CIA2012: Principles of Taxation
Business Expenses
Section 33(1) Income Tax Act 1967:
Subject to this Act, the adjusted income of a person from a source for the basis period for a
year of assessment shall be an amount 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−
Interpretation:
Qualification for deduction of expenses:
✓ Each business source has to be accounted separately
✓ The scope of expense refers to ‘outgoings and expenses’
✓ The expenses have to be ‘wholly and exclusively’
✓ Incurred
✓ In the production of gross income from that business source
NOTE: Such revenue expenses must satisfy the deduction test under s.33 and at the same time
is not prohibited by s.39.
Capital Expenditure and Revenue Expenditure
• Deduction for capital expenditure is prohibited by s.39 of the Act.
• Determination of expenditure:
Revenue expenditure
Expense which relates to
circulating capital (stock in
trade)
Expense incurred in relation
to business process
Recurring
ASPECTS
Capital expenditure
Enduring benefit
asset
Expenditure incurred to bring
into the existence of an asset
Fixed capital and
circulating capital
Expense which relates to the
fixed capital
Identifiable asset
Expenditure is incurred to
acquire an asset
Business structure
versus process
Expense incurred in relation
to business structure
Initial expenditure
Regarded as capital
expenditure because it is not
incurred in the business
process
Once for all?
44
Once and for all
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CIA2012: Principles of Taxation
Summary: Business deductions
1
Allowable Deductions
ALLOWABLE DEDUCTIONS (as provided under s.33 of ITA 1967)
Interest
expense
[s.33(1)(a)]
• Section 33(1)(a)
✓ The loan is employed in the production of gross income.
✓ The loan is laid on asset used or held in that period for the production
of business income.
• Section 33(4)
✓ Interest expenses should be deducted against the gross business
income in the year the interest is due to be paid.
Rent
[s.33(1)(b)]
• Section 33(1)(b)
✓ Payable for occupying the land/buildings
✓ Used in relation to the period
✓ Incurred for the purposes of producing gross income of that source.
• NOTE: Advance rental is not deductible because it was not paid for the
current year.
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Repairs and
renewal
[s.33(1)(c)]
Refer PR
6/2019
• Section 33(1)(c)
✓ Expense incurred during that period for the repair of premises, plant,
machinery or fixtures employed in the production of gross income.
✓ Expense incurred renewal, repair or alteration of any implement,
utensil or article so employed, other than implements, utensils,
articles (the expenditure on which would be qualifying plant
expenditure for the purposes of Schedule 3) or any means of
conveyance such as vehicles.
✓ Exceptions: Cost of reconstructing or rebuilding
− any premises, building, structures or works of a permanent
nature
− any plant of machinery
− any fixtures
• Distinction between ‘repair’ and ‘improvement’
✓ General principle
✓ Repairs on acquisition
Deemed to be capital if:
− The purchase price was materially affected by the property’s
dilapidated state.
− The property was not in a fit state for use in the trade until it was
repaired.
− The property could not continue to be used in the trade without
being repaired shortly after acquisition.
− The terms of lease (if relevant) require the new tenant to
reinstate the property to a good state of repair.
Other
deductions
• Section 33(1)(d)
✓ Such other deductions as may be prescribed.
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2
Special Deductions
Section 34(1) Income Tax Act 1967:
In ascertaining the adjusted income of a person from a business for the basis period for a year
of assessment, deductions shall be made from the gross income from the business for that
period in accordance with the following subsections (the person, business, period and gross
income in question being referred to in those subsections as the relevant person, the business,
the relevant period and the relevant gross income respectively).
SPECIAL DEDUCTIONS (as provided under s.34 of ITA 1967)
Bad debts
[s.34(2)]
Refer PR 4/2019
✓ The deduction (specific provision for bad debts) is allowed if:
− Specific debtors are identified
− The debts are partly/irrecoverable
− Such debts had been reasonably estimated to be bad.
Employer’s
contribution to
approved schemes
[s.34(4)]
✓ Definition of approved scheme
− Employees Provident Funds (EPF)
− Private retirement scheme
− Pension or provident fund, scheme or society approved by
the DG under s.150
✓ Section 34(4)(a)
If the remuneration is wholly deductible, the deduction is the
lower of:
− The contribution
− 19% of the employee’s remuneration
In other words, the deduction is only limited to 19% of the total
remuneration.
✓ Remuneration includes monthly wages, allowances,
commissions and bonus.
Payroll and turnover
tax
[s.34(6)(a), (b)]
✓ Amount paid by the relevant person in the relevant period.
NOTE: Payroll tax and turnover tax have been abolished. The
deduction is thus not relevant.
Mining expenditure
[s.34(6)(c)]
✓ Revenue deduction of virtue of Schedule 2.
Replanting
expenditure
[s.34(6)(d)]
✓ Expenditure incurred by same person on the replacement of the
same crop or produce on the same area of land.
✓ Expenditure eligible for deduction:
− Cost of clearing old trees
− Cost of seedlings
− Cost of labour
− Cost of improvement of drains
✓ Capital expenditure (eg cost of acquisition of land) which
qualifies for agricultural allowance is not eligible to be classified
as replanting expenditure
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Provision of
equipment and
renovation of building
for disabled person
[s.34(6)(e)]
• Expenditure incurred on:
✓ The provision of any equipment; or
✓ The alteration or renovation of premise
necessary to assist the disabled employee in the performance
of futies.
• Given full deduction instead of capital allowances.
Translation or
publication of book
[s.34(6)(f)]
✓ Incurred expenditure of translating into or publication in Bahasa
Malaysia of cultural, literary, professional, scientific or technical
books approved by the Dewan Bahasa and Pustaka.
✓ Full deduction.
Provision of library
facilities
[s.34(6)(g)]
✓ Amounted to RM100,000 for:
− Incurring expenditure on the provision of library facilities
which are accessible to the public; or
− Contributing to public libraries, libraries of schools and
institutions of higher education
✓ Donation in kind: Restricted to the provision of library facilities
which are accessible to the public, such as state or national
library.
✓ Cash contribution: Restricted to RM20,000 and can choose
either to claim under s.34(6)(g) or s.44(8).
Social responsibility
payment
[s.34(6)(h), (ha)]
✓ Accorded full deduction if:
− Incurred expenditure on the provision of services, public
amenities. [s.34(6)(h)]
− Contributed to a charity or community project pertaining to
education, health, housing, conservation or preservation of
environment, enhancement of income of the poor,
infrastructure, information and communication technology
or maintenance of a building designated as a heritage site by
the Commissioner of Heritage under the National Heritage
Act 2005. [s.34(6)(h)]
− Incurred expenditure on the provision of infrastructure in
relation to its business which is available for public use
[s.34(6)(ha)]
approved by the Minister.
✓ Where such deduction has been made, no further deduction of
the same amount shall be made under s.44(6) (approved
donation).
Child care centre
[s.34(6)(i)]
✓ Allowed for deduction of the revenue expenses incurred by the
employer on the provision and maintenance of a child care
centre for the benefit of employees.
✓ Capital expenditure on land, premises, buildings, structures or
work of a permanent nature of alterations, additions or
extensions thereof or in the acquisition of any rights in or over
any property is not deductible.
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Musical and cultural
group
[s.34(6)(j)]
✓ Deductible for expenditure incurred in establishing and
managing a musical or cultural group approved by the Minister.
Arts or cultural activity
[s.34(6)(k)]
Refer PR 2/2021
• Aggregate deduction up to RM1 million,
✓ Of which the amount incurred in respect of sponsoring
foreign arts, cultural or heritage activity shall not exceed
RM300,000.
Scholarship expense
[s.34(6)(l)]
Available only to
company
Refer Chapter 14:
Company Taxation
✓ Scholarship expense includes course fees and reasonable living
expenses.
✓ The education institution must be registered in Malaysia.
✓ Provide a scholarship to a student who will lead to an award of
a diploma, degree (including master and doctorate), provided:
− The student is receiving full time instruction
− The student has no means of his own
− The total monthly income of whose parents or guardian does
not exceed RM5,000.
Halal certification
[s.34(6)(m), (ma)]
Available only to
company
Refer Chapter 14:
Company Taxation
• Deductible for expenditure for the purpose of obtaining
accreditation for a laboratory or as a certification body, as
evidenced by a certificate issued by the Department of
Standards Malaysia.
• Double deduction [s.34(6)(ma)] for expenditure incurred for
obtaining certification for:
✓ recognised quality systems and standards; or
✓ halal certification
evidenced by a certificate issued by a certification body as
determined by the Minister.
Practical training to
non-employees
[s.34(6)(n)]
• Deductible for expenditure on the provision of practical training
in Malaysia related to his business to an individual who is:
✓ resident in the basis year fir a YA; and
✓ not an employee of that person.
International
Standardisation
Activities
[s.34(6)(o)]
Available only to
company
Refer Chapter 14:
Company Taxation
✓ Deductible for expenditure for participating in international
standardisation activities approved by the Department of
Standards Malaysia.
✓ Activities include conference, workshop, seminar and meeting
in overseas.
Research and
development
[s.34(7)]
• R&D expenditure incurred by resident person related to a
business and directly undertaken or outsourced to
− Research institute
− Research company
− Contract R&D company
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SPECIAL DEDUCTIONS (by way of Gazette Orders)
✓ Chain of custody certification for wood-based production companies15
✓ Statutory audit fees16
✓ Cost of developing websites17
− The claim is allowed for 20% each YA for a period of five years.
✓ Guarantee and commitment fees in relation to loan transactions18
✓ Compensation paid to employees for dismissal19
✓ Employment benefits20:
− Payment of monthly bills for subscription of broadband, fixed line telephone, mobile
phone or pager issued in the name of employee / employer
− Personal digital assistance, telephone, mobile phone or pager.
✓ Franchise fee where the brand must be within a company of which 70% shareholding in
Malaysia is owned21
✓ Pre-commencement expenditure
− Recruitment expenses (Accorded tax deduction in the first YA where business
commences)22
− Employee’s training23
• The training expenses have to be connected to imparting basic essential skills to
enable the company to commence its business.
• The expenses are restricted to revenue expense, being the kind allowable under
s.33 of the ITA 1967.
• The expenses have to be incurred within one year prior to the commencement of
business.
✓ Secretarial and tax filling fees24
− Allowed up to RM15,000 for each YA.
SUBSIDIARY LEGISLATIONS AND CASE LAW:
15
Income Tax (Deduction for cost of obtaining chain of custody certification from Malaysian Timber Certification
Council) Rules 2008 [PU(A) 42/2008)]
16
Income Tax (Deduction for audit expenditure) Rules 2006 [PU(A) 129/2006]
17
Income Tax (Deduction for cost of developing website) Rules 2003 [PU(A) 101/2003]
18
FCD Sdn Bhd v Ketua Pengarah Jabatan HDN (1995) 2 MSTC 2, 181
19
Mitchell v BW Noble Ltd (11 TC 372)
20
Income Tax (Deduction for benefit and gift from employer to employee) Rules 2009 [PU(A) 153/2009]
21
Income Tax (Deduction for expenditure on franchise fee) Rules 2012 [PU(A) 76/2012]
22
Income Tax (Deduction of Pre-commencement of Business Expenses Relating to Employee Recruitment) Rules
2008 [PU(A) 361/2008]
23
Income Tax (Deduction of Pre-commencement Business Training Expenses) Rules 1996 [PU(A) 160/1996]
24
Income Tax (Deduction for Expenses in relation to Secretarial Fee and Tax Filing Fee) Rules 2020 [PU(A)
162/2020]
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CIA2012: Principles of Taxation
3
Double Deductions
Expenses identified as double deduction expenses are given deduction twice of the amount of
expenditure incurred.
DOUBLE DEDUCTIONS
Interest payable on
loans to small
businesses
[PU(A) 90/1981]
✓ Employer to produce certificate of approval of loan from
Authority.
✓ Interest must be allowable under s.33 of the ITA 1967.
Remuneration of
disabled employees
[PU(A) 73/1982]
[PU(A) 204/2019]
✓ Employer has to prove to the DG that the employee is:
− Not able to perform the work of a normal person; or
− Physically or mentally disabled due to an accident or critical
illness
✓ Remuneration must be allowable under s.33 of the ITA 1967.
Remuneration paid to
senior citizens, exconvicts, parolees,
supervised persons
and ex-drug
dependants
[PU(A) 164/2019]
[PU(A) 47/2021]
✓ Requirements:
− Employment must be on a full time basis.
− Monthly remuneration does not exceed RM4,000.
− The employer and employee are not the same person.
− The employer is not a relative of the employee
✓ Takes effect from YA2019 to 2025.
Export credit
insurance premium
[PU(A) 526/1985]
[PU(A) 428/2010]
✓ Conventional insurance and takaful (Islamic)
✓ Premium must be allowable under s.33 of the ITA 1967.
Research expenditure
[s.34A ITA 1967]
Refer PR 5/2020 and
PR 10/2021
✓ The research must be approved by the Minister.
✓ Section 34A(1) and (4)
R&D expenditure incurred outside Malaysia
− < 30% → eligible for double deduction
− > 30% → eligible for single deduction
Contribution to
approved research
institute
[s.34B ITA 1967]
✓ Expenditure includes:
− Cash contributions to approved research institutes
− Service fee to approved research institutes or companies
− Service fee to a R&D company or a contract R&D company
✓ Requirements:
− Approved research company / institute which fulfils the
definition under s.34B(4)(a) or (b) of the ITA 1967.
− R&D company and contract R&D company which fulfils the
definition in s.2 of the Promotion of Investments Act 1986.
− Applicable to a person resident in Malaysia.
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Freight charges for
shipping goods from
Sabah and Sarawak to
Peninsular Malaysia
[PU(A) 50/2000]
✓ To be claimed by manufacturers.
✓ To use ports in Peninsular Malaysia.
Child care centre
[PU(A) 15/2013]
✓ Child care centre provided by an employer for the benefit of his
own employees and which is registered with the Department of
Social Welfare.
✓ Double deduction on the following expenses incurred:
− Expenditure on the provision and maintenance of a child
care centre
− Child care allowance to the employees
Overseas expenses for
promotion of tourism
[PU(A) 412/1991]
✓ Hotel and tour operating business must be registered with the
Malaysian Tourism Promotion Board.
✓ Such expenditure must be incurred by hotel / tour operator
which carrying on hotel / tour business registered with
Malaysian Tourism Board.
Expenditure incurred
on approved training
[PU(A) 61/1992]
✓ To employees by a manufacturing company, nonmanufacturing company, or hotel/tour business operator; or
✓ To non-employees (handicapped person) by any company.
Expenses incurred in
international trade
fairs
[PU(A) 361/1991]
✓ The international trade fair must be approved by Ministry of
International Trade (MITI).
✓ The company has to be an approved participant.
✓ The expenses claimed must satisfy s.33 of the ITA 1967 but
excludes the cost of exhibits.
Approved outgoings
and expenses incurred
for the promotion of
exports from Malaysia
[s.41 of the Promotion
of Investments Act
1986]
✓ Products exported must be products which qualify for an export
allowance or abatement of statutory income for exports.
✓ The company must be resident in Malaysia.
Expenditure incurred
✓ Registered proprietor
on advertising
− The company is at least 70% Malaysian-owned;
Malaysian brand name
− The goods are of export quality; and
goods within Malaysia
− The expenditure incurred in advertising the Malaysian brand
name or incurred in professional fees must be incurred
[PU(A) 62/2002]
within Malaysia
[PU(A) 171/2007]
✓ Company owned by the registered proprietor
− The registered proprietor does not claim the double
deduction stated above; and
− The company must be owned more than 50% by the
registered proprietor.
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Outgoings and
expenses incurred for
promotion of expert
of services
[PU(A) 193/1999]
[PU(A) 114/2002]
[PU(A) 124/2003]
The expenses would be:
✓ Market research
✓ Tender preparation
✓ Preparation of model to be used in a bidding of international
contract or participating in an international competition:
− Paid to company resident in Malaysia; and
− Verified by Professional Services Development Corporation
Sdn Bhd.
✓ Preparation of technical information
✓ Air fares cost to overseas country
✓ Hotel accommodation limit to RM300 per day
✓ Substance limits to RM150 per day
✓ Cost of maintaining sales office in overseas
✓ Publicity and advertisement in media outside Malaysia
✓ Feasibility studies for overseas projects identified for the
purpose of tender
✓ Participation in:
− Trade or industrial exhibitions in Malaysia or overseas
− Exhibition held in a Malaysia Permanent Trade and Exhibition
Centre in overseas which are approved by MATRADE
Expenditure incurred
on advertising
Malaysian brand
names overseas
[PU(A) 62/2002]
✓ Expenses on advertising of Malaysian brand name registered
overseas
✓ Professional fees paid to companies promoting Malaysian
brand names.
Outgoings and
expenses incurred for
promotion of export
of professional
services
[PU(A) 124/2003]
✓ Professional services include:
− Legal
− Accounting
− Architectural
− Engineering and integrated engineering services
− Medical and dental
Expenditure incurred
✓ Expenditure incurred for obtaining certification for:
in obtaining
− recognised quality systems and standards; or
certification for
− halal certification
recognised quality
✓ The certification has to be evidenced by a certificate issued by
systems and standards
a certification body as determined by the Minister.
and halal certification
[s.34(6)(ma)]
Expenses for the
registration of
patents, trademarks
and product licensing
overseas
[PU(A) 14/2007]
✓ Malaysian resident company
✓ The purpose is to facilitate the promotion of export of goods or
agriculture products manufactured, produced, processed,
graded or sorted and assembled in Malaysia.
✓ The double deduction is applicable to the registration cost of
such patent, trademark and product licensing in overseas.
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Expenditure incurred
by companies carrying
on the business of
providing higher
education in Malaysia
for the purpose of
promoting the export
of higher education
[PU(A) 185/2001]
✓ The company / institution:
− Must be resident in Malaysia
− Must be registered with the MOE
− Must get an approval letter from the MOE upfront before
undertaking the promotional activities
− Can also engage an agency approved by the MOE to
undertake the promotional activities outside Malaysia. The
MOE will verify the expenses incurred for this purpose.
Expenditure incurred
by employers in
training their
employees
[PU(A) 261/2009]
✓ The relevant fields include:
− Postgraduate courses in information communication and
technology (ICT), electronics and life sciences
− Post-basic courses in nursing and allied health care
− Aircraft maintenance engineering courses
Expenses for
implementing the
structured internship
programme approved
by Talent Corporation
Malaysia Berhad in
collaboration with the
MOHE
[PU(A) 188/2023]
✓ Malaysian students pursuing in or outside Malaysia on full-time
basis:
− Diploma
− Bachelor’s Degree
− Master’s Degree
− Professional certificate
− Technical and vocational (minimum SKM Level 1) education
training program
✓ Internship programme is for a minimum period of 10 weeks
with a monthly allowance of:
− Not less than RM500 for a student of SKM Level 1-4; or
− Not less than RM600 for a student of DKM Level 5 or
Bachelor’s Degree or Master’s Degree or professional
certificate
Scholarship awarded
to students
[PU(A) 49/2022]
✓ The sum of scholarships covers:
− Tuition fees;
− Educational aid;
− Reasonable cost of living expenses.
✓ The scholarship between the Malaysian company and the
student is executed between 1 January 2022 to 31 December
2025.
✓ The studies encompass all fields of study at:
− Technical and vocational certificate level in an institution
− Diploma and degree level, including master and doctorate in
a higher educational institution.
✓ The student must be a Malaysian citizen and resident in
Malaysia who has no means of his own, and whose parents or
guardians have total monthly income not exceeding RM10,000.
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Overseas promotional
expenditure incurred
by profit-oriented
private schools and
international schools
[PU(A) 110/2012]
✓ The schools must be incorporated under the Companies Act
1965 or registered under the Societies Act 1966 and registered
with the MOE under Education Act 1996.
✓ Eligible expenses include:
− Market research
− Preparation of technical information
− Travelling expenses outside Malaysia for up to 3 persons
(subject to economy class air fare, RM300 for
accommodation per day and RM150 substance per day)
− Participation in education fair held outside Malaysia and
approved by the MOE
− Publicity and advertisement in media outside Malaysia
✓ The amount of deduction is restricted to RM100,000 for each
YA.
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4
Non-Allowable Deductions
Section 39(1) Income Tax Act 1967:
Subject to any express provision of this Act, in ascertaining the adjusted income of any person
from any source for the basis period for a year of assessment no deduction from the gross
income from that source for that period shall be allowed in respect of—
NON-ALLOWABLE DEDUCTIONS (as provided under s.39 of ITA 1967)
Section 39(1)(a)
Domestic or private expenses
NOTE: Where the expenditure has a dual purpose (partly for business,
partly for non-business), then the full amount may be disallowed.
Section 39(1)(b)
Disbursements or expenses not being money wholly and exclusively
laid out or expended for the purpose of producing gross income
Section 39(1)(c)
Capital withdrawn or any sum employed or intended to be employed
as capital
Section 39(1)(d)
Any amount in respect of any payment to any pension, provident,
savings, widows and orphans or other similar funds or society which
is not approved scheme
− Approved scheme refers to a scheme which is approved by the DG.
− Where no approval is granted, any contribution would not be
deductible notwithstanding that it may be revenue in nature.
Section 39(1)(e)
Expenditure incurred in relation to a business, which is
− Qualifying mining expenditure (Schedule 2)
− Qualifying plant or building expenditure, qualifying agriculture
expenditure or qualifying forest expenditure (Schedule 3)
− Qualifying prospecting expenditure (Schedule 4)
Section 39(1)(f), (i),
(j), (q)
Withholding tax:
− Interest royalty [s.39(1)(f)]
− Contract payment [s.39(1)(i)]
− Special classes of income [s.39(1)(j)]
− Casual income [s.39(1)(j)]
− Remuneration to public entertainer [s.39(1)(q)]
Not deductible where these payments are deemed derived from
Malaysia and the payers fail to account for the withholding tax to the
tax authorities within one month of the payment or ‘crediting’ to the
non-resident.
Section 39(1)(g)
Sums payable for the use of a license or permit to extract timber from
a forest in Malaysia other than sums payable to a State Government
or statutory authority or body approved by the Minister
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Section 39(1)(k)
Lease rental
− Non-commercial vehicle: Deduction restricted to RM50,000 if the
cost of car exceeds RM150,000 and deduction restricted to
RM100,000 if the cost of car does not exceed RM150,000.
− Commercial vehicle: No restriction for deduction.
Example of commercial vehicle: Lorry, truck, bus, minibus, van,
station wagon or taxi used in the business.
Section 39(1)(l)
Refer PR 4/2015
Entertainment expenses
− Only 50% of the expenses are allowed for deduction
− Exception (allow for full deduction):
✓ Entertainment provided to employees, except where such
provision is incidental to the provision of entertainment to
others
o Where lunch or dinner is provided for clients and some
employees are also invited, the expenditure is only 50%
deductible.
✓ Entertainment business
✓ Promotional gifts at foreign trade fairs
✓ Promotional samples
✓ Cultural or sporting events
✓ Entertainment relates wholly to sales
Section 39(1)(m)
Leave passage
Not deductible unless for provision of a benefit or amenity to an
employee consisting of a leave passage to facilitate a yearly event
within Malaysia which involved the employer, the employee and the
immediate family members of that employee.
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