The STAR (Sunday March 28, 2010)
Consider claiming “home office” expenses, for example, electricity, telephone bills, quit rent and service charges of apartments. If the business owner pays rent for the working area, it can be deducted from the business income. This applies to rent that is paid to a spouse who owns the home but is not involved in the business.
Plan in advance when making capital expenditure (purchase of fixed assets for the business).
Purchase fixed assets for the business before the end of the financial year to qualify for capital allowance that can be used to reduce the business’ taxable income.
For business owners who travel extensively by road, consider buying a car registered in the proprietor’s/company’s name which will allow the business to claim capital allowance limited to the percentage of the car’s use for business purposes.
Have proper documented processes to maintain trade receivables. Active participation in trying to recover trade receivables which become bad debts subsequently are allowed as a deduction against business income.
For family-owned businesses, consider contributing to EPF where family members are employees of the business. EPF contributions by businesses are tax deductible against business income, limited to 19% of the employee’s remuneration.
When making donations, consider cash contributions to approved institutions and to the Government. Cash donations made to approved institutions and the Government are eligible for a tax deduction of up to 10% of the aggregate income for a company and up to 7% of the aggregate income for any person other than a company.
Fulfil the obligatory zakat perniagaan. Small businesses which contribute obligatory zakat perniagaan to an appropriate religious authority are eligible for a deduction of up to 2.5% of the aggregate income for the particular year of assessment. Individuals with business source (i.e. sole proprietors) on the other hand will get a rebate on such obligatory religious dues paid against the tax payable.
Consider expenses which may qualify for double deductions. Malaysian resident companies can claim a double deduction on approved outgoings and expenses incurred for the promotion of exports from Malaysia, for example, costs for advertisements in any media outside Malaysia, direct costs attributable to approved trade fairs held outside Malaysia and expenses incurred for participating in virtual trade shows.
For small businesses which export or import via cargo, double deductions are allowed against the insurance premium paid for the cargo insured with local insurance companies.
Ensure proper records and documentation are kept by small businesses. They are important in supporting claims for deductions to avoid disallowances which may lead to unnecessary penalties imposed during tax audits.
Trading stocks are assets to the business and are only allowed as deduction when the stocks are sold. A sole proprietor may consider using a stock evaluation policy to revalue and write down the quantity or quality of the unsold stocks that are due to obsolescence and claim a tax deduction accordingly.
Sole proprietors who wish to use their stocks for personal use or as gifts may request for a direct billing by the supplier to his personal name instead of through the business enterprise. If financing for the purchase is required, this could be arranged under his own capacity.
Trading stocks are assets to the business and are only allowed as deduction when the stocks are sold. A sole proprietor may consider using a stock evaluation policy to revalue and write down the quantity or quality of the unsold stocks that are due to obsolescence and claim a tax deduction accordingly.
Sole proprietors often have a mixture of personal spending such as telephone bill, entertainment and motor vehicle expenses in their business accounts. The expenses are to be apportioned into business and private expenses. From a practical viewpoint, ratios such as percentage or quantum in the forms of 1/3 or 1/4 for private use are added back to tax depending on the business and personal conditions.
