In this article, we will share about the latest tax hot alerts. There are a total of 17 tax components that business should alert with. Kindly scroll down to find out further details!
1. Road tax, motor vehicles insurance, repair and maintenance for non-company vehicles
If the Company incurred the expenses for those road tax, motor vehicles insurances, repair and maintenance for non-company vehicles such as car belong to salesman), these are not deductible for tax purpose unless the Company has declared the benefit-in-kind/perquisite in the relevant owner’s EA. Please document the owner’s name in the general ledger.
|Company’s passenger vehicle & declared BIK
|All expenses deductible
|Company’s passenger vehicle & not declared BIK
|Amount of BIK will be added back in Co’s tax computation
|All related expenses non-deductible
|Vehicle bring into Co’s using trust deed
|All related expenses not deductible unless, the whole amount declared as BIK
2. Wiring expense
This is not tax deductible for the wiring expenses such as installation of new machine. Wiring expenses under repair purpose is allowed for tax deduction. Please document the nature of the wiring expenses in the general ledger clearly.
3. Small value assets
|Small Value Assets (SVA) Claim under Capital Allowance
|Effective from YA 2020
· Value of each asset not more than RM1,300
· No restriction on total yearly claim
· Value of each asset not more than RM2,000
· No restriction on total yearly claim
|*For non-SME, the SVAs are restricted to a total amount of RM13,000 for a year of assessment.
|*For non-SME, the SVAs are restricted to a total amount of RM 20,000 for a year of assessment.
4. Repair and maintenance
Generally, repairs and renewals expenses are claimed as deductions from a person’s gross income from a business or rental source. Paragraph 33(1)(c) of the ITA allows a deduction for the expenses wholly and exclusively incurred for:
- The repair of premises, plant, machinery or fixtures employed in the production of gross income; or
- The renewal, repair or alteration of any implement, utensil or article so employed in the production of gross income from that source other than implements, utensils or articles on which the expenditure would be qualifying plant expenditure for the purposes of Schedule 3 of the ITA.
However, the cost of reconstructing or rebuilding:
- a) Any premises, buildings, structures or works of a permanent nature;
- b) Any plant or machinery; or
- c) Any fixtures are not allowed as a deduction from the gross income in ascertaining the adjusted income from that source.
Generally, the expenditure on repairs and renewal of assets that are capital and revenue in nature are as follows.
|Revenue expenditure (allowed as a deduction)
|Capital expenditure (not allowed as a deduction)
|Repair which restores an asset to its existing condition
|Repairs or replacement with an element of improvement or renewal to the assets/ altering the original condition of the assets
|Repairs which allow businesses to continue
|Initial expenditure or repairs on assets immediately after an asset is acquired
|Replacement of part of the entire asset
|Replacement of the entire asset (entirety)
|Replacement and renewals of implements, utensils or articles that have an expected life span of not more than two (2) years
Please document the nature of the respective repair and maintenance clearly in general ledger.
5. Benefit in kind (BIK)
BIKs are benefits not convertible into money, even though they have monetary value. The phrase not convertible into money means that when the benefit is provided to the employee, that benefit cannot be sold, assigned or exchanged for cash either because of the employment contract or due to the nature of the benefit itself.
The Company need to account the relevant benefit in kind into the employee’s EA such as company’s motor vehicle used by the directors. The relevant BIK also need to be accounted for calculation of monthly tax deduction (PCB) which the BIK value shall be divided by 12 months period.
Following are some of the prescribed values:
6. Petrol, toll & parking
Those non company car petrol expenses, if it is claim by mileage with claim form or like outstation allowance paid per trip – is allowable and no perquisite to be required. Only full petrol bill paid is subject to tax under perquisite.
Hence, the tax planning tips are:
1. To claim travelling reimbursement based on mileage, by submitting claim form and state its incurred for which client & purpose.
Mileage rate must be standardize for all staff or set based on category/level of staff.
Tax impact: Fully exempted as it is incurred in performance of employment duties.
Following are sample of claim Form:
2. If claim by petrol bill, this will only exempted to RM 500 per month (RM 6,000 per year) per employee, any amount exceeding shall be declared as PERQUISITE in the EA Form or IRBM will resulted with adding back the remaining amount incurred.
Tax planning: To control each staff/director claiming petrol by bill to MAX RM 500 per month ONLY.
7. Ang Pow
Ang Pow paid to staff, with pure intention to celebrate the festival must be proven by providing listing of staff and amount paid to each staff shall be in reasonable amount, otherwise, it may leading to be deemed as a replacement of bonus and hence, subject to be included under respective staff’s EA Form.
Ang Pow paid to non-staff such as customers or business associates are NOT deductible.
Wages paid to part-timers or contract workers must be supported with proper supporting to prove such as pays lip, payment voucher (recommended to use bank transfer), attendance slip and daily worksheet/log book (if any).
Besides that, the recent changes on Form E guideline has also stated all type of employment with the Company (include permanent, intern, part-timer and contract wages) has to be declared. The IRB’s recent employer’s file audit has also requested reconciliation between data submitted in Form E and payroll declared in the Income Statement.
9. Disable staff
Remuneration paid to disable staff will be entitled for double deduction. In this respect, please provide us below documents & information for the tax deduction claims:
· OKU card and SOCSO Certification Letter
· Pay slip
|Type of remuneration
|· Wages, salary, overtime payment, commission, tips, allowance, bonus or incentives, fees, perquisite, employee’s share option scheme (ESOS) and tax borne by the employer
10. Senior citizen / Ex-convict / Ex-drug staff
Remuneration paid to senior citizen / ex-convict / ex-drug who is pure staff, will be entitled for double deduction. In this respect, please provide us below documents & information for the tax deduction claims:
11. Determination of SME status for preference tax rate
A Company is considered a small and medium enterprise (SME) for the year of assessment 2020 and can enjoy the preference tax rate if they have fulfilled the below requirements:
1. The gross income from all business sources for the year is less than RM 50 million, and
2. Paid up capital of the Company in respect of ordinary shares of less than RM2.5 million at the beginning of the basis period, and
3. None of the related companies has a paid up capital in respect of ordinary shares of more than RM2.5 million, and
4. Not an investment holding company and not a dormant company.
12. Staff welfare (Flexible work arrangement)
To support flexible work arrangement, the Government has allowed special deduction to employer who incurred expenditure on smartphone, tablet or personal computer given to the employee effective from year of assessment 2020.
In this respect, for easy monitoring, suggest to create special ledger of account, segregate for each staff or to rename each transaction for respective personnel.
Note: The above conditions only eligible resident person/entity in Malaysia. The expenses incurred are not considered as employer’s fixed assets since its GIVEN to employee.
13. Special deduction on rental reduction
Landlord who gives min 30% rental reduction to its SME’s tenant, will be eligible for special deduction on the rental discount.
14. Special deduction on renovation
The Government had introduced this incentive from 1 March to 31 December 2021, under the Economic Stimulus Package to combat Covid-19 impact. The total cost of renovation eligible for special deduction incurred during these periods are RM 300,000.
These Rules is not applicable should a taxpayer made separate claim for deduction as allowable expenses, or as capital allowance, to avoid double claiming issue.
15. Deductible expenses incurred for staff & exempted in the hand of staff
There are a number of perquisites eligible for Company’s tax deduction and at the same time exempted at the hand of employee. However, this exemption is not applicable to director with controlling interest/power.
16. INCOME TAX (ACCELERATED CAPITAL ALLOWANCE) (MACHINERY AND EQUIPMENT INCLUDING INFORMATION AND COMMUNICATION TECHNOLOGY EQUIPMENT) RULES 2021
The normal annual capital allowance rate is 10% or 14% (depending on type of assets), however the Government has gazette new Rules deemed as “accelerated annual rate” which is 40%.
Pursuant to the Rules, persons who have incurred or will be incurring qualifying plant expenditure (“QPE”) on machinery and equipment (including information and communication technology equipment (“ICT Equipment”) for business purposes between 1 March 2020 and 31 December 2021 are eligible for Accelerated Capital Allowance (“ACA”) in the following manner:
- Initial allowance: 20% of the QPE incurred; and
- Annual allowance: 40% of the QPE incurred.
Under the Rules, QPE refers to a capital expenditure incurred under paragraph 2 of Schedule 3 to the Income Tax Act 1965 (“ITA”) in relation to provision of machinery and equipment including ICT Equipment except motor vehicle. According to the Rules, ICT Equipment includes the following equipment:
- Access control system;
- Banking systems;
- Barcode equipment;
- Bursters / Decollators;
- Cables and connectors;
- Computer Assisted Design (CAD);
- Computer Assisted Manufacturing (CAM);
- Computer Assisted Engineering (CAE);
- Card readers;
- Computers and components;
- Central Processing Units (CPU);
- Scanners / readers;
- Accessories; and
- Communications and networks.
A person who has previously been eligible for and claimed ACA in respect of the same QPE, be it a claim for deduction under the Income Tax (Accelerated Capital Allowance) (Automation Equipment) Rules 2017 or an exemption under the Income Tax (Exemption) (No. 8) Order 2017 will not be eligible to claim ACA under the Rules.
Further, the Rules include a deeming provision relating to hire purchase agreement. It provides that where a person incurs QPE under a hire purchase agreement for the purchase of machinery and equipment including ICT Equipment for business purposes, that person shall be treated as the owner of such machinery and equipment including ICT Equipment and the QPE incurred by that person shall be taken to be the capital portion of any instalment payment, or where there is more than one such payment, of the aggregate of those payments made by that person under the hire purchase agreement.
For further information, you may click on the link below:
On 11 May 2021, the Income Tax (Deduction for Training Costs under the Professional Training and Education for Growing Entrepreneurs (PROTÉGÉ-Ready to Work (RTW)) Programmed) Rules 2021 was gazette and work retrospectively from 11 September 2019, to replace the previous deduction given on Training Cost for Skim Latihan 1 Malaysia. The order provide deduction as below:
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