Now You Know Tax Top 15 Disallowed Expenditures

Welcome to a new series of TAX educational posts -->Now You Know Tax Top 15 Disallowed Expenditures.

As usual, this 5 minutes educational posts explain WHAT, WHY,  and HOW.

Income Tax Act S. 39 (1)

  • Listed revenue expenditures specifically disallowed to deduct against business revenue.
  • Disallowed expenditure increased taxpayer  net taxable profit, therefore higher tax liability to taxpayer

 

Now You Know Tax Top 15 Disallowed Expenditures

(Sorted from Latest to Earliest)

S39(1)(Q) Failure to Deduct tax from payment to Non Non-Resident Entertainers

S39(1)(P) GST Output Tax - Taxpayer  disallowed to claim output tax expense. Example,

  • Output tax paid by taxpayer and discount offered to customer (NOTE)

 

S39(1)(O) GST Input Tax - Taxpayer disallowed to claim input tax expense. Example

  • Taxpayer's company function incurred for employees & non-employees (NOTE)

Note - Function expense for Non-Employees is not wholly and exclusively contribute to production of revenue. So, disallowed for income tax deduction

  • Gift value > RM500 per employee per year.
  • Benefit In Kind (i.e. purchase of benefit, air-ticket, etc) for employee.

 

S39(1)(M) Leave Passage

  • Expediture on Leave Passage cost disallowed to partner (of a partnership), or sole prioprietors,

 

S39(1)(L) Entertainment

  • Generally 100% disallowed for
  1.  Entertainment for Non customer / Non Employees
  2.  Cash contribution for customer's annual dinner / wedding gifts

 

  • Generally 50% disallowed for
  1. Hamper for customer during festive seasons
  2. Gift without company logo for customer annual event;
  3. Gift or flowers for customer opening of new outlet
  4. Entertain supplier

S39(1)(K) Lease rental of new passages private vehicle

  • If private car cash valure > RM150K - annual lease rental restricted to RM50K
  • If private car cash valure < RM150K - annual lease rental restricted to RM100K

 

S39(1)(J) Withholding Tax (WHT) - special class of income (S.4(f))

  • Employer omitted to withhold WHT  when payment to Non Resident

 

S39(1)(I) Withholding Tax (WHT) - Contract Payment

  • Employer omitted to withhold WHT  when payment to Non Resident

 

S39(1)(g) Licence / Permit Fees

  • Payment to Authority being license / permit to extract timber in designated area for a qualifing periods

 

S39(1)(f) Withholding Tax (WHT) - Interest Payment

  • Employer omitted to withhold WHT  when payments to Non Resident

 

S39(1)(e) Purchased of Capital goods (assets)

  • Include moveable and non moveable assest, tangiable / intangiable assets

 

S39(1)(d) Payment / Contribution to Non approved Scheme 

  • Payment to any unapproved scheme for pension, provident, savings, society, etc

 

S39(1)(c) Capital payment

  • Any capital payment employed as 'capital';  and / or
  • Capital withdraw from business

 

S39(1)(b) Expenses incurred NOT

  • Wholly (quantum of expense); and
  • exclusively (Purpose of the expense) for production of income / revenue

 

S39(1)(a)   Domestic or private expense (non business expense)

  • Household and family expense i.e. clothes, foods, accomodation & utilities, travelling;
  • Expenses which are private or personal in nature;
  • Maintaining of taxpayer  & family

 

Error and mistake under S. 39 (1)

 

 

Now You Know Tax Top 15 Disallowed Expenditures

"Best Practise to Avoid Risk factors in Income Tax Return"

 

1. Chart of Accounts Matrix-

Now You Know Tax Top 15 Disallowed Expenditures
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'

  • Expenditure grouping, For example
  • Entertainment-->Entertainment sub group 1 i.e. employees,
  • Entertainment-->Entertainment sub group 2 i.e. Customers / Prospective customers, etc.

2. Accounting Handbook / SOP

  • Accounting code definition with example
  • Accounting code matrix mapped with GST tax code.
  • Form / chopped designed with accounting code & GST tax code
  • Accounting code setup in accounting software
  • Best key entry practice to avoid key entry mistake
  • Roles and responsibilities of coordinator, purchaser / buyer, accounting key entry

Accounting and GST handbook  will be publish soon.

 

3) Training and Consultation on Tax  - Area Need Improvement

  • If you need more information / clarification, post question via call to 019.9199149; or
  • mail question via email to gstconsult@gstconsult.com.my
    • I will coach via email reply
    • Coach via 'Team Viewer'; or
    • Face to face

Solution provided above is FOC.

As always, feel free to comment on this posts.

Thanks

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