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Masters of Financial PlanningTaxation Planning
BUSINESS DEDUCTIONS
By: Associate Professor Dr. GholamReza Zandi
General Deduction Provision
The adjusted income of a person from a source for a year of
assessment is ascertained by deducting from the gross income
all outgoings and expenses wholly and exclusively incurred
during that period by that person in the production of gross
income from that source (sec 33 ITA).
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General Deductions (Cont’d)
• General Principle of Deductions [sec 33(1)(a)]
Adjusted Income = Gross income less deductible expenses.
• The deductible expense must be incurred in the production of
income chargeable to income tax.
• The expenses must be incurred during the relevant basis
period.
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Specific Provisions
Sec. 33 (1) (a) - (d): Sets out some specific deductions which
were wholly and exclusively incurred in the production of gross
income.
Sec 33 (1) (a): Interest expenses
Sec 33 (1) (b): Rental payment
Sec 33 (1) (c): Repairs and Renewals
Sec 33 (1) (d): Other prescribed deductions made under sec
154.
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Interest Expenses
Interest expense is deductible under sec 33(1)(a) whether it is
payable on moneys borrowed for purposes of acquiring capital
assets or paying trade debts. The main issue is whether the
money borrowed (on which the interest is payable) is connected
with the taxpayer’s income earning operations. If it is not, then
interest payment is not deductible
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Interest Expenses (Cont’d)
If the money borrowed is used for 2 purposes, one for the
purpose of producing income (business purpose) and one which
is to lend or invest, the interest payable on the borrowing must
be apportioned into the 2 components and only the business
related interest is allowed for business deduction [sec 33(2)].
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Rent and Repairs
• Rent payable in respect of any land or part thereof occupied for
the purpose of producing gross income is deductible in arriving at
adjusted income of a person.
• Repairs - Two types of repair expenses:
o Expenses incurred on the repair of premises, plant, machinery
or fixtures employed in the production of gross income ; and
o Expenses incurred on the renewal, repair or alteration of any
item (Example utensils normally having a short life span)
employed in producing gross income.
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Rent and Repairs (Cont’d)
Other deductions as may be prescribed by Minister will be allowed to
determine taxpayer’s adjusted income) [sec 33(1)(d)].
Examples:
Income Tax (Deduction for Employment of Disabled Persons)
Rules 1982
Income Tax (Deduction for the Cost of Acquisition of Proprietary
Rights) Rules 2002
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Disallowable Expenditures
• Disallowable expenditures are listed out in sec 39 ITA.
• Domestic and private expenses are not deductible [sec 39(1)(a)].
Example: Wages of domestic helpers, private phone calls
• Expenditure not wholly incurred in the production of gross income
are not deductible [sec 39 (1)(b)].
• Example: Donations to political parties
• Expenses must not be on capital items or capital in nature, to be
deductible [sec 39(1)(c )].
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Disallowed Expenditure (Cont’d)
• Contribution to a non-approved scheme -sec 39(1)(d).
• Lease rentals for the lease of motor vehicles: sec 39(1)(k)
some conditions apply.
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Disallowed Expenditure (Cont’d)
Non-deductibility of entertainment expenses is covered
under sec 39(1)(l) ITA.
The provision stated under items (i) to (vi) of sec 39(1)(l) ITA
provide circumstances when entertainment expenses are
allowed a deduction.
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Other Deductions
• Bad and doubtful debts [sec 34 (2)] – Allows a deduction for
any debt which is reasonably estimated in all the
circumstances of the case to be wholly or partly irrecoverable
at the end of the basis period.
• Deductions are only given for trade debts.
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Double Deductions
There are a number of double deductions permitted under the ITA 1967
as incentives to encourage certain sectors.
Remuneration to disabled employees who are unable to perform the
work of a normal person,
Insurance premiums to a Malaysian insurance company for
import/export activities,
Training of handicapped persons,
Promotion of exports and professional services,
Research, and
Freight charges paid to a Malaysian shipping company.13
The End
