TAXATION II
LESSON 2:
ALLOWABLE &
NON-ALLOWABLE
EXPENSES
Noor Hasliaziziyati
Faculty of Business
Management &
Professional Studies
LESSON OUTCOMES
Expenses qualify for deduction (Section 33 & Section 34
ITA1967)
LESSON
OUTCOMES
Non-deductible expenses (Section 39 ITA 1967)
Double deduction expenses
INTRODUCTION
In arriving at the adjusted income from a source consisting
of a business, deductions are made from the gross
income.
These deductions are prescribed under section 33,34 & 39
of ITA 1967.
CALCULATION OF BUSINESS
INCOME
RM RM
Gross income (each source determined XXX
separately)
(-/+) allowable & non-allowable expenses XX
[section 33 & 39]
(-) Double deduction XX
(-) Special deduction [section 34(6)] XX (XXX)
Adjusted income XXX
Add: Balancing charge XXX
XXX
Less: capital allowance
(-) unabsorbed capital allowance b/f XX
(-) current year XX
(-) balancing allowance XX (XXX)
LEGISLATION
General deduction is provided in section 33(1) of ITA.
Business expense need to fulfill all the following conditions to
secure a deduction from gross income:
Each business source must be accounted separately
The scope of expense refers to “outgoings & expenses”
The expenses must be “wholly and exclusively”
Incurred
In the production of gross income from that business source
- OUTGOINGS & EXPENSES
Section 33 (1)
“outgoing” – have a wider scope because it encompass business losses due to theft,
defalcation of employees, bad debts and others.
“expense” – disbursement that come out of the traders’ pocket and involve some
sort of volition.
- WHOLLY & EXCLUSIVELY
The term is not defined in the Act.
Based on the case of Bentley, Stokes and Lowless v
Beeson,
“wholly” – the quantum of money expended
“exclusive” – the motive or object in mind of incurrence and
the purpose must be the sole purpose.
- INCURRED
Trade is not defined in the Act.
The dictionary meaning of “trade” is a pecuniary
risk, a venture, a speculation or commercial
enterprise.
CAPITAL VS REVENUE
EXPENDITURE
It must be revenue expenditure for it to be deductible.
Capital expenditure is non-deductible.
An expenditure which although satisfies section 33 “wholly
and exclusively” test, is nevertheless non-deductible if it is
of a capital nature (prohibited under section 39).
TEST FOR CAPITAL /
REVENUE EXPENDITURE
Fixed
Enduring
capital & Identifiable
benefit
circulating asset
asset
capital
Business
Initial
structure
expenditur
versus
e
process
ALLOWABLE EXPENSES
(SECTION 33 & 34)
It is important to note that these expenses must be incurred wholly
and exclusively for the purpose of the business.
Examples of allowable expense for a business:
Wages, salaries, and bonuses paid to employees
Rent and utility expenses for business premises
Cost of raw materials and goods used in production
Advertising and promotion expenses
Travel expenses incurred for business purposes
Professional fees paid to lawyers, accountants, and consultants
Insurance premiums paid for business purposes
Maintenance and repair expenses for business assets
Depreciation of business assets
Interest paid on business loans or mortgages
NON-ALLOWABLE
EXPENSES (SECTION 39)
Under the Malaysia Income Tax Act, certain expenses are not allowed
as deductions for tax purposes, and therefore cannot be claimed as
business expenses.
Some examples of non-allowable expenses include:
Personal expenses
Capital expenditures:
Political contributions
Gifts in excess of RM 500
Donations in excess of prescribed limit
Excessive entertainment expenses
DOUBLE DEDUCTION
EXPENSES
Under the Malaysia Income Tax Act, businesses are allowed to claim a
deduction for expenses that are incurred in the production of income.
Double deduction means that the business is allowed to deduct the same
expense twice, effectively reducing their taxable income by twice the amount
of the expense.
However, not all expenses are eligible for double deduction, and there are
certain conditions that must be met before a business can claim this benefit.
Some of the examples of double deduction expenses:
Research and development expenses
Promotion of exports
Training expenses
Green technology expenses
SPECIAL DEDUCTION EXPENSES
[SECTION 34(6)]
Section 34(6) has been specifically legislated to allow certain specific
expense s a revenue deduction notwithstanding such expenses do
not satisfy section 33 “wholly and exclusively” test or are capital
expenditures.
These expenses are encouraged by the Government as they can
achieve some national objectives or bring social benefits to the public.
THANK YOU &
TAKE CARE
