BUSINESS EXPENSES FAQ


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BUSINESS EXPENSES FAQ

 By David Hor CA(M), FCCA

 

The following are a compilation of frequently asked questions about deductibility of expenses for tax purposes.

 

  1. When is an expense allowable for deduction?

Generally, expenses incurred in the production of income are allowable as deduction. This means that one must incur the expense in order to generate the income. The expenses must be incurred solely for business purposes and must not be personal or capital in nature. For example, vacation travelling expenses is considered to be personal in nature as it was expended for personal enjoyment and not for business. Whereas, travelling expenses to meet a customer is allowable as it was incurred wholly and exclusive in the production of gross income.

 

Examples of capital expenditure are purchase of machines, cars, etc. Refurbishment of an old machine is also considered to be capital expenditure.

 

Here are some examples:

 

  • Printing of stationary 
  • Rental 
  • Traveling 
  • Transport 
  • Staff entertainment 
  • Audit fees  
  • Factory overheads 
  • EPF contributions 
  • Insurance 
  • Repairs and maintenance

Non-allowable expenses

 

  • Personal expenses 
  • Capital expenses such as plant and machine 
  • Entertainment incurred on prospective customers 
  • Secretarial fee 
  • Tax fee 
  • Legal fee incurred for purchase of capital asset 
  • Donation 
  • Overseas staff trip 
  • Tax consulting fees 
  • Expenses not incurred by the business

  1. Can I deduct travelling expenses my home to my office?

No. Commuting from your home to your office and vice-versa is personal in nature. Your capability to earn income starts from the office.

 

  1. Can I claim depreciation of my fixed assets?

No. Depreciation is not recognized my Malaysian Tax Law. However, you are eligible for capital allowances claim on qualifying capital expenditure used for the purpose of your business. Capital expenditure incurred for non-business activities are not eligible for capital allowances claim. However, please bare in mind that you may be taxable for future disposal of qualifying assets if the disposal value is more than the tax written down value (residual expenditure).

 

  1. What about start up cost?

Generally, initial expenses are not allowable. However, there are specific rules which allow certain initial expenditure. For example, professional fee for the incorporation of a limited company is allowable if the initial authorized capital is equal or less than RM2.5 million. For more details, please refer to Public Ruling 2/2002.

 

  1. My business office is too far away from home; therefore, I need to rent a house nearby my business office. Can I allow the rental as expenses?

No, you cannot. It is personal in nature.

 

  1. I am a doctor, and I need to buy protective clothing for myself and my nurses. Are they allowable?

Yes, special clothing for a taxpayer to discharge his duties is allowable. However, day-to-day personal clothing such as ties, shirt or blouse are not allowable since it is not incurred wholly and exclusively in the performance of his duties.

 

  1. As a professional, I am exposed to the likelihood of being suit for professional negligence. Therefore, my profession’s governing body requires me to be protected under a professional indemnity insurance scheme. Can the premium allowable for deduction?

Yes, from year of assessment 2008, all professional indemnity insurance premiums are allowable. Since premium are allowable, the proceeds will be taxable.

 

  1. My Financial Planner introduced me a business succession plan. He changed me a his professional fee for drawing up a plan and above that, I have also incurred legal fees and purchased some insurance plans and unit trust products.  Can I allow all the expenditure that I have incurred.

No. They were NOT incurred wholly and exclusively in the production of gross income.

 

  1. I purchase a lot of small capital assets such as tables and chairs. It is very cumbersome for me to capitalize it as fixed assets and depreciate it every year. Moreover, the assets do not carry any resale value. Therefore, I decided to write it off the Profit and Loss accounts. Can I claim these expenditures as expenses?

No. The law does not allow you to deduct capital expenditure as expenses. However, you may claim 100% capital allowances on small value assets. To qualify, each asset must cost less than RM1,000 and total claim for the  year must not exceed RM10,000.

 

  1. Education: From time-to-time, I have to send my staff for professional development and training courses. Training fees incurred is very substantial. Are they allowable?

Yes, staff training is allowable for tax deductions.

 

 

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