross
income or no gross income is recognized in that basis
year.
• When there occurs adjusted loss, it would be available to
set off against other non-business income (such as
interest, dividend, rental, etc) as well as business income
on the same basis year against the Aggregate Income.
• If the adjusted loss cannot be fully utilized in the current
basis year, the balance is carried forward to be available
to set off only against business sources at the aggregate
statutory income from business in future years.

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 ADJUSTED LOSS
• With effect from YA 2019, the unabsorbed business loss
must be utilized within 7 consecutive YAs. Thereafter,
any unabsorbed business loss would be deemed nil
[section 44(5F)].
• For unabsorbed business loss b/f to YA 2019, such
unabsorbed business loss must be utilized by YA 2025.
•

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 STATUTORY BUSINESS
INCOME
RM RM
ADJUSTED INCOME XX
(+) Balancing charge XX
(-) Balancing allowance (XX)
(-) Capital allowance
Unabsorbed CA b/f (XX)
Current year (XX)
(XX)
STATUTORY BUSINESS INCOME XX

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 UNABSORBED BUSINESS
LOSS
• Statutory income of each business source had to be
computed individually before it is aggregated to set off
any unabsorbed business loss brought forward. The
unabsorbed business loss is a 'pool' of losses;
comprised of the aggregate of all business losses from
prior years.
• Any current year business loss which cannot be fully
utilized against aggregate income in that particular year
would be added on to the unabsorbed business loss and
carried forward to the next YA.

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 UNABSORBED BUSINESS
LOSS
• The Act has made no distinction between unabsorbed
business loss among businesses. The utilization of
business loss need not be from the same business
source. Manufacturing income can utilize unabsorbed
loss from trading. Only capital allowance or balancing
charge is restricted to that particular business source.
• With effect from YA 2019, the unabsorbed business loss
must be utilized within 7 YAs. It is therefore must
maintain the movement on the accumulation and
utilization of this unabsorbed business loss.

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 INVESTMENT INCOME
• Investment income such as interest income, dividend
income, rental income had to be computed individually
(source by source) in order to arrive at adjusted income.
Where the expenses exceeded income, the difference is
a permanent loss. The losses would not be allowed to be
utilised in the current year or to be carried forward to
future YAs. Non-business income can have positive
balance or zero balance but not negative balance.
• As no capital allowance is available to non-business
income, the adjusted income would be the statutory
income.
• With effect from 1.1.2014, Malaysian derived dividend
income received by shareholders are tax exempt.

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 INVESTMENT INCOME

RM RM
SECTION 4(c)
Interest income XX
(-) Interest expense (X)
Dividend income - Exempted NIL
ADJUSTED INCOME XX

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 INVESTMENT INCOME

RM RM
SECTION 4(d)
Rental income XX
(-) Interest expense (X)
Rates & assessment (X)
Management fees (X)
Fire insurance (X)
Repairs and maintenance (X)
(XX)
ADJUSTED INCOME XX

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 AGGREGATE INCOME TO
TOTAL INCOME
RM RM
SECTION 4(a) + 4(b) + 4(c) + 4(d) + XXX
4(d) + 4(e) + 4(f)
AGGREGATE INCOME XXX
(-) Current year loss (X)
(-) Approved donation (restricted to 10% (X)
of AI)
(-) Business Zakat (restricted to 2.5% of (X)
AI)
(XX)
CHARGEABLE INCOME XXX

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 SECTION 44(6) – APPROVED
DONATION
• The gift of money made to the Government, State
Government, local authority or an approved institution or
organization shall be given a deduction in arriving at total
income.
• Where there is no sufficient aggregate income or the
current year business loss exceeds the aggregate
income, any excess approved donations made during
the basis period is not permitted to be carried forward
and thus result in a permanent loss for such donations
incurred.

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 SECTION 44(6) – APPROVED
DONATION
• The Finance (No. 2) Act 2000 has imposed a restriction
on the deduction of approved donations. With effect from
YA 2009, the amount of cash donation to approved
institution, organization, or fund is to be limited to 10% of
the company’s aggregate income for that year.
• However, there is no limit on cash donation to the
Government, a State Government, or local authority.

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 SECTION 44(6A) – GIFT OF
ARTEFACT, MANUSCRIPT OR
PAINTING
• Generally, the donation has to be in cash and not in kind.
However, with effect from YA 1997, any gift of artifacts,
manuscripts, or paintings to the Government or State
Government would be given a deduction. The amount
deducted would be based on a valuation by the
Department of Museums and Antiquities or National
Archives.

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 SECTION 44(8) – DONATIONS
TO APPROVED LIBRARIES
• An amount not exceeding RM20,000 (cash contribution)
made by the company for the provision of library facilities
that are accessible to the public and in respect of
contributions to public libraries and libraries of schools
and institutions of higher education shall be given a
deduction in arriving at the total income.
• Section 44(8) and s 34(6)(g) are mutually exclusive. An
amount claimed under s 34(6)(g) would not accord any
deduction under s 44(8).

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 SECTION 44(11) – DONATION
OF PAINTING TO NATIONAL
OR STATE ART GALLERY
• A deduction equal to the value of painting (as determined
by National Art Gallery or any State Art Gallery) for the
donation of a painting to the National Art Gallery or any
State Art Gallery would be allowed a deduction against
aggregate income.

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 SECTION 44(6A) – BUSINESS
ZAKAT
• Business zakat paid to Pusat Zakat of the various states
in Malaysia shall be given tax deduction provided such
amount does not exceed 2.5% of the aggregate income
of the company.
• In short, the deduction will be lower of:
– Business zakat paid; or
– 2.5% x aggregate income

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 SECTION 44(11B), 44(11C), 44(11D) –
APPROVED SPORT ACTIVITY, PROJECT
OF NATIONAL INTEREST OR WAKAF
CONTRIBUTION
• Cash contribution to:
– any sports activity approved by the Minister [section
44(11B)];
– project of national interest approved by the Minister
[section 44(11C)],
– wakaf contribution or endowment to public universities
[s 44(11D)]
is allowed a deduction.
• With effect from YA 2020, the total amount of the cash
donations to an approved institution, organization, or
fund and ss 44(11B) to 44(11D) shall not exceed 10% of
the aggregate income of the company.
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AQ062-3-3 ATAX COMPANY TAXATION Slide 39 of 40
 NEXT SESSION

• INVESTMENT INCENTIVES

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