Handbook of Malaysian Taxation Ii - Dec2020 - Mac2021!2!1

YEAR OF ASSESSMENT 2020
SESSION DECEMBER 2020

Adiebah Ahmad
Azizah Abdul Razak
Noorul ‘Ashikin Md Salih
Handbook of MALAYSIAN TAXATION II : Polytechnic’s Syllabus YA 2020 – DEC 2020/MAC 2021
STUDENT’S NAME/TEL. NO. :

LECTURER’S NAME/TEL. NO. :
REGISTRATION NO. / CLASS :
COURSE : MALAYSIAN TAXATION II

CREDIT :3
PRE REQUISITE : MALAYSIAN TAXATION I
SYNOPSIS
Malaysian Taxation 2 is an extension of Malaysian Taxation 1 which provides knowledge
to students through understanding the fundamental concepts and principles of the
Malaysian Taxation System and the relevance of taxation to individuals, partnerships,
companies and business decision making.
COURSE LEARNING OUTCOME (CLO)
Upon completion of this course the students should be able to :
CLO 1 : Justify precisely total income tax payable and real property gin tax in appropriate
procedures.
CLO 2 : Organise the tax liability for chargeable person in accordance with appropriate
procedures.
CLO 3 : Practice the tax computation by using tax planning related to the current issues
comply with Income Tax Act 1967.
ASSESSMENT
ASSESSMENT SPECIFICATION TABLE (AST)

ASSESSMENT METHODS FOR COURSEWORK (CA)
Tutorial
CONTEXT Test Quiz Case Study
Exercise
(2) 20% (2) 15% (1) 10%
(1) 5%
Partnership Taxation Q1 (CLO1)
Industrial Building Allowance and
others T1 (CLO1)
CS1 (CLO3)
Company Taxation
(Field Trip/
Real Property Gain Tax (RPGT)
Seminar)
Investment Incentives T2 (CLO1) TE1
(CLO2)
Tax Planning & Avoidance Q2 (CLO1)
Final Examination/Alternative All Topics (100%)
Assessment CLO 1 – CLO 3
i | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih

(Dec 2020/Mac 2021)
SUMMARY OF MALAYSIAN TAXATION II
SUMMARY
CHAPTER RTA
1.0 PARTNERSHIP TAXATION (09:03)

Introduction to the partnership and existence of a partnership.
Computation the provisional adjusted income, divisible income,
adjusted income and statutory income. Prepare the computation
of aggregate income and total income. Understand the changes in
partnership. Allocation of capital allowance among the partners.
2.0 INDUSTRIAL BUILDING ALLOWANCE & OTHERS (09:03)

Definition of industrial allowance. Qualifying expenditure and
eligibility for capital allowance. Date when the expenditure is
incurred. Disposal of an industrial building. Temporary disuse and
notional allowances. Introduction to agriculture and forest
allowance.
3.0 COMPANY TAXATION (09:03)

Meaning of management and control of company. Calculation of
adjusted and statutory income. Calculation of chargeable income
of business. Approved donation and computation of tax liability.
4.0 REAL PROPERTY GAIN TAX (06:02)

Administrative of RPGT, chargeability of RPGT. Determination the
date of acquisition and disposal. Chargeable gain circumstances
where disposal price equals acquisition price.
5.0 INVESTMENT INCENTIVES (06:02)

Incentives under Promotion of an Investment Act 1986 and
incentives under Income Tax Act 1967 and the advantages of the
incentives.
6.0 TAX PLANNING (06:02)

Tax planning and avoidance. Employment versus Self-
employment. Remuneration packages. Corporate structure and
dividend flows, business operations and restructuring of activities.
Know the tax planning for individual, sole proprietorship or
business and company.
ii | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih

(Dec 2020/Mac 2021)
TABLE OF CONTENTS
SYNOPSIS .............................................................................................................................................................. i
COURSE LEARNING OUTCOME (CLO)....................................................................................................... i
ASSESSMENT ...................................................................................................................................................... i
SUMMARY OF MALAYSIAN TAXATION II ............................................................................................... ii
TABLE OF CONTENTS ................................................................................................................................... iii
REFERENCES .................................................................................................................................................... iii
CHAPTER 1 : PARTNERSHIP TAXATION (CLO1 & CLO2)........................................................ 1
PRE-QUIZ 1.1 : PARTNERSHIP .................................................................................................................... 1

1.1 INTRODUCTION ................................................................................................................................... 1
1.2 TYPES OF PARTNERSHIP ................................................................................................................. 2
1.3 EXISTENCE OF A PARTNERSHIP ................................................................................................... 3
1.4 TYPES OF PARTNERS......................................................................................................................... 3
PRE-QUIZ 1.2 : PARTNERSHIP .................................................................................................................... 4
1.5 ASSESSMENT OF PARTNERSHIPS ................................................................................................ 5
1.5.1 Computation the Provisional Adjusted Income and Divisible Income .................. 5
1.5.2 Computation of Adjusted Income & Statutory Income ................................................ 6
1.5.3 Form P and CP30...................................................................................................................... 11
PRE-QUIZ 1.3 : PARTNERSHIP ................................................................................................................. 12
1.6 CHANGES IN PARTNERSHIP ........................................................................................................ 13
1.6.1 Allocation of Capital Allowance among the Partners................................................. 13
SUMMARY OF CHAPTER 1 ......................................................................................................................... 17
TUTORIAL 1 : PARTNERSHIP ................................................................................................................... 18
POST QUIZ 1 : PARTNERSHIP................................................................................................................... 32
CHAPTER 2 : INDUSTRIAL BUILDING ALLOWANCE & OTHERS (CLO1 & CLO2)............ 33

PRE-QUIZ 2 : INDUSTRIAL BUILDING ALLOWANCE & OTHERS ................................................ 33
2.1 INTRODUCTION TO INDUSTRIAL BUILDING ALLOWANCE (IBA)................................ 34
2.1.1 Definition the Industrial Building under Paragraph 63, Sch 3, ITA 1967. ......... 34
2.1.2 Meaning of factory under Paragraph 64, Sch 3, ITA 1967. ...................................... 35
2.1.3 Industrial Building under Para 65, Sch 3, ITA 1967 ................................................... 35
2.1.4 Non-Industrial Building (NIB) ............................................................................................ 36
2.1.5 Part of a Building used as Industrial Building Para 66, Sch 3, ITA 1967 ............ 36
(10% Rules) ................................................................................................................................................ 36
2.1.6 75% Rule (Para 67, Sch 3 ITA 1967) – Installation of Plant and Machinery .... 37
2.2 COMPUTATION OF QUALIFYING BUILDING EXPENDITURE (QBE)............................. 40
2.2.1 Date when the expenditure is incurred........................................................................... 40
iii | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih
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2.2.2 Calculation The QBE On Constructed Building............................................................. 41

2.2.3 Calculation the QBE on the purchased building........................................................... 43
2.3 INDUSTRIAL BUILDING ALLOWANCE (IA AND AA) .......................................................... 44
2.3.1 Initial Allowance (IA) – once for all allowance ............................................................. 44
2.3.2 Annual Allowance (AA) ......................................................................................................... 44
2.4 TEMPORARY DISUSE AND NOTIONAL ALLOWANCE (PARAGRAPH 56 AND 57,
SCHEDULE 3) .................................................................................................................................................. 45
2.4.1 Introduction of temporary disuse ..................................................................................... 45
2.4.2 Calculation of notional allowance ..................................................................................... 46
2.4.3 Effects the notional allowance to the statutory business income ......................... 46
2.4.4 Rented Premises....................................................................................................................... 47
2.5 INITIAL ALLOWANCE AND ANNUAL ALLOWANCE RATE FOR THE YA 2020 ......... 47
2.6 DISPOSAL OF INDUSTRIAL BUILDING (PARAGRAPH 48, SCHEDULE 3) ................... 49
2.6.1 The act defines disposal as : ................................................................................................ 49
2.6.2 Disposal Value (Paragraph 62, Schedule 3) ................................................................... 49
2.7 COMPUTATION OF BALANCING CHARGES OR BALANCING ALLOWANCE .............. 49
2.8 AGRICULTURE ALLOWANCE ....................................................................................................... 51
2.8.1 Definition of agriculture under Paragraph 7, Sch 3, ITA 1967 ............................... 51
2.8.2 Qualifying Agriculture Expenditure (QAE) .................................................................... 51
2.8.3 Public Ruling (PR) 1/2016 ................................................................................................... 52
2.8.4 Annual Allowance Rates for Agriculture Allowance .................................................. 53
2.8.5 Date of incurrence of Qualifying Agriculture Expenditure ...................................... 54
2.9 FOREST ALLOWANCE ..................................................................................................................... 54
2.9.1 Definition of Forest Allowance under Paragraph 8(2), Sch 3, ITA 1967 ............ 54
2.9.2 Qualifying Forest Expenditure (QFE)............................................................................... 54
2.9.3 Annual Allowance Rates for Forest Allowance ............................................................ 55
TUTORIAL 2..................................................................................................................................................... 56
CHAPTER 3 : COMPANY TAXATION (CLO1 & CLO2) ............................................................... 64

PRE QUIZ 3 : COMPANY TAXATION ....................................................................................................... 64
3.1 INTRODUCTION ................................................................................................................................ 67
3.2 RESIDENTIAL STATUS OF THE COMPANY ............................................................................ 67
3.3 RESIDENT COMPANIES TAX RATE............................................................................................ 68
3.4 FORMAT TAX COMPUTATION FOR COMPANY ..................................................................... 69
3.5 BUSINESS INCOME........................................................................................................................... 71
3.6 NON-ALLOWABLE EXPENSES ..................................................................................................... 71
3.6.1 Expenses that are not incurred: ......................................................................................... 72
3.6.2 Capital Expenditure: ............................................................................................................... 72
3.6.3 Expenses related to investment income ......................................................................... 74
3.6.4 Section 39 prohibited expenses: ........................................................................................ 74
3.7 CAPITAL EXPENDITURE BUT SPECIAL DEDUCTION (Allowable Expenses) ............ 77
3.7.1 Proprietary Rights ................................................................................................................... 77
3.7.2 Listing in the ACE Market or the LEAP market ............................................................ 77
3.8 DOUBLE DEDUCTION ..................................................................................................................... 77
iv | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih
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3.9 STATUTORY DEDUCTION (allowable expenses) ................................................................. 81

3.10 CAPITAL ALLOWANCE (CA) /INDUSTRIAL BUILDING ALLOWANCE (IBA) ........ 83
3.11 DONATIONS UNDER SECTION 44(6) ITA 1967 ............................................................... 85
3.12 BUSINESS ZAKAT ......................................................................................................................... 87
3.13 SECRETARIAL FEE AND TAX FILING FEE .......................................................................... 87
TUTORIAL 3..................................................................................................................................................... 93
POST QUIZ 3 : COMPANY TAXATION .................................................................................................. 111
CHAPTER 4 : REAL PROPERTY GAIN TAX (CLO 1 & CLO 2) ................................................ 113
PRE QUIZ 4-1 : REAL PROPERTY GAIN TAX ..................................................................................... 113
4.1 INTRODUCTION .............................................................................................................................. 113
4.2 CHARGEABILITY ............................................................................................................................. 113
4.3 CHARGEABLE ASSET .................................................................................................................... 114
4.4 WHO IS CHARGEABLE (Section 6 & Schedule 1 of the RPGT Act 1976) ................... 114
4.5 DATE OF DISPOSAL AND DATE OF ACQUISITION ............................................................ 114
4.6 TAX RATES (w.e.f 1.1.2019) ....................................................................................................... 115
PRE QUIZ 4-2 : REAL PROPERTY GAIN TAX ..................................................................................... 116
4.7 DISPOSAL PRICE ............................................................................................................................. 116
4.8 ACQUISITION PRICE ...................................................................................................................... 117
4.9 CHARGEABLE GAINS ..................................................................................................................... 118
4.10 FORMAT FOR COMPUTATION OF RPGT ........................................................................... 118
4.11 ALLOWABLE LOSS AND LOSS RELIEF ............................................................................... 120
4.11.1 Allowable Loss (b/f from 1 January 2010 – after RPGT exemption) ............ 120
4.11.2 Loss Relief (b/f from 1 April 2007 till 31 December 2009) .............................. 120
4.12 EXEMPTIONS OF REAL PROPERTY GAINS TAX ............................................................. 122
4.13 TREATMENTS OF GIFTS .......................................................................................................... 123
4.14 RETURNS AND ASSESSMENT ................................................................................................ 126
SUMMARY OF CHAPTER 4 ....................................................................................................................... 127
TUTORIAL 4................................................................................................................................................... 128
POST QUIZ 4 : REAL PROPERTY GAIN TAX....................................................................................... 135
CHAPTER 5 : INVESTMENT INCENTIVES (CLO1, CLO 2 & CLO 3) ..................................... 136

PRE QUIZ 5 : INVESTMENT INCENTIVES .......................................................................................... 136
RESIDENT COMPANIES TAX RATE ...................................................................................................... 136
5.1 INTRODUCTION .............................................................................................................................. 137
5.2 PIONEER STATUS (Section 5-25 PIA, 1986) ........................................................................ 138
5.2.1 Promoted Products Or Activities ..................................................................................... 138
5.2.2 Pioneer Certificate – Section 7 of the PIA ..................................................................... 139
5.2.3 Tax Relief Period – Section 14 of the PIA ..................................................................... 139
5.2.4 Benefits Of Pioneer Status .................................................................................................. 140
5.3 INVESTMENT TAX ALLOWANCE (ITA) ................................................................................. 143
5.3.1 Qualifying Capital Expenditure ........................................................................................ 143
5.3.2 Rate of Investment Tax Allowance .................................................................................. 144
5.4 LESS DEVELOPED AREAS (New Incentives) ........................................................................ 147
v | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih
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5.5 REINVESTMENT ALLOWANCE (RA) ....................................................................................... 148

5.6 EXPORT INCENTIVES.................................................................................................................... 150
5.6.1 Export a Manufactured Goods And Agricultural Produce...................................... 150
5.6.2 Export of Services .................................................................................................................. 151
TUTORIAL 5................................................................................................................................................... 152
POST QUIZ 5 : INVESTMENT INCENTIVES ........................................................................................ 158
CHAPTER 6 : TAX PLANNING & AVOIDANCES (CLO1, CLO2 & CLO3) .............................. 159
PRE-QUIZ 6 : TAX PLANNING & AVOIDANCE .................................................................................. 159
6.1 INTRODUCTION .............................................................................................................................. 160
6.2 TAX PLANNING................................................................................................................................ 160
6.3 TAX AVOIDANCE ............................................................................................................................. 160
6.4 TAX EVASION ................................................................................................................................... 160
6.5 EMPLOYMENT VERSUS SELF-EMPLOYMENT .................................................................... 161
6.6 INTRODUCTION TO THE CORPORATE STRUCTURE AND DIVIDEND FLOWS ....... 162
6.6.1 Meaning of Corporate Structure and Dividend Flows ............................................. 162
6.6.2 Disposal of business operations and restructuring of activities ......................... 163
6.7 TAX PLANNING FOR THE INDIVIDUAL, SOLE PROPRIETOR BUSINESS AND
COMPANY BUSINESS ................................................................................................................................. 164
6.7.1 Tax Planning for the Individual ........................................................................................ 164
6.7.2 Tax Planning for Sole Proprietor Business .................................................................. 177
6.7.3 Tax Planning for Company ................................................................................................. 180
TUTORIAL 6................................................................................................................................................... 188
POST QUIZ 6 : TAX PLANNING & AVOIDANCE ................................................................................ 193
EXAMPLE OF FINAL EXAMINATION QUESTIONS ................................................................. 194
vi | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih

(Dec 2020/Mac 2021)
REFERENCES
2020 Budget Commentary and Tax Information. MIA. MICPA.CTIM
Chong Kwai Fatt (2020), Malaysian Taxation Principles and Practices, 26th Edition,
InfoWorld Kuala Lumpur
2020 Budget Commentary and Tax Information. http://accaglobal.com
Chong Kwai Fatt (2019), Malaysian Taxation Principles and Practices, 25th Edition,
InfoWorld Kuala Lumpur
K. Sandra Segaran (Editor) & Veerinderjeet Singh (Technical Advisor in Taxation) (2019),
Malaysia Master Tax Guide 2019. 36th Edition. Wolters Kluwer.
Sudharsanan Thillainthan, Ong Chong Chee and Tania Kat-Lin Edward (2019). Veerinder on
Taxation. 5th Edition. Commerce Clearing House (M) Sdn. Bhd.
CCM Website : www.ssm.com.my/Limited Liability Partnership
PWC Website (Budget 2020)
Income Tax Act 1967.
Real Property Gains Tax Act 1976.
Collections of question of the final examination from Polytechnic Malaysia
Alan Yeo Miow Cheng (2016). Advance Malaysian Taxation. 28th Edition.YSB Management
Sdn. Bhd.
Alan Yeo Miow Cheng (2016). Malaysian Taxation. 31th Edition.YSB Management Sdn. Bhd.
Choong Kwai Fatt (2018). Malaysian Taxation Principle and Practice. 24th Edition.
IRBM Website : www.hasil.org.my/Ketetapan Umum
Laporan Belanjawan Tahunan Maklumat Cukai, MATA
MasterTaxGuide
Slide show by Puan Saniza Said from Saniza & Co.
MIA Past Year Questions Examination
vii | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih
(Dec 2020/Mac 2021)
1 CHAPTER 1 : PARTNERSHIP TAXATION (CLO1 & CLO2)
OBJECTIVES :
 Introduction to the partnership and existence of a partnership.
 Computation the provisional adjusted income, divisible income, adjusted income and
statutory income.
 Prepare the computation of aggregate income and total income.
 Allocation of capital allowance among the partners.
PRE-QUIZ 1.1 : PARTNERSHIP
a) What is a partnership? (5 Marks)
b) Describe the conventional partnership and Limited Liability Partnership. (4 Marks)
c) State TWO (2) factors need to be present for a partnership to exist. (2 Marks)
d) List down and describes THREE (3) types of partners. (6 marks)
1.1 INTRODUCTION
In general terms, a partnership has been defined as a legal relationship which subsists
between two or more persons who carry on a business in common with the object of
making a profit. Under Partnership Act 1961 (Act 135/3) has defined partnership is the
relation which subsists between persons carrying on business in common with a
view of profit.
Meanwhile, Section 2 of Income Tax Act 1967 (ITA 1967) has defined partnership as “an
association of any kind (including joint venture, syndicates and cases where a party
to the association is itself a partnership) between two or more parties who have
agreed to combine any of their rights, power, property, labour or skill for the
purpose of carrying on a business and sharing the profits or losses there form, but
exclude Hindu Joint Family although such a family may be a partner in a partnership.”
With effect from YA2007, the exclusion was widened to include any association which is
established pursuant to a scheme of financing in accordance with the principles of Syariah.
Effective 26 December 2012, limited liability partnership is also excluded from the
definition. A LLP is not a “person”. Therefore, no assessment can be raised for income tax
on the partnership but each individual partner is assessed on his share of the partnership
income. A partnership business is thus treated as if it is a sole proprietorship business.
This type of business set ups is most suitable for professional firms such as auditors and
lawyers. The partners in a partnership business entity are also bounded by unlimited
liability.
1
1.2 TYPES OF PARTNERSHIP
There are 2 types of partnership in Malaysia, i.e. the Conventional Partnership ruled by
the Partnership Act 1961 and the Limited Liability Partnership (LLP) ruled by the
Limited Liability Partnership Act 2012. Difference between Conventional Partnership and
Limited Liability Partnership as shown as in table 1.1.
Table 1.1 : Difference between Conventional Partnership and Limited Liability

Partnership in Malaysia
No. Description Conventional Partnership Limited Liability Partnership

1. Governing Governed by Registration of Governed by Limited Liability
Law Businesses Act 1956 (ROBA) Partnership Act 2012 (LLPA) –
and Partnership Act 1961. hybrid between a company and a
conventional partnership.
2. Number of Minimum 2 individual Minimum 2 partners (either
Owners partners, maximum 20. individuals or corporations) and
no maximum.
3. Startup Low which is registration starts Moderate which is registration
Costs from RM100. costs RM500.
4. Annual Low which are including Lower than a private company
operating business renewal, tax and such as accounting fee, tax fee, and
costs accounting fees. lodgment fee of annual declaration
(RM200). No audit and annual
filing fee need to be incurred.
However, a compliance officer is
required to be appointed to lodge
documents on behalf of the LLP.
5. Audit and None (except audit of accounts None (except audit of accounts is
annual filing is required in a partnership required in a partnership
requirement agreement). agreement).
6. Legal Status No separate legal entity. Separate legal entity.
7. Owner’s Unlimited liability (jointly and No personal liability of partner,
Liability severally liable with the except for own wrongful act or
partnership) which can extend omission or without authority.
to personal assets of the Liabilities borne by the partners
partners. are jointly and severally to the
extent of contribution only.
8. Life of Death or bankruptcy of a A partner will cease to be partner
Business partner will result in of the LLP upon his death or
dissolution of the partnership dissolution (except otherwise
(except otherwise provided in provided in a partnership
a partnership agreement). agreement) but such cessation to
be the partner to the LLP will not
affect the continuity of the
business.
Source: Lo & Partners Advocates Website
2
1.3 EXISTENCE OF A PARTNERSHIP
A partnership is usually formed by at least 2 persons but not exceeding 20 persons

agreeing to carry on a business with a view to the profit. Based on the definition
above, in a partnership there must be:
a) an association of some kind between the person (min 2, max 20 or no maximum

depends on types of partnership either conventional partnership or LLP);
b) have an agreement (deed of a partnership) between persons to combine their rights,
powers, property, labour or skill
A partnership is usually indicated with the existence of a Deed of Partnership. A Deed of

Partnership is a document that contains an agreement, which details the rights and
obligations of each partner participating in a venture. However, in certain circumstances, a
partnership exists even though there is no Deed of Partnership. In determining whether a
partnership exists without a Deed, the following guidelines can be used:
a) Profit/Loss Sharing ratio (partner’s entitled share of the profits or loss)

b) The manner of operating the bank account and limitations to the signing of
cheque/online business transaction.
c) Name used in carrying on the business as shown in trade directories and business
correspondence.
d) Partner’s remuneration, drawings, capital contributed, and interest allowed for
capital
1.4 TYPES OF PARTNERS
No. Description Full Salaried Sleeping Limited Corporate

Partner Partner Partner Partner Partner
1. Definition A Full A Salaried A Sleeping A Limited A Corporate
Partner is Partner who Partner is one Partner has Partner
one who owns a portion who contributes liability of a means any
contributes of a company only capital to minor entity which
capital to and thus is the business, but admitted for agrees to pay
the business entitled to part does not take the benefits company or
and takes of its profit, but part in its of an affiliate or
active part who also management. He partnership is sub licensee
in its receives a is also called limited to the for
managemen regular salary in dormant partner extent of his company’s or
t. Hence, he exchange for or financing capital affiliate’s or
is called his/her services partner. contribution. sub
active for the company. licensee’s.
partner.
2. Income Tax Section 4(a) Section 4(b) Section 4(a) Section 4(a) Section 4(a)
under
3. Participation Active Non-Active Non-Active Non-Active Non-Active
in (merely an
management employee)
4. Limitation of Unlimited Not applicable Limited Limited Can be
liabilities unlimited or
limited
3
Generally, a partner is assessed on his share of income from the partnership business. His
share of partnership income is, therefore, assessable under Section 4(a) as in the case of a
full partner discussed below. There are, however, cases where a partner is not in fact
personally engaged in carrying on the business of that partnership. Section 19(6), ITA
1967 provides that such a person is not regarded as a full partner for the purposes of
income tax.
1) How to allocate capital allowance, balancing charge or balancing allowance? (5 Marks)
2) Sunny Enterprise is a partnership business selling antiques and owned by Puan Sally,
Puan Gee and Cik Katty. The accounting period ended on 31 December every year.
Below is Partnership related information:
Net profit for the partnership for the year ended 31 December 2020 was RM54,800.
Including in the income statement were donations on amount RM 3,600 to the Rumah
Anak Yatim Darul Hidayah (receipt included), depreciation for RM 11,000 and personal
expenses by Puan Sally for RM 2,350.
The partnership claimed RM9,000 for capital allowance for the year of assessment 2020.
The terms of the agreement between the partners are as follows :
Terms of the agreement Sally Gee Katty

Capital contribution RM 50,000 RM 50,000 RM
50,000
Interest on capital (per annum) 5% 5% 5%
Salary (per annum) RM 36,000 RM 24,000 RM
24,000
Profit sharing ratio Equally
You are required to :
a) Calculate the Provisional Adjusted Income and Divisible Income for partnership
for the year of assessment 2020. (10 Marks)
b) Calculate the Adjusted Income and Statutory Income of each partners. (10 Marks)
4
1.5 ASSESSMENT OF PARTNERSHIPS
1.5.1 Computation the Provisional Adjusted Income and Divisible Income
COMPUTATION OF ADJUSTED INCOME & DIVISIBLE INCOME FOR PARTNERS

Net profit (before taxation) xxx
Add: 1) Partners’ Expenses

 Salary of partners, Allowances, Bonus [A, B, C] xx
 Partner’s Interest on capital or advanced xx
 Private and domestic expenses of the partners xx xx
2) Any Item (Not Allowable/Allowable/ Expenses Not

Allowed by Partnership Business) :
 Depreciation xx
 Donation (for the unapproved and approved institution) xx
 Private expenses for business xx
 Zakat, Fine imposed for violation of the law xx
 General Provision of Bad Debts, Renovation Cost xx
 Taxation fee (allowable restricted to RM10,000) xx
 Secretarial fee (allowable restricted to RM5,000) and etc. xx xx
xxx
Less: Other incomes (as in financial statement) :
 Real Property Gain xx
 Statutory Income of Dividend, Rental and Interest [stated xx
in the financial statement]
 Profit on disposal of assets and etc. xx (xx)
xxx
Less: Double Deduction :
(Remuneration for Disabled workers, R&D etc., insurance for ex- (xx)
im etc.)
PROVISIONAL ADJUSTED INCOME – under Section 55 (2) xxx
Less: Items under Section 55 (3) : (show the calculation)

1) Partners’ remuneration (Salary, Allowances, Bonus)
 Partner A/B/C xx (xxx)
2) Partner’s Interest on capital or advanced
3) Private and domestic expenses, if any, of a partner
DIVISIBLE INCOME XXX
(Divide based on agreement or sharing profits and loss equally)
5
1.5.2 Computation of Adjusted Income & Statutory Income
Computation of Adjusted Income & Statutory Income

PARTNERS
A B C
Partners’ remuneration (Salary, Allowances, Bonus) xx xx xx
Partner’s Interest on capital or advanced xx xx xx
Private and domestic expenses of a partner xx xx xx
Divisible Income **divide equally or based on agreement** xx xx xx
ADJUSTED INCOME (PARTNERS) xx xx xx
Add: Balancing Charge **divide equally or based on the agreement– for xx xx xx
partners who are remained in partnership **
xx xx xx
Less: Balancing Allowance / Capital Allowance (xx) (xx) (xx)
**divide equally or based on agreement – for partners who are
remained in partnership**
Sec 4 (a): STATUTORY INCOME OF PARTNERSHIP BUSINESS xx xx xx
Add: Other Incomes (from other sources)

Sec 4 (b): Statutory Income of Employment Income xx xx xx
Sec 4 (c): Statutory Income of Dividend & Interest xx xx xx
Sec 4 (d): Statutory Income of Rental & Royalty xx xx xx
Sec 4 (e): Statutory Income of Pension & Annuity xx xx xx
Sec 4 (f): Other than Sec 4(a) – (e) xx xx xx
**Incomes from partnership divide equally or based on agreement or
from other sources for each partner**
AGGREGATE INCOME xx xx xx
(-) Donation for approved institution (xx) (xx) (xx)
[7% from Aggregate Income or paid up donation – lower]
**divide equally or based on agreement –refer date**
TOTAL INCOME XX XX XX
Less : Personal Relief
a. Tax Payer (RM9,000) xx xx xx

b. Spouse/wife/husband (RM4,000) xx xx xx
c. Children (RM2000/RM6000/RM8000/RM14,000) xx xx xx
d. Insurance & etc xx xx xx
CHARGEABLE INCOME XX XX XX
6
Example 1-1
The profit and loss account of Frozen & Co. for the year ended 31 December 2020 is as
follows :
RM RM
Gross Profits 75,000
Less : Operating Expenses
Revenue Expenditure 25,000
Interest on Capital 1,200
Depreciation 5,000
Salary of partners 10,000
Private expenses of partners 2,000 (43,200)
Net Profit Before Taxation 31,800
Assume that there is a binding letter which stipulates the following :
Elsa Ana
Profit Sharing Ratio 1/3 2/3
Salaries RM5,000 RM5,000
Private Expenses RM500 RM1,500
Interest on Capital RM500 RM700
Additional Information : Capital Allowance is RM6,000.
Required : Compute the Provisional Adjusted Income for Frozen & Co.
Solution for Example 1-1 (Fill in the blank)

RM RM
Net Profit Before Taxation
Add :
1) Partners’ Salary
2) Partners’ Private Expenses
3) Interest on Capital
4) Depreciation
PROVISIONAL ADJUSTED INCOME
7
Example 1-2
Refer to Example 1-1 above, compute the Divisible Income.
Solution for Example 1-2 (Fill in the blank)

RM RM
Less Section 55(3):
1) Partners’ Salary
2) Partners’ Private Expenses
3) Interest on Capital
DIVISIBLE INCOME
Example 1-3
Refer to Example 1-1, compute the allocation of divisible income and capital allowance for
each partner.
Solution for Example 1-3
Elsa Ana
Portion for Profit & Loss
Workings :
Divisible Income
Capital Allowance
Example 1-4
Refer to the Example 1-1, compute the Statutory Income for each partner.
Elsa Ana Total

Salary
Private Expenses
Divisible Income
Interest on Capital
ADJUSTED INCOME
Less :
Capital Allowance
STATUTORY INCOME
8
Exercise 1-1
Mas, Hani and Arian are partners in a jewel business at Kok Lanas, Kelantan. The
partnership's accounting year ends on 31 December. The following information was
available:
1. Divisible Income from the partnership was RM124,000 for the accounting year
ended 31 December 2020.
2. Partnership’s details included :
Share of Annual Interest on capital Bonus on Capital

Partners
Profit Salary (% per annum) 31.12.2020 contributed
Mas 1 RM36,000 10% RM10,000 RM20,000
Hani 2 RM48,000 10% RM10,000 RM40,000
Arian 3 RM50,000 10% RM10,000 RM60,000
3. The depreciation calculate on the partnership business's equipment was RM26,000 but
the capital allowance was RM48,000.
Required: Compute the statutory income for the year of assessment 2020; Mas, Hani, and
Arian. (Show all the workings). (25 Marks)
Solution for Exercise 1-1
Computation of Total Income for Mas, Hani and Arian for the YA 2020
Mas Hani Arian
Divisible Income
Salary
Interest on Capital
Bonus
ADJUSTED INCOME
(-) Capital Allowance
Sec. 4(a) : STATUTORY INCOME
Exercise 1-2
Elmany Beauty House Enterprise belongs to Puan Elisa and Puan Mariny. Their
partnership business offered traditional treatment for postnatal care and selling healthy
products. It is located in Kepala Batas, Pulau Pinang. Their capital and profit & loss sharing
as below :
Partners Capital (RM) Profit & Loss Ratio

Puan Elisa RM30,000 50%
Puan Mariny RM18,000 50%
9
The trading and Profit & Loss Account for the year ended 31.12.2020 as shown below:
ELMANY BEAUTY HOUSE ENTERPRISE

Statement of comprehensive income for the year ended 31 December 2020
Notes RM RM
Sales of Product 12,540
Less : Cost of Goods Sold (COGS)

Opening inventory 10,000
(+) Purchase 5,000
15,000
(-) Closing Inventory (3,500) 11,500
Gross Income 1,040
Add :
Services Income 78,000
TOTAL REVENUE 79,040
Less : Operational Cost
Accounting Fee 1 500
Compound 2 300
Depreciation 3 8,000
Electricity Bills 3,360
Interest on Capital 4 4,800
Interest to loan 5 3,000
Promotion 6 500
Rental 7,200
Secretary Fee 7 30
Sundry Expenses 8 1,200
Taxation Fee 9 250
Telephone Deposit 10 340
Water Bills 650 (30,130)
NET INCOME 48,910
Additional Information :
1. Accounting fee was paid to Husna & Co. for preparing a full set of accounts for Elmany
Beauty House Enterprise.
2. Compound paid for speed trapped offences of Puan Elisa after purchasing goods for
business.
3. Total fixed assets is RM40,000. The depreciation is 20% on the total of assets. The
capital allowance is RM8,000.
4. Interest on capital is 10% per year on capital contribution.
5. Interest on the loan amounts 5% from RM60,000. They used the loan for capital.
6. The promotion is for flyers and RM200 for fixed up their signboard in front of the
premise.
10
7. Secretary fee is for changed their premise address and added their types of business.
8. Included in Sundry Expenses - the toll bills of RM200, RM200 of annual membership
fee for Beauty Consultation Association, a donation to Budi Penyayang of RM200
(approved organization) and Puan Mariny’s personal expenses of RM600.
9. Taxation fee was paid to Zaidi Tax Consultant to filing up the Partnership Return Form
(P Form).
10. Deposit payment TM Berhad for credit card machine installation.
Required:
Prepare the computation of Provisional Adjusted Income, Divisible Income & Statutory
Income for each partner for the YA 2020. (25 Marks)
1.5.3 Form P and CP30
Form P is partnership return form. It should attach together with Form CP30. This form
is prescribed under Section 152 Income Tax Act 1967. The precedent partner is the person
whose name appears as the first name in the partnership agreement (Section 86) and
responsible for submitting a partnership return or returns of income.
Exercise 1-3
Refer to the Form P in IRBM website, answer all these questions. (12 Marks)
1. What is Form P?
2. Who is responsible to fill up the form P?
3. What is Form CP30?
4. Who is responsible to fill up the form CP30?
5. List 4 business income from the partnership.
6. How many years the partnership should keeping the business records?
11
Isa, Noh and Muhammad's partnership began on 1 January 2020 and annual accounts are
prepared until 31 December. Isa and Muhammad left the partnership on 31 August 2020,
withdrawing their accumulated capital and profit by that date.
On 1 September 2020 Aishah entered into the partnership with the new agreement
referred to below:
Partnership 1/1/2020 – 31/8/2020 1/9/2020 – 31/12/2020

Agreement Isa Noh Muhammad Noh Aishah
Capital RM70,000 RM105,000 RM70,000 RM100,000 RM100,000
Interest on capital
8% 10% 8% 10% 10%
(per annum)
Salary per month RM2,000 RM2,500 RM2,000 RM2,500 RM2,500
Share of divisible
1/5 3/5 1/5 1/2 1/2
income/(loss)
The partnership’s statement of comprehensive income for the year ended 31st December
2020 is as follows:
RM
Income from construction contract 8,418,600
Less : Cost of construction (7,961,400)
Profit from construction 457,200
Add : Other income (trade) 190,700
647,900
Less : General Overheads (420,300)
Net Profit for the year 227,600
a) Included in the general overheads are : Partner’s salaries, Partner’s interest on

capital and Depreciation on fixed asset amounted RM30,700
b) Capital allowance for the year of assessment 2020 was RM30,700.

Calculate the statutory income of each partner from the partnership for the year of
assessment 2020. (20 Marks)
12
1.6 CHANGES IN PARTNERSHIP
When a partner withdrew from the partnership or a new person is admitted as a partner
into the existing partnership, this would close to a termination of old partnership and
commencement of new partnership. Thus, the business will be divided into two different
partnership businesses which are:
a) Before new admit or retirement – old partnership [A,B & C]

b) After new admit or retirement – new partnership [A & B, A, B & D]
(C - Retirement) (D-Admission)
(A, B,C) (A,B) (A,B,D)
Old New1 New2

1/1/2020 1/4/2020 1/7/2020 31/12/2020
The changes will affect as follows:
1.6.1 Allocation of Capital Allowance among the Partners
a) Although the partnership is assessed as a business source, capital allowances

claim is attributable to the individual partners instead of the partnership. [last
person in partnership].
b) The capital allowance is allocated concerning the profit-sharing ratio of

the partner at the end of each basis period.
c) Admission or retirement of partners will not affect the claim of capital

allowances as the partnership is treated as a continuing business if at
least one partner of the old partnership continues to be a partner in the
new partnership.
d) Since capital allowance is computed at the year-end, new partner admitted

they would enjoy full year capital allowance a retired partner would not
get any capital allowance in the year of withdrawal.
13
Example 1-5
1Msia Associate belongs to Ali and Ahmad. However, on 1st January 2020, Ali has retired
from the partnership and replaced by Afif. Their partnership had incurred the following
expenditure. The profit and loss are sharing equally.
Office Equipment RM55,000

Furniture and Fittings RM27,000
(The annual allowance for the both assets is 10%.)
Solution Example 1-5 :
Only Ahmad, Azam and Afif can claim a Capital Allowance. As he was not in the
relationship until the end of the contract, Ali could not claim the capital allowance. The
allocation of capital allowance is equally.
Workings :
Office Equipment RM55,000 x 10% = RM5,500
Furniture and Fittings RM27,000 x 10% = RM2,700
Total of Capital Allowance = RM8,200
Ahmad = RM8,200/2 = RM4,100

Afif (entered) = RM8,200/2 = RM4,100
Ali (retired) cannot claim capital allowance
Example 1-6
A partnership of Persona and Almera made up its annual accounts to 31 December each
year. On 1 April 2020, they invited Exora to join the partnership. Given below are the
accounts of the partnership.
PerAlEx Enterprise
RM RM
Administration expenses 23,000 Trading profit 125,000
Salaries of employees 36,000
Repairs 40,000
Depreciation 20,000
Gross Profit 6,000
125,000 125,000
Partner’s Salary : Gross Profit 6,000
Persona 11,000 Other Income 10,000
Almera 15,200 Net Loss 18,400
Exora 4,800
Partner’s Interest on Capital :
Persona 1,800
Almera 1,100
Exora 500
34,400 34,400
14
1. The profit sharing ratio is as follows :
Persona Almera Exora

1/1/2020 – 31/3/2020 2 1 -
1/4/2020 – 31/12/2020 3 2 1
2. Repairs include an extension to an existing store amounting to RM32,000.

3. The capital allowance for the year of assessment 2020 is RM12,000.
Required :
Calculate the statutory income for each partner for the year of assessment 2020.
(25 Marks)
3 months 9 months
(3/12) (9/12)
1/1/2020 1/4/2020 31/12/2020
PerAlEx Enterprise
Computation of Divisible Income of Partners
RM
Net Loss (18,400)
(+) Partner’s Salary :
Persona
Almera
Exora 31,000
Interest on Capital
Persona
Almera
Exora 3,400
Any items/Expenses not allowed :

- Extension store
- Depreciation 52,000
68,000
(-) Other Income (10,000)
(-) Section 55(3) :
Partner’s Salary
Interest on Capital
DIVISIBLE INCOME
15
Divisible Income : RM
Persona 12,783
Almera 7,867
Exora 2,950
Capital Allowance : RM
Persona 6,000
Almera 4,000
Exora 2,000
Computation of Statutory Income for Persona, Almera and Exora : YA 2020

Persona Almera Exora
RM RM RM
Partner’s Salary
Interest on Capital
Divisible Income
ADJUSTED INCOME 25,583 24,167 8,250
Less : Capital Allowance
Sec. 4(a) : Statutory Income of Partnership 19,583 20,167 6,250
Exercise 1-4
Elman, Umar and Uqail agreed to form a partnership, UEU Sepakat operating a fast food
business since 2014. The accounting period of the partnership ends of at 31 December
every year. The Statement of comprehensive income of UEU Sepakat for the year ended 31
December 2020 is a follows :
UEU Sepakat
RM RM
Sales 820,000
Less : Cost of Goods Sold
Opening stock 215,000
Purchase 420,000
635,000
Less : Closing stock (193,000) (442,000)
GROSS INCOME 378,000
Less : Expenditures
Partner’s Salaries (Note 1) 70,000

Partner’s Bonuses (Note 2) 8,000
Administrative and management expenses 58,500
Repairs (Note 3) 5,100
Donations (Note 4) 2,800
Entertainment expenses 3,200
16
Loss on disposal of a car (Note 5) 4,900
Utility expenses 9,500
Depreciation (Note 6) 88,000 (250,000)
NET PROFIT 128,000
Notes to the Account :
Account Elman Umar Uqail

1. Partner’s salaries RM36,000 RM22,000 RM12,000
2. Partner’s bonus RM4,000 RM4,000
3. Car Repair RM1,800
4. The partnership donated RM2,800 to an approved institution. Umar and Uqail
claimed equally. (Receipt attached)
5. Loss of disposal of the car ; Residual Balance RM10,000 and sales price is RM15,100.
6. Capital allowance for the year assessment 2020 are as follows :
Fitting and furniture RM11,420
Machine RM13,450
Office Equipment RM12,130
Additional information :
i) On 1st September 2020, Elman left UEU Sepakat.

ii) Based on the partnership agreement, profit and loss will be distributed equally
among the existing partners at that time.
iii) Dividend income shows as below : Elman RM3,700 and Umar RM7,000 from
investment in ASB.
iv) Uqail had statutory income from a car wash business amounted to RM8,400.
Required :
Compute the Total Income of each partner for the year of assessment 2020. (25 Marks)
SUMMARY OF CHAPTER 1
 A partnership is an association of any kind between who have agreed to combine any
their right, power, property, labour or skill to carry on a business and sharing the
profits arising from the business.
 2 types of partnership; Conventional and Limited Liability Partnership (LLP).
 5 types of partners; full partner, salaried partner, sleeping partner, limited partner and
corporate partner.
 Income tax cannot be levied upon a partnership, but it is levied on the individual
partners on their share of business income under Section 4(a) : Business Income.
 The computation of Adjusted Income of the partners involved three key steps;
1) Compute the Provisional Adjusted Income of the partnership
2) Compute the Divisible Income of the partnership
17
3) The partner’s share of the divisible income is aggregated with his/her salary, interest
on capital contribution and his/her private expenses to obtain his/her adjusted
income from the partnership.
 Qualifying assets will be entitled to Capital Allowances at the end of each year of
assessment. The capital allowance is allocated to the partners existing at the end of
the year concerning their profit-sharing ratio. (including if any balancing charge or
balancing allowance)
 Changes in the partnership will be effect on the allocation of profit and loss
sharing ratio, salary, capital contribution and interest on capital. For capital
allowance allocation, only last partner can be claimed.
TUTORIAL 1 : PARTNERSHIP
Tutorial 1-1
Ramlan and Kumar who are partners have been selling souvenir since 2008. Their
partnership accounting period ends on 31st December annually. Ramlan made the capital
contribution of RM40,000 whereas Kumar’s capital contribution amounted to RM65,000.
The terms of their agreement are as follows :
Salary Interest on capital Profit and loss

(per month) (per year) sharing ratio
Ramlan RM2,200 5% 1/3
Kumar RM2,500 5% 2/3
On 31st May 2020, Kumar opted for retirement and withdrew all of his capital. Johan was
admitted to be a new partner on 1st June 2020, and his capital contribution amounted to
RM65,000. On that day, Ramlan increased his capital contribution by RM10,000. The new
terms of there are as follows:
Salary Interest on capital Profit and loss

(per month) (per year) sharing ratio
Ramlan RM3,250 7% 1/2
Johan RM2,700 7% 1/2
The provisional adjusted income for the year of assessment 2020 RM27,600.
Required : Compute the statutory income for each partner for the year of assessment
2020. (25 Marks)
18
Tutorial 1-2
Alam Sejahtera Partners was established on 1st January 2008 in the printing business.
Jamal, Jefri and Johan are the partners. The Statement of comprehensive income for the
year ended 31st December 2020 is given below :
Alam Sejahtera Partners

Statement of comprehensive income for the year ended 31st December 2020
RM RM
Gross Profit 387,250
Less : Salary (including partners) (Note 1) 175,400
Advertising (Note 2) 34,500
Rent of premises 15,000
Stationery and postage 22,500
Interest on capital (Note 3) 8,000
Depreciation (Note 5) 3,700
Repair of office equipment 2,500
Renovation of premises 5,000 (266,600)
NET PROFIT 120,650
1. One of the workers was deaf and received RM700 per month for his salary.
2. Included in advertising expenses are RM4,800 for Johan’s personal expenses, RM3,500
for Jefri’s personal expenses and RM4,000 for donations to National Cancer Council
Malaysia (approved and receipts included) on 31 July 2020.
3. The terms of the agreement between Jamal, Jefri and Johan are as follows :
Jamal Jefri Johan

Partners Salary (monthly) RM4,000 RM3,000 RM3,000
Profit Sharing Ratio 4/10 3/10 3/10
Interest on capital (yearly) 8% 8% 8%
Capital Contribution RM40,000 RM30,000 RM30,000
4. On 1st October 2020, Johan quit from the partnership to pursue his studies in overseas.
The partnership invited Jamie to become a partner. Commencing from that date, the
new terms of the agreement are as follows :
Jamal Jefri Jamie

Partners Salary (monthly) RM4,000 RM3,000 RM2,000
Profit Sharing Ratio 4/10 4/10 2/10
Capital Contribution RM40,000 RM40,000 RM20,000
5. Capital allowances for the year ended 31 December 2020 were RM4,400.
Required : Calculate the Adjusted Income, Divisible Income and Statutory Income for the
year of assessment 2020. (25 Marks)
19
Tutorial 1-3
(a) State FIVE (5) types of partners in a partnership. (5 Marks)
(b) Amalin, Athifah dan Arisha formed a partnership known as Triple A Enterprise on
1.10.2016. Presented below is the Statement of Comprehensive Income for the year
ended 31st December 2020.
The partnership agreement consists of the following information :
Salary per Capital Interest on

Profit (Loss)
Partners month Contribution Capital
Sharing Ratio
(RM) (RM) (%)
Amalin 1,500 Proportion on 15,000 5
Athifah 2,000 capital 20,000 5
Arisha 2,500 contribution 25,000 5
On 1st July 2020, Arisha decided to leave the partnership and withdrew all her
accumulated capital and profits. Ameena was invited to join the partnership and
contributed a sum of money as capital.
The partnership agreement has been changed as follows :
Salary per Capital Interest on

Profit (Loss)
Partners month Contribution Capital
Sharing Ratio
(RM) (RM) (%)
Ameena 2,000 contribution 20,000 6
The partnership accounts continue to be closed on 31st December each year.
Triple Enterprise
Statement of Comprehensive Income for the year ended 31st December 2020
Notes RM RM
Sales 549,560
Less Cost of Goods Sold :
Opening Stock 35,644
Add : Purchases 325,450
Less : Closing Stocks (36,550) (324,544)
GROSS PROFIT 225,016
Less Operating Expenses

Salary 1 110,000
Utilities 2 18,240
Repair & Maintenance 3 10,320
Donations 5,000
Transportation 4 6,550
Advertising 3,200
20
Triple Enterprise
Miscellaneous 2,340
Depreciation 5 15,000
Interest on Capital 3,300 (173,950)
51,066
Add Other Income
Rental 21,000
NET PROFIT 72,066
Notes to the accounts :
1. Salary consists of salary paid to each partner and salary of employees. The
partnership hired one (1) disable worker who is paid RM1,000 per month.
2. The utility bills are inclusive of the bill for Amalin and Athifah’s house amounted to
RM750 and RM335 respectively.
3. Repair and maintenance include repair expenses for Arisha’s car of RM2,100.
4. Included in the transportation expenses were the cost of purchasing flight ticket for
Ameena for personal purposes amounted RM1,500.
5. Capital Allowance RM15,000 for the year assessment 2020.
Required :
i. Compute the divisible income of the partnership for the year of assessment 2020.
(10 Marks)
ii. Calculate the statutory income of each partner for the year of assessment 2020. (10
Marks)
Tutorial 1-4
Julia and Rania were in partnership named Muara Hati Enterprise and sharing their profit
equally. Their accounts end on 31 December annually. On 1 June 2020, Alia and Khalish
joined as new partners and agreed for profit sharing ratio of 3:3:2:2. The particulars about
partnership shows as below:
Julia Rania Alia Khalish

Capital RM60 000 RM40 000 RM40 000 RM40,000
Interest on capital per year 5% 5% 5% 5%
Monthly salary RM2,500 RM2,000 RM1800 RM1800
Note to the account:
1. Salary expenses included for partner’s and worker’s salaries. One of the workers is
handicapped and received the monthly salary worth RM 1,200.
2. Capital allowance for the year of assessment 2020 amounted RM 7,500, and the
balancing charge is RM800.
21
3. The bonus was dividing equally among the partners at the end of the accounting period.
4. Donation is for the orphanage (approved institution) on 1 March 2020.
5. The insurance expenses are including Life Insurance for Julia RM150 per month.
6. The statement of comprehensive income for the year ended 31st December 2020 as
below :
Muara Hati Enterprise

RM RM
Turnover : Gross profit of partnership 226,500
Dividend 11,120
Rental 10,200
Profit on disposal of fixed assets 1,000 248,820
Less : Expenses
Accounting fee 2,500
Salaries (Note 1) 126,900
Depreciation (Note 2) 4,000
Bonus (Note 3) 4,500
Interest on capital 7,333
Donation (Note 4) 3,000
Insurance (Note 5) 4,200
Utilities 6,500
Promotion and advertising 1,500
Entertainment to client 2,200
Administrative expenses 10,320 (172,953)
Net Profit 75,867
Required : Compute the Total Income for each partner for the year of assessment 2020.
(25 Marks)
Tutorial 1-5
Aaisyah, Lara and Aurora formed a partnership known as Alahai & Co. on 1st April 2012.
The partnership agreement consists of the following information:
Partners Salary per month Profit (Loss)Sharing Capital

(RM) Ratio Contribution
(RM)
Aaisyah 2,000 1/3 200,000
Lara 3,000 1/3 400,000
Aurora 3,200 1/3 400,000
On 1st August 2020, Aaisyah decided to leave the partnership and withdrew all her
accumulated capital and profits. Mateen was interested in joining the partnership and
contributing a sum of money as capital.
22
The partnership agreement has been revised as follows:
Partners Salary per month Profit (Loss) Sharing Capital

(RM) Ratio Contribution
(RM)
Lara 3,300 35 400,000
Aurora 4,000 35 400,000
Mateen 3,000 30 200,000
They also agreed that each partner should receive interest on capital of 5% per annum.
The partnership accounts continued to be closed on 31 December each year.
Alahai & Co.

Notes RM RM
Sales 1,848,400
Less : Cost of goods sold:
Opening stock 243,200
1,106,700
Less : Closing stock (284,500) (822,200)
GROSS PROFIT 1,026,200
Less : Operating expenses:
Salary Note 1 255,520
Advertising 433,328
Utilities Note 2 24,452
Repair and Maintenance Note 3 60,000
Depreciation 50,000
Donations Note 4 20,000
Transportation Note 5 80,000
Miscellaneous 30,500
Interest on Capital Note 6 50,000 (1,003,800)
22,400
Add : Other income
Rental Note 7 85,000
NET PROFIT 107,400
Notes to the account:

Notes
1 Salary consists of salary paid to each partner and salary of employees. The
partnership hired 2 disabled workers which got RM1,100 per month per
person.
2 The utility bill is inclusive the bill for Lara and Aurora’s house amounted to
RM1,810 and RM1,750 respectively.
3 The expenses include repair expenses for Aaisyah’s car of RM10,000.
4 The donations were made to approve institutions on 1.6.2020 and 1.12.2020 for
23
Notes
5 Included in the transportation expense was the cost of purchasing a used van on
15.8.2020 (to be used in the business) and a new motorcycle for Aurora’s son
on 1.12.2020. The amount of both expenses was RM37,500 and RM6,000
respectively, meanwhile the rest of the expenses was used for the business
purposes.
6 Interest on capital is 5% per annum
7 Rental consisted of adjusted rental income received by Mateen (RM45,000) and
Lara (RM40,000) from renting out their premises.
Additional information:
Capital allowance on fixed assets for the year of assessment 2020 was RM128,000. (not
included items in note no.5)
Required : Determine the divisible income of the partnership and the total income of each
partner for the year assessment 2020 (25 Marks)
Tutorial 1-6
Delima, Mutiara and Zamrud agreed on a partnership boutique and apparels known as
Delima & Partners. The business started in 2011. Delima & Partners accounting period
ends 31 December 2020. The particulars of the agreement are as follows:
Delima (RM) Mutiara (RM) Zamrud

(RM)
Capital Contribution 90,000 60,000 30,000
Salary per annum 36,000 24,000 18,000
Interest on capital per annum 5% 5% 5%
Private of expenses per annum 12,000 7,200 6,000
Profit sharing ratio Proportion on capital contribution
On 1 September 2020, Delima decided to with draw from the partnership and Crystal will
replace her. Then, they changed the partnership name to Mutiara & Partner’s as well as a
new agreement as shown below:
Mutiara Zamrud (RM) Crystal (RM)

(RM)
Capital Contribution 150,000 100,000 50,000
Salary per annum 48,000 36,000 24,000
Interest on capital per annum 5% 5% 5%
Private of expenses per annum 12,000 7,200 6,000
Profit sharing ratio Profit/Loss sharing equally
a) Provisional Adjusted Income for the year ended on 31 December 2020 is RM340,000.
b) Capital allowance for the YA 2020 is RM46,000.
c) Donation to an approved institution made on 30 June 2020 is RM12,800.
Required : Calculate the total income for each partner for YA 2020. (25 Marks)
24
Tutorial 1-7
Ejaz & Warda Ventures is a partnership firm was established over the years. The account
closed on December 31 of each year. The terms of the partnership agreement that has
been agreed upon are as follows:
Mr Ejaz Mrs Warda

Capital contribution RM300,000 RM200,000
Interest on capital (per annum) 3% 3%
Salary (monthly) RM 3,500 RM 4,000
Profit & Loss Sharing According to capital ratio
Mr Ejaz and Mrs Warda are proposing Mr Danial to bring in as a third partner and he
officially became a new partner on 1st September 2020. The terms of the new partnership
agreement as follows:
Mr Ejaz Mrs Warda Mr Danial

Capital contribution RM300,000 RM200,000 RM 200,000
Salary (monthly) RM 3,500 RM 3,500 RM2,000
Profit & Loss Sharing 3/8 3/8 2/8
The partnership performances for the year ended 31 December 2020 are as follows:
Sales RM605,150
Allowable Expenses RM300,000
Capital Allowance RM4,000
Approved Donation RM5,000
a) The salary and interest on capital are included in allowable expenses.
b) Other sources of income for YA 2020 for Mr Ejaz & Mrs Warda are as follow :
Mr Ejaz Mrs Warda

Sole Proprietory RM20,000 (RM15,000)
Rental Income RM6,000 RM10,000
Required : Compute the total income of each partner for the YA 2020. (25 Marks)
25
Tutorial 1-8
Elfiya Partners is an electrical equipment supplier owned by Afia, Elman and Sofia. It was
established on 1 July 2010. Closing date of account is on 31 December every year. Given
below are Statement of comprehensive income for the year ended 31st December 2020:
Elfiya Partners
Statement of comprehensive income for the year ended 31st December 2020
RM RM
Less : Salary (including partners) 195,400
Advertising 64,500
(Note 1)
Rented Building 15,000
Stationery 22,500
Interest on Capital 7,600
(Note 2)
Depreciation 8,700
(Note 5)
Repairs Office Equipment 2,900
Renovation of rented building 25,000 (341,600)
Net Profit 117,650
1. Including in advertising expenses are personal expenses of Afia for RM 6,800, drawings
of Elman for RM 4,500 and donation to Rumah Anak-Anak Yatim Darul Kifayah
(approved and receipt attached) on 22 June 2020 for RM 5,000.
2. The terms of the agreement between Afia, Elman and Sofia are as follows :
Afia Elman Sofia

Partners Salary (per month) RM 4,000 RM 3,000 RM 3,000
Profit Sharing Ratio based on capital contribution
Interest on Capital (per annum) 8% 8% 8%
Capital RM 40,000 RM 30,000 RM 30,000
3. On 30 June 2020, Sofia quitted from the partnership to run her own business. There is
no change in the agreement except profit sharing ratio which based on the capital
contribution.
4. The partnership invited Adif to become a partner on 1st September 2020. Starting on
the date, the new terms of an agreement are as follows :
Afia Elman Adif

Partners Salary (monthly) RM 4,000 RM 4,000 RM 2,000
Profit Sharing Ratio based on capital contribution
Interest on Capital (yearly) 8% 8% 8%
Capital RM 40,000 RM 40,000 RM 20,000
26
5. Capital allowances for the year ended 31 December 2020 was RM 6,400.
6. Below are other income for each partner :
Other Afia Elman Sofia Adif

Incomes
Dividend RM 3,500 RM 4,380 - -
(gross) (Bank Rakyat (M) Bhd.)
Interest - RM 2,000 (ASB) RM 3,500 RM 3,000
(Fixed Deposit in (ASN)
BIMB)
Rent RM 2,000 - RM 6,000 RM 2,000
Required :
a) Calculate Divisible Income for Elfiya Partners for the YA 2020.
b) Calculate Total Income for each partner in Elfiya Partners for the YA 2020.
(25 marks)
Tutorial 1-9
Kertas Printing Enterprise is run the business in the printing services since 2007. This
partnership owned by Mr. Adam and Mr. Anas. They are sharing profit and loss equally.
They received the salary amounted to RM2,600 per month. As a partner, they also
received interest on capital of 10% annually.
Statement of comprehensive income for the year ended 31st December 2020 as follow:
KERTAS PRINTING ENTERPRISE

Notes RM RM
TURNOVER
Printing Services 598,729
Less : COST OF THE GOOD SOLD :
Opening Inventory 8,726
Purchases of paper and printing materials 395,241
Less : Discount Received (124)
403,843
Less : Closing Inventory (10,413) (393,430)
Gross Profit / (Loss) 205,299
Less : EXPENSES
Photocopies and Stationeries 840
Payment for LHDN Note 1 1,021
Post Expenses 236
Carriage Charges 998
Penalty Note 2 50
Donation Note 3 852
Entertainment Allowance Note 4 17,700
Water and Electricity 1,667
Interest on Hire Purchase Loan 1,279
Interest on Capital Note 5 4,292
27
KERTAS PRINTING ENTERPRISE
Employees Salary 37,428
Partners Salary Note 6 71,400
EPF (employer) 3,492
License 747
Refreshment for Employee 108
Renewed the Business Registration 10
Vehicle Maintenance 3,758
Machine Maintenance 60
Office Maintenance 339
SOCSO 897
Fuel 7,628
Office Rental 9,840
Magazines and Newspapers 431
Depreciation Note 7 12,525
Telephone Note 8 4,803
Wages Note 9 3,330
Fee for Dewan Perniagaan Melayu Kedah 50
Taxation Fee 380
Accounting Fee 600
186,761
Net Profit/ (Loss) 18,538
Additional Informations :
1. The payment for LHDN is income tax paid by partners for YA 2020 amounted RM1,021
PARTNERS RM
Adam RM520
Anas RM501
TOTAL RM1,021
2. Penalty amounted RM50.00 is the penalty on parking (by Majlis Bandar Raya Alor
Setar) when Encik Adam deliver the order to the client at Alor Setar.
3. Donation amounted RM852.00 is to Universiti Malaysia Perlis for Charity Programmed.

The Directors of Malaysian Inland Revenue Board has approved that donation as an
approved donation.
4. Entertainment Allowance amounted RM17,700 is given to partners for business

purposes as follow :
PARTNERS Adam Anas Mardiyah

Entertainment Allowance RM10,000 RM7,000 RM700
28
5. The total of capital for each partner on 31 December 2020 are as below:
PARTNERS Adam Anas Mardiyah

Total of capital RM20,000 RM20,000 RM10,000
6. Miss Mardiyah is entered into the partnership on 1st September 2020 as a partner.
Since she entered there are some changes as follow :
PARTNERS Salary Per Interest On Capital Profit/ (Loss)

Month (RM) (Per Annum)
Adam 2,500 10% 4
Anas 2,500 10% 4
Mardiyah 2,000 7% 2
7. The schedule below showed the list of fixed assets for the year 2020. The rates of
capital allowance for Furniture & Fittings and Office Equipment is 10%, Computer &
Accessories 40% and Machinery 14%.
DEP. COST (RM) ADD (RM) DEP. (RM)

2020
RATES
Furniture & Fittings 10% 12,582 5,659 1,824
Computer & Accessories 20% 10,930 - 2,186
Machinery 20% 40,018 - 8,004
Office Equipment 10% 4,105 1,000 511
TOTAL 67,635 6,659 12,525
8. The bill is for partners and allocated equally.
9. Fee for Perniagaan Melayu Kedah amounted RM50 is an annual fee.
10. They also have other incomes as showed as below :
STATUTORY INCOME Adam Anas Mardiyah

Dividend (net) RM10,220 RM8,760 RM10,950
Rental RM6,000 RM4,800 -
Interest on Fixed Deposit – RHB - - RM1,750
TOTAL RM16,220 RM13,560 RM12,700
Required :
Compute the Partner’s Statutory Income and Aggregate Income for the year assessment
2020. (25 Marks)
29
Tutorial 1-10
Glamo Antik Enterprise is a partnership business selling antiques and owned by Puan
Rania, Puan Diana and Cik Jannah. The business commenced in 2008 and the accounting
period ended on 31 December every year. Below is the information related to the
partnership:
1) Net profit for the partnership for the year ended 31 December 2020 was RM 59,500.
2) Including in the income statement were donations on 7 July 2020 amount RM 3,300 to
the Rumah Anak Yatim Darul Ulum (approved and receipt included), depreciation for
RM12,000 and interest expenses on the personal loan by Puan Rania for RM 2,150.
3) The terms of agreement for the partners are as follows :
Rania Diana Jannah

Capital RM45,000 RM60,000 RM45,000
Salary (per annum) RM30,000 RM36,000 RM30,000
Annual Travelling Allowance RM4,500 RM6,000 RM4,500
Profit sharing ratio 3 4 3
4) In May 2020, the partnership encountered a problem concerning the shortage of

working capitals. Puan Diana agreed to lend RM 20,000 to the partnership with the
interest of 10% per annum, and the loan will be paid in two years. The first instalment
started in July 2020.
5) On 1st July 2020, the partnership invited Cik Qila to become a partner. Starting on the
date, the new terms of the agreement are as follows :
Rania Diana Jannah Qila

Capital RM45,000 RM60,000 RM45,000 RM30,000
Interest on capital (per 5% 5% 5% 5%
annum)
Salary (per annum) RM33,000 RM39,000 RM33,000 RM24,000
Annual Travelling RM2,250 RM3,000 RM2,250 RM1,000
Allowance
Profit sharing ratio 3 3 3 1
6) Capital allowance for the year ended 31 December 2020 was RM 21,000.
Required : Calculate divisible income and statutory income for partnership for YA 2020.
(25 marks)
30
Tutorial 1-11
a) State FIVE (5) types of partners in a partnership. (5 marks)
b) Explain treatment on
i) capital allowance in partnership. (5 marks)

ii) donation made by the partnership business. (5 marks)
c) Hani, Tini and Yati who are partners and operate a fast food business since 2013.
Their partnership known as Hatiya enterprise. The term of the partnership for the
year of assessment 2020 are as follows:
Hani Tini Yati

Partners’ Salary RM4,000 RM3,000 RM3,000
Profit sharing ratio 4/10 3/10 3/10
Capital contribution RM40,000 RM30,000 RM30,000
On 1st October 2020, Yati quitted from the partnership and withdrew all of her capital.
The partnership invited Yana to become a partner on 1st November 2020. Commencing
from that date, the new terms of agreement are as follows :
Hani Tini Yana

Partners’ Salary RM4,000 RM3,000 RM2,000
Profit sharing ratio 4/10 4/10 2/10
Capital contribution RM40,000 RM40,000 RM20,000
i. The provisional adjusted income for the partnership for the year of assessment 2020
is RM346,800.
ii. Miscellaneous expenses also included repair expenses of Hani’s car for RM400 and
for medical bill of Tini worth RM500.
You are required :

Compute the Divisible Income of the partnership for the year of assessment 2020 (Round
up your calculation). (10 marks)
31
POST QUIZ 1 : PARTNERSHIP
Instruction: Answer the following question. Show calculation steps if necessary. (30 minutes)
Question 1
a) “Section 3(1) of the Partnership Act 1961 defines a partnership as the relation which
subsists between persons carrying on business in common with a view of profit”.
i. List FIVE (5) types of partners in the partnership business.(5 marks)
ii. State FIVE (5) elements that determine the existence of a partnership business.
(5 marks)
b) Nura and Lee are partners in a kopitiam business ‘Karipap & Teh’ since 2015. Each of
them contributed equal capital of RM100,000. On 1st September 2020, Rania was
admitted as a new partner and she is responsible to manage the Karipap & Teh. Rania
injected RM50,000 capital into the business. The partnership accounting year ends on
31 December each year.
c) The terms of the partnership agreement provided that:
i. Each partner is to be paid a salary of RM2,500 per month.

ii. The interest of 8% per annum is to be paid to each partner based on the capital
contribution.
d) Below was information related to the business:
1.1.2020 – 31.8.2020 1.9.2020 – 31.12.2020

Nura Lee Nura Lee Rania
Profit and loss sharing ratio 1 : 1 1 : 1 : 1
Divisible income RM60,000 RM150,000
Capital allowance RM25,000
Donate of money for State
Government (receipt RM1,000 RM1,500
attached)
You are required to: Compute the total income for each partner for the YA 2020.
(15 marks)
32
2 CHAPTER 2 : INDUSTRIAL BUILDING ALLOWANCE & OTHERS (CLO1
& CLO2)
OBJECTIVES :
 Definition of industrial building allowance.
 Computation of qualifying building expenditure.
 Date when the expenditure is incurred.
 Disposal of an industrial building.
 Temporary disuse and notional allowances.
 Introduction to agriculture and forest allowance.
PRE-QUIZ 2 : INDUSTRIAL BUILDING ALLOWANCE & OTHERS
a) Determine whether the following expenditure on the constructed building is qualified or

non-qualified for qualifying building expenditure.
i. Cost of the land

ii. Architect fees
iii. Construction cost (materials, labour and overheads)
iv. Legal fees and stamp duties for the land
v. Cost of demolishing an old existing factory (5 marks)
b) Melati Sdn Bhd constructed a building and completed it in September 2015. The company’s
financial year end on 31st December annually. The following expenditures were incurred to
construct the building.
Expenditure RM
Cost of land 410,000
Legal fees and stamp duty (RM4,400 relates to the acquisition of land) 18,000
Commission to building planner 40,000
Construction cost 2,310,000
Wiring & plumbing 54,000
Melati Sdn Bhd used the building as a factory until November 2019 when it was sold to
Gagigu Prime Bhd for RM2,800,000 (including the cost of land RM550,000). Gagigu Prime
Bhd used 1/8 of the building as a showroom and the remaining as factory. The company’s
financial year ends on 30 June every year.
You are required to:

Compute the industrial building allowances for Melati Sdn Bhd and Gagigu Prime Bhd until
year assessment 2020. (10 marks)
c) Sonia Sdn Bhd is a garment manufacturer with a financial year-end 30 June each year. On 1
February 2020, the company acquired machinery which was installed in the factory. The
cost incurred is as below:
Cost of machinery RM85,000
Cost of preparing a site to install the machinery RM280,000
You are required to: Compute the Qualifying Building expenditure for Sonia Sdn Bhd for
the year of assessment 2020. (10 marks)
33
2.1 INTRODUCTION TO INDUSTRIAL BUILDING ALLOWANCE (IBA)
A taxpayer who has incurred expenditure on the construction or purchase of an industrial

building which is used for his business is entitled to claim Industrial Building Allowance
(IBA). Industrial Building Allowance is deducted from the adjusted income in
arriving at the statutory income of a business.
Paragraph 75 of Schedule 3 for ITA 1967 provides that any industrial building allowance
that cannot be fully absorbed in a year assessment can be carried forward and set
off against the adjusted income of the same business for subsequent years of
assessment until fully absorbed. The claiming of Industrial Building Allowance must be in
writing.
Industrial Building Company : YA xxxx RM

Net Profit/Loss xx
(+) Non-allowable Expenses/Any Restricted Item x
(-) Non-business Income (x)
(-) Double Deduction Expenses (x)
Adjusted Income xx
(+) Balancing Charge (BC) x
(-) Balancing Allowance (BA) (x)
(-) Capital Allowance (CA) (x)
(-) Industrial Building Allowance (IBA : IA & AA) (x)
Statutory Income Xxx
The IRB has issued PR 3/2018 on 12.09.2018 governing industrial buildings.
2.1.1 Definition the Industrial Building under Paragraph 63, Sch 3, ITA 1967.
a) a factory
b) a dock, wharf (quay), jetty or other similar building
c) a warehouse which the business is let out the storage space to the public.
d) buildings used in the utility business (supplying water or electricity for the
consumption of the public).
e) buildings used in the telecommunication services business (providing
telecommunications services to the public).
f) building used in connection with the working of a mine or farm.
g) mill, workshop, in connection with the working of the mine.
34
2.1.2 Meaning of factory under Paragraph 64, Sch 3, ITA 1967.
Paragraph 64 Schedule 3 defines a factory as:

a) a mill
b) a workshop
c) a building for the housing of machinery or plant of any description for:
(i) the manufacture of any product; or
(ii) the subjection of goods or materials to any process; or
(iii) the generating of power used for that manufacture of process
d) a building used incidentally to the manufacturing business.
However, the workshop carried out in conjunction with or incidental to a business
of selling those goods is not considered as a workshop and not allowed to claim
IBA. For example, the car service workshop is also doing a business of selling used
cars (not considered as an industrial building for industrial building allowance).
e) a building (within the same curtilage as a building used as a factory) used for:
(i) the storage of any raw material, fuel or stores necessary for the manufacture
of that product; or
(ii) for the storage of finished product to the sale thereof
Notes:
 Internal roads, car parks, fences and bridges in the same compound are also
considered as industrial buildings.
 Meaning of ‘within the same curtilage’ is a building or adjacent to or within the same
enclosure as the other building. In most case, there will be no difficulty in deciding
whether or not a building falls within the same curtilage as a factory.
2.1.3 Industrial Building under Para 65, Sch 3, ITA 1967
a) Building used for staff welfare [Para 65(1)]

Where there is an existing industrial building, any expenditure incurred on
additional building such as canteen, restroom, recreation room, lavatory, bath-
house, bathroom, or washroom for employees’ use shall be treated as an
industrial building.
b) Building for living accommodation of employees – Farm [Para 65(2)]

Any building is for the welfare of persons, or as living accommodation for a
person, employed in connection with the working of a farm is treated as an
industrial building, provided that the building is likely to be of little or no value
to any person except in connection with the working of that farm or of another
farm.
Note: Alternative is to claim the agricultural allowance on the building cost as the
annual rate is higher
35
2.1.4 Non-Industrial Building (NIB)
Under paragraph 65(3) of Schedule 3 ITA 1967, buildings used for the following purposes
are not treated as Industrial Buildings:
a) Dwelling house [not being for the accommodation of the kind mentioned in para 42
& 65(2)]
b) Retail shop
c) Showroom
d) Office
2.1.5 Part of a Building used as Industrial Building Para 66, Sch 3, ITA 1967
(10% Rules)
Where only part of a building or an extension to a building is used as an industrial

building, the whole building or extension is to be treated as industrial building if the
capital expenditure on the construction of that part of the building which is not in use
(non-qualifying part) is less than 10% of the cost of constructing the whole building.
The determination of capital expenditure for the part or extension to a building is

calculated based on:
(a) total cost of construction;

(b) floor area; or
(c) other apportionment method that is considered fair and reasonable by the Director
General.
If the cost of construction of the non-qualifying part exceeds 10% of the cost of
constructing the whole building, then industrial building allowance (IBA) is given on that
proportion of the building that is in use (qualifying part) as an industrial building (para 66,
Sch 3).
10% Rules - ≤ 10% = Industrial Building; > 10% = Non Industrial Building
(1-10% - Industrial Building – can claimed IA and AA)/
(11% -100%- Non Industrial Building – deduct NA)
Note: The total area of office and showroom are subjected to ≤ 10% rules to entitle IBA.
Example 2-1
a) QBE = RM320,000. 1/11 of total area of the building as an office.
1/11 x 100 = 9.09% [ <10%, thus office is considered as industrial building (IB) ].
Total of QBE (IB) = RM320,000.
{The company can claimed IA and AA – Industrial Building Allowance (IBA)}
36
Industrial Building (Factory & Office)
Qualifying Building Expenditure
(-) IA (10%)
(-) AA (3%)
Residual Balance (RB)
b) QBE = RM320,000. 1/5 of the total area of the building as an office
1/5 x 100 = 20% [ > 10%, thus office is considered as Non Industrial Building (NIB) ]
Thus, IB = 4/5 x RM320,000 = RM256,000 (entitled IA and AA)

NIB (Office) = 1/5 x RM320,000 = RM64,000 – {not entitled IA and AA, only deduct
Notional Allowance (NA)}
Industrial Building (Factory) (80%) Non-Industrial Building (Office)

(20%)
RM RM
Qualifying Building Cost
Expenditure
(-) IA (10%) -
(-) AA (3%) (-) NA (3%)
Residual Balance (RB) Residual Balance
(RB)
2.1.6 75% Rule (Para 67, Sch 3 ITA 1967) – Installation of Plant and Machinery
When a person incurred capital expenditure on preparing, cutting, tunnelling or

levelling land in order to prepare a site for the installation of the machinery or plant
to be used for purposes of a business and if such expenditure exceeds 75% of the
aggregate cost of that plant or machinery and the cost of installation, then the aggregate
expenditure is treated as qualifying building expenditure (QBE).
The mathematical formula would be:
Plant and Machinery cost A

Add :
Cost of preparing, cutting, tunnelling or levelling land to locate the B
plant & machinery
Total Cost C
*Working computation for 75% Rules B x 100 = D
C
37
Notes :
If D > 75% - Entitled for IBA (AA & IA) or

If D < 75% - Not entitled for IBA (A would be treated as qualifying plant expenditure and
no relief for B)
Or
If [C x 75%] > of B, then C shall not be treated as QBE, only A would be treated as
qualifying plant expenditure
If [C x 75%] < of B, then C shall treated as QBE
Example 2-2
As Salam Sdn. Bhd. is the business of manufacturing toys. On 1st June 2020, the company
bought machinery which is to be installed in the factory located at Kuching, Sarawak. The
account ended on 31.12 every year.
RM
The construction cost of factory 150,000
Cost of machinery [to install in factory] 75,000 A
Cost of levelling the site to install the machinery 300,000 B
Cost of installation the machinery 20,000
Total Cost 545,000 C
Compute the QBE and the IBA can claim by As Salam Sdn. Bhd.
Date of purchase: 1.6.2020 (31.12.2020) – YA 2020
75% rules:
RM
Cost of machinery 75,000
Cost of levelling the site to install the machinery 300,000
Total Cost 395,000
% of installation of machinery
= (RM300,000 + RM20,000) x 100 = 81%

RM395,000
38
Since the installation cost over the total cost is more than 75% (81%), the total cost of
the machine shall be treated as QBE.
Or
75% of total cost of the machine
RM395,000 x 75% = RM296,250
Since the 75% of aggregate cost (RM296,250) is less than the installation cost
(RM320,000), so the total cost of the machine (RM395,000) shall be treated as QBE.
QBE
RM
Construction Cost 150,000
Cost of machinery 75,000
Cost of levelling the site to install the 300,000
machinery
QBE 545,000
IBA – YA 2020
RM
QBE 545,000
(-) IA (10% x RM545,000) (54,500) Total IBA claimed in
AA (3% x RM545,000) (16,350) YA 2020 = RM70,850
Residual Balance 474,150
Example 2-3
Hartamas Sdn. Bhd. incurred the following expenditure on 31.5.2019 about its
manufacturing business. The account ended on 31st March every year.
RM
Cost of plant and machinery installed in a factory 200,000
[*] Cost of preparing, cutting and levelling land to prepare a site for
installing the plant and machinery 400,000
Total Cost 600,000
Determine the QBE and the IBA claimed by Hartamas Sdn. Bhd. for YA 2020.
Date of Purchased: 31.5.2019 (end of account - 31.03.2020) – YA 2020
75% rules
[*] 400,000/600,000 = 66.7% (< 75%).
39
Means, the installation cost not qualify for qualifying building expenditure (QBE).
Only the cost of plant and machinery would be treated as qualifying plant expenditure
(can claim capital allowance).
Or
RM600,000 x 75% = RM450,000

Since the 75% of total cost (RM450,000) is more than the installation cost
(RM400,000), then only the cost of the machine (RM200,000) would be treated as
qualifying plant expenditure.
RM
Qualifying Expenditure 200,000
(-) IA (20% x 200,000) Capital
AA (20% x 200,000) Allowance
Residual Balance = ____________
Exercise 2-1
Syarikat Marisa Sdn. Bhd. is a distributor of herbs in Muar, Johor. They were decided to
build the factory to enhance their business. The construction was completed on 31st July
2019. The year of accounting for Marisa Sdn. Bhd is 30 June annually. The construction
cost and expenses as follows:
RM QBE NON-QBE
Land 185,000
Legal fee (related to land) 8,000
Pilling 15,000
Architect Fee 4,000
Construction Cost 250,000
Cost of plant and machinery 50,000
Cost of preparing a site for installing the plant and 85,000
machinery
TOTAL 597,000
Required : Compute the QBE and industrial building allowance for Syarikat Marisa Sdn.
Bhd for year assessment 2020.
2.2 COMPUTATION OF QUALIFYING BUILDING EXPENDITURE (QBE)
2.2.1 Date when the expenditure is incurred.
Qualifying building expenditure (QBE) is capital expenditure incurred on the

construction or purchase of a building which is used at any time after its construction
or purchase, as the case may be, as an industrial building. The taxpayer would be able to
claim industrial building allowance (IBA) on such qualifying building expenditure
40
incurred. The qualifying expenditure date as follows (refer to the end of the accounting
period):
a) Constructed Building (date of construction completed or business commenced)
Date of Constructed :
03/06/2020 (end of account 31/12) : [03/06/2020 – 31/12/2020 : YA 2020]
03/06/2020 (end of account 31/03) : [03/06/2020 – 31/03/2021 : YA 2021]
Notes :
If the question stated two dates i.e. the constructed date and the manufacturing date,
choose the manufacturing date
b) Purchased Building (Date of Purchased)
Date of Purchased :
01.12.2020 (end of account 31.12) : [01/12/2020 – 31/12/2020 : YA 2020]
01.12.2020 (end of account 30.06) : [01/12/2019– 30/06/2021 : YA 2021]
Notes :
If the question stated two dates i.e. the purchased date and the manufacturing date,
choose the purchased date.
2.2.2 Calculation The QBE On Constructed Building.
The Qualifying Building Expenditure (QBE) includes :
a) Cost of construction of the building;

b) Subsequent capital expenditure on construction, extension, alterations and
renovation;
c) Initial repairs (which enhance the value) of the building.
A) Qualifying Building Expenditure (QBE) means capital outlay incurred on the

building and incidental cost exclusively related to the building. It includes the
following:
i. all costs of the ordinary work on the site preparatory to laying foundations. These
would include costs of preparing, cutting, tunneling or levelling land in connection
with the construction of the industrial building
ii. architect’s fees for designing a plan of the industrial building
iii. the cost of preparing plans, etc. in connection with obtaining approval from the
local authority for the erection of the building;
iv. the cost of clearing the old site including the demolition of any existing building
(except where the previous structure being demolished was an
industrial building)
v. the cost of construction which includes labour, materials, haulage, management
supervision and other overhead charges;
vi. incidental expenditure on works which may be separately contracted e.g. drainage
scheme, installation of water, electricity; and
41
vii. the cost of installing fittings e.g. wiring for electric supply, fans, air conditioning
equipment;
viii. cost of constructing additions, renovations and alterations to an existing building
which are capital in nature
ix. legal charges, stamp duty etc. connected with the acquisition of the building.
x. all capital expenditure incurred on additions or alterations to an existing industrial
building
xi. all expenditure on repairs and renovations of an existing industrial building where
such expenditure does not qualify as a deduction as revenue expenditure
B) Non Qualifying Expenditure

i. Cost of land/sites and
ii. Any cost related to buy land/sites (Legal Fee, Stamp Duty etc.)
iii. Legal expense on loan borrowed to construct the building
iv. Cost of demolished of old industrial building
v. The payment for compensation to obtain the right to occupy or own the property
Example 2-4
KAMI Sdn. Bhd incurred the following expenditure to construct a factory :
RM
a) Cost of land/site 260,000
b) Legal Fees and stamp duty (RM6,000 relates to the acquisition of 20,000
land)
c) Architect’s fee 26,000
d) Cost of approving the plan 10,000
e) Cost of demolished old factory 70,000
f) Construction cost (material, labour and overheads) 2,000,000
g) Road and car park within the factory complex 60,000
h) Wiring and plumbing 70,000
Determine the Qualifying Building Expenditure (QBE) for the factory constructed by
KAMI Sdn. Bhd.
RM
a) Cost of land/site
b) Legal Fees and stamp duty – excluded related to land
c) Legal Fees and stamp duty – related to land
d) Architect’s fee
e) Cost of approving the plan
f) Cost demolishing old factory
g) Construction cost (material, labour and overheads)
h) Road and car park within the factory complex
i) Wiring and plumbing
Qualifying Building Expenditure
42
2.2.3 Calculation the QBE on the purchased building.
With effect from the YA 2005 the qualifying expenditure for the purchased building is the
purchase price.
Purchased Industrial Building :

QBE = Purchase Price
Example 2-5
Aman Company Sdn. Bhd. constructed the building and completed on 1st August 2015 at
the cost of RM1,000,000. The factory was used as factory until disposed on 12 December
2019 to Makmur Company Sdn. Bhd.
Aman Company Sdn. Bhd. ended on 31.3 every year. Meanwhile, Makmur Company Sdn.
Bhd. ended on 31.12 every year. Calculate the QBE and IBA for the Aman & Makmur
Company.
a) Aman Company Sdn. Bhd.

Date of constructed : 1.8.2015 (31.3.2016) – YA 2016
Date of sold : 12.12.2019 (31.3.2020) – YA 2020
YA 2016 RM
QBE
(-) Initial Allowance (IA) [1,000,000 x 10%]
(-) Annual Allowances (AA) [1,000,000 x 3% ]
Residual Balance
YA 2017 - 2019
(-) AA [ ]
Residual Balance
YA 2020 (sold)
Sale proceeds
Balancing Charge (BC) / Balancing Allowance (BA) **
b) Makmur Company Sdn. Bhd. (Purchaser)

Date of Purchased : 12.12.2019 (end of account 31.12.2019) – YA 2019
The QBE = Purchase price [Therefore QBE = __________________]

YA 2019 RM
QBE
(-) Initial Allowance (IA) [ x 10%]
(-) Annual Allowance (AA) [ x 3%]
Residual Balance
YA 2020
(-) Annual Allowance (AA) [ x 3%]
Residual Balance
43
2.3 INDUSTRIAL BUILDING ALLOWANCE (IA AND AA)
2.3.1 Initial Allowance (IA) – once for all allowance
An Initial Allowance (IA) of 10% on a straight line basis of the QBE would be given to a
person if all the following conditions are fulfilled ;
a) He incurred qualifying building expenditure (QBE) on the construction or purchase

of an industrial building;
b) The building was in use or about to be used as an industrial building for business;
c) The person owned the building at the end of the basis period.
If the building has been disposed of during the basis period of construction or purchase,
Initial Allowance (IA) will continue to be given if the building is in use for the person’s
business sometime during the basis period.
Note :
With effect from YA 2002 (≥ YA 2002)
IA will be given to both constructed or purchased industrial
building [10%].
2.3.2 Annual Allowance (AA)
Annual Allowance (AA) is given to person who;
a) Has incurred QBE on the construction or purchase of an industrial building (which

may not be in the same basis period of claiming AA);
b) Is the owner of the building at the end of basis period;
c) The building was in use as an Industrial Building for the purpose of a business
If no election is made one year, an amount equal to the AA would be imputed and this is
known as ‘Notional Allowance (NA)’.
With effect from YA 2002 (start on YA 2002)

AA/NA is 3% on the QBE, computed on a straight line
basis
Prior to YA 2002 (before YA 2002)

AA/NA is 2% on the QBE, computed on a straight line
basis
44
2.4 TEMPORARY DISUSE AND NOTIONAL ALLOWANCE (PARAGRAPH 56 AND 57,
SCHEDULE 3)
2.4.1 Introduction of temporary disuse
An industrial building, which is temporarily disused shall deemed to be in use for the
purposes of the business if :
i) it was in use immediately before becoming disused; and

ii) during the period of disuse it is constantly maintained in readiness to be
brought back into use
iii) the period of disuse is temporary
In such circumstances, the building is eligible for annual allowance; otherwise there will
be no annual allowance given. However, for the purpose of calculating the residual
expenditure of the building, notional allowance is given.
Example 2-6
Greeny Sdn. Bhd. commenced its manufacturing operating in 2014. In January 2015 the
company constructed a factory at a qualifying expenditure of RM3,600,000.
The factory completed the construction on 1st May 2017 and was in use as an industrial
building until 30 March 2019 after which it was shut down due to flood-damaged. During
the shut-down period, the factory is constantly maintained in readiness to be brought
back into use.
On 2nd March 2020, the factory was used again. Greeny Sdn. Bhd. closes its annual
accounts on 31 December each year.
Determine the industrial building allowances for Greeny Sdn. Bhd. up to year of
assessment 2020.
45
Greeny Sdn. Bhd. : Factory

Date of completed construction : ________________________________
Date of shut down: 30.3.2019 (31.12.2019) – YA 2019 – entitled AA?
Temporary disuse: 30.3.2019 – 02.03.2020 – YA 2019 & YA2020 –
entitled AA?
Date of brought back into use: 2.3.2019 (31.12.2019) – YA 2019
RM
YA Qualifying Building 3,600,000
2017 Expenditure
IBA y/a 2017
(-) IA (10% x RM3,600,000) =
(-) AA (3% x RM3,600,000)
Residual Balance 3,132,000
YA 2018 IBA y/a 2018
(-) AA (3% x RM3,600,000) =
YA 2019 (disuse period but maintained in readiness) IBA y/a 2019

=
(-) ____ (3% x RM3,600,000)
YA 2020
IBA y/a 2020
(-) AA (3% x RM3,600,000) =
2.4.2 Calculation of notional allowance
In practice, Malaysian Inland Revenue Board may allow notional allowance to be

calculated for the year of disuse. Means the notional allowance will be deducted in arising
the new residual expenditure. However, it is not allowed to make any claim on IBA in
tax computation. Notional allowance rate is equal to the annual allowance rate.
Summary of Allowances (fill in the blank)
w.e.f YA 2002
Initial Allowance (IA)
Annual Allowance (AA)
Notional Allowance (NA)
2.4.3 Effects the notional allowance to the statutory business income
Notional allowance is not allowed as a deduction from adjusted income and notional
allowance cannot affect the statutory income.
46
2.4.4 Rented Premises
A building owner who rents out his building to another person to carry on the business
below: -
 Licensed private hospital, maternity home and nursing home

 Building used for research
 Warehouse
 Building used for approved service project
 Hotel
 Airport
 Motor racing circuit
 Building used as living accommodation for employees which is provided by a
person carrying on a business of manufacturing, hotel or tourism or an approved
service project under Schedule 7B of the ITA 1967
 Child care centre provided by an employer
 A school building or an educational institution
 Building for industrial, technical of vocational training
is not eligible to claim IBA on that building although the tenant uses it as an industrial
building.
Tenant qualify to claim IBA if used the building as an industrial building and incurs
qualifying building expenditure such as renovation costs on the rented premises.
Tenant - a person who occupies land or property rented from a landlord.
2.5 INITIAL ALLOWANCE AND ANNUAL ALLOWANCE RATE FOR THE YA 2020
Initial Annual
Industrial building Allowance Allowance
(IA) (AA)
1. Factory
- Mill, workshop used for repair or servicing of goods
- Building to house plant, machinery, raw materials
- Building within the same cartilage to factory used for storage 10% 3%
of raw materials, fuel or stores, products or materials prior to
sale
2. - Dock, wharf, jetty or other similar building
- Warehouse let out to the public
- Building used by the utilities & telecommunication supplier to
10% 3%
supply services
- Building used in the working of a mine or farm
3. Canteen, restroom, recreation room, lavatory, bathhouse,
bathroom, washroom for employees*. 10% 3%
Pre-requisite: An industrial building exist
4. Public roads and ancillary structures recoverable through toll
10% 6%
collection
5. Building on built-lease-transferred basis approved by MOF 10% 6%
6. Private hospital, maternity home, nursing home 10% 3%
47
Initial Annual
Industrial building Allowance Allowance
(IA) (AA)
7. Buildings used for research/training (constructed or
purchased)
i. Approved by MOF; or
10% 3%
ii. Approved research company/institute
iii. R&D Company
iv. Contract R&D Company
8. Building used as warehouse for the storage goods for export or
for the storage of imported goods to be processed and - 10%
distributed or re-export (Y/A 1998 onwards)
9. Building used in approved service project approved by MOF 10% 3%
10. Hotel registered under MOTAC 10% 3%
11. Airport 10% 3%
12. Motor racing circuit 10% 3%
13. Living accommodation for employees* (constructed)
40% 3%
Pre-requisite : An industrial building exist
14. Building for welfare of workings and living accommodation for
10% 3%
employees* working in a farm
15. Living accommodation for employees in manufacturing, hotel
- 10%
or tourism business, approved service sectors (constructed or
purchased building)
16. Child care centre for employees (constructed or purchased
- 10%
building)
17. School or educational institution approved by MOE or MOHE
- 10%
(constructed or purchased building) – exclude tuition centre
18. Building for industrial, technical or vocational training
- 10%
(constructed or purchased building)
19. Old folks care centre approved by Social Welfare Department
- 10%
(constructed or purchased building) (Y/A 2003 onwards)
20. Building used by MSC status company (constructed or
- 10%
purchased)
21. Building used by BioNexus status company (constructed or
- 10%
purchased building) [ w.e.f 2.9.2006]
22. Privatisation project and private financing scheme (constructed
10% 6%
purchased building)
23. Kindergarten (constructed or purchased building) - 10%
24. Child care centre (constructed or purchased building) - 10%
25. Tun Razak Exchange Marquee Status Company [for QPE
- 10%
incurred on or before 31/12/2020]
*Employees do not include – a director, an individual having control of business or an
individual who is member of management, administration or clerical staff
48
2.6 DISPOSAL OF INDUSTRIAL BUILDING (PARAGRAPH 48, SCHEDULE 3)
2.6.1 The act defines disposal as :
a) The sale, transfer or tutorial of the relevant interest in the building ;

b) Where the interest depends on the duration of a concession, the coming to an
end of the concession;
c) Where the interest is a leasehold interest, the termination of the lessee’s
interest in the building except where the termination occurs as a result of the
lessee’s acquisition of the freehold interest;
d) The demolition or destruction of the building;
e) The building ceases to be used as an industrial building.
2.6.2 Disposal Value (Paragraph 62, Schedule 3)
A) Where a building is disposed of, its disposal value will be :
i) Market value at the date of the sale, transfer or tutorial or

ii) The net proceeds of the sale, transfer or tutorial
whichever is greater
B) In the case where a building is destroyed or demolished, the disposal value will
be :
i) The compensation or insurance recovery received or

ii) The market value, whichever is greater
C) Where a building has no value because it has become dilapidated, a balancing

allowance equal to the residual balance is given.
D) The disposal value of a public road and ancillary structures under Paragraph 67A
Schedule 3 shall be taken to be zero when the agreement expired or is terminated.
2.7 COMPUTATION OF BALANCING CHARGES OR BALANCING ALLOWANCE
Balancing adjustments arise when an industrial building is disposed of for a consideration.

If the sale proceeds exceed the residual expenditure, the excess is balancing charge.
Balancing charge need to be added on the adjusted income computation. If the sale
proceeds lower than the residual expenditure, the difference is a balancing allowance.
Balancing allowance allowed as a deduction against the adjusted income of the business.
Summary (fill in the blank)
BC or BA? Computation
Sale Proceeds > Residual balance
Sale Proceeds < Residual balance
49
Example 2-7
Faliq Sdn. Bhd. commenced its manufacturing operating in 2005. In 2011 the company
constructed a factory at a qualifying expenditure of RM4,000,000. The factory was in use
as an industrial building until 31 August 2015 after which it was shut down due to capital
shortage.
During the disused period, the factory was constantly maintained in proper manner such
as cleaners were hired to clean the factory building and its compound and was carried out
pest control.
On 2 March 2017, the factory was used again. Faliq Sdn. Bhd. closes its annual accounts on
31 December. On 31 January 2020, they sold to Haidar Sdn. Bhd. for the RM4,800,000.
Determine the balancing charge or balancing allowance for Faliq Sdn. Bhd.
Faliq Sdn. Bhd. : Factory

Date of construction: 2011 – YA 2011 (claim IA & AA)
Shut down due to capital shortage: YA 2015 – YA 2016 (claim AA)
Factory was used again: 2.3.2017 (end of account - 31.12.2017) – YA 2017 (claim AA)
Date of sold: 31.1.2020 (end of account - 31.12.2020) – YA 2020
YA 2011 RM
Qualifying Building 4,000,000
Expenditure
(-) IA (10% x RM4,000,000) IBA =
(-) AA (3% x RM4,000,000)
Residual Balance
YA 2012 – 2014 (3 years)
(-) AA (RM120,000 x 3y) IBA =
Residual Balance
YA 2015 – 2016 (not use as IB but maintained in readiness)
AA (3% x RM4,000,000 x 2y) IBA =
Residual Balance
YA 2017 – 2019 (3 years)
AA (RM120,000 x 3y) IBA =
Residual Balance
YA 2020 (sold to Haidar Sdn. Bhd.)
Sale Proceed BC/BA
Balancing Charge/Balancing Allowance =
50
2.8 AGRICULTURE ALLOWANCE
2.8.1 Definition of agriculture under Paragraph 7, Sch 3, ITA 1967
Agriculture allowance is an allowance granted to a person or persons involved in

agriculture activities. Section 18 of the Income Tax Act 1967 defines agriculture as any
form of :
i) cultivations of crops
ii) animal farming
iii) aquaculture
iv) inland fishing
v) other agricultural and pastoral pursuit.
Crops herewith include any form of vegetable produce.
Notes :
Farm means any land used for the purpose of agriculture
Crop means any farm of vegetable produce
The computation of agriculture allowance is governed by Schedule 3 of the Income Tax Act
1967. Similar to capital allowance, agriculture allowance is also deducted from adjusted
income in arriving at statutory income.
Company Agriculture : YA xxxx RM
Adjusted Income xx
xx
(-) Capital Allowance (CA) (x)
(-) Agriculture Allowance (AA) (x)
Statutory Income xxx
The allowance is determined by multiplying the applicable rate as prescribed in

Schedule of the Income Tax Act 1967 with the qualifying agriculture expenditure incurred.
2.8.2 Qualifying Agriculture Expenditure (QAE)
According to Paragraph 7 of Schedule 3 to Income Tax Act 1967, qualifying agriculture

expenditure consists of expenditure incurred upon :
a) Clearing and preparation of land for purposes of agriculture. This expenditure

includes the costs of removing existing trees and clearing the land.
b) Planting expenditure. Planting (but not replanting) of crops on land cleared for
planting. Replanting refers to the replacement of the crop of any area of land to
produce on the same area a crop of the same product and includes reforestation of a
timber.
51
c) Construction on a farm of a road or bridge. The farm is referred to as any land used
for the purposes of agriculture.
d) Construction on a farm of a building used for the purpose of a business of that
person which consists wholly or partly of the working of the farm, or the construction
on that farm of a building which is provided by that person for the welfare of persons,
or as living accommodation for a person, employed in or In connection with the
working of that farm and which, if the farm ceases to be worked, is likely to be of little
or no value to any person except in connection with the working of another farm.
2.8.3 Public Ruling (PR) 1/2016
PR 1/2016 provides the scope of qualifying agriculture expenditure as follows:
Particulars Scope
(a) Clearing and preparation of land Terrace the land to:
(i) combat erosion
(ii) provide easy access to estate worker
(b) New Planting (i) Planting new crop of any product
Example: (ii) Replacing old crop with a crop of different
(iii) Rubber tree dragon fruit product
(iv) Vegetables  oil palm Note: nursery is not a farm /plantation
(c) Construction of road or bridge Include construction of drains
(d) The building used in business (i) Estate office building
(ii) Mills
(iii) Godowns
(iv) Smokehouse
(e) Living accommodation for (i) Staff quarters
employees (ii) Temples
(iii) Community Hall
Example 2-8
Redondo Sdn. Bhd. (accounting year ends 31 December) has been in the business of oil
palm plantation. In January 2020 the company incurred RM45,000 to fell the old oil palm
trees in one of its plantations. The tree trunks sold for RM6,000. Then the company
incurred RM57,000 to plant the land with cocoa seedlings. Calculate replanting
expenditure.
Calculation of net replanting expenditure for Redondo Sdn. Bhd. (planting with the same
crop)
Notes : Under Section 34(6)(d)
expenditure incurred on replanting is
YA 2020 allowed as a deduction from gross
Cost of felling old trees RM45,000 income to arrive at adjusted income from
Cost of planting new cocoa RM57,000 agriculture business.
seedlings
RM102,000 Calculation of net replanting expenditure
Proceeds from sale of old trees (RM6,000) for Redondo Sdn. Bhd. (planting with the
Net replanting expenditure RM96,000 different type of crop) – Qualifying
Agriculture Expenditure = RM102,000.
52
Example 2-9
Fi Za Bhd acquired a rubber plantation from Ili Bhd. and commenced a rubber plantation
business on 1 March 2018. The following expenditure incurred for the financial year
ending 28 February 2020. Below is the expenditure that qualifies for agriculture
allowance for the YA 2020.
RM
Clearing the old rubber trees 250,000
Planting of young rubber seedlings 230,000
Construction of a smokehouse 120,000
Labour quarters 180,000
Construction of a house for the manager in a town 320,000
Total Costs 1,700,000
Determine which expenses are qualified for agriculture allowance and the rates.
Fi Za Berhad : YA 2020 Qualified Not Rate

Qualified
Cost of land
Clearing the old rubber trees
Planting of young rubber seedlings
Construction of a smokehouse
Labour quarters
Construction of a house for the manager in a
town
2.8.4 Annual Allowance Rates for Agriculture Allowance
Agriculture allowance is only given upon agriculture expenditure incurred for new
planting. Any agriculture expenditure incurred in respect of replanting activity will be
treated as revenue expenditure deductible from gross income. The rates for agriculture
allowance are stated in Paragraph 22 and 23 of Schedule 3 to the Income Tax Act 1967.
The rates which vary according to the nature of expenditure are as follows :
Nature of Capital Expenditure Incurred Rate - AA

(%)
Clearing and preparation of land for purposes of agriculture 50%
Planting (not replanting) of crops on land cleared for planting 50%
Construction on a farm of roads or bridges 50%
Construction on a farm of a building for the welfare of persons or as 20%
living accommodation for a person employed for the working of a
farm
Construction of any other building (e.g. smokehouse) 10%
53
2.8.5 Date of incurrence of Qualifying Agriculture Expenditure
The day qualifying agriculture expenditure is deemed to incur is stated in Paragraph 55 of

Schedule 3, that is:
a) In the case of any expenditure incurred on the construction of a building, the day on
which that expenditure is incurred is the day on which the construction of the
building is completed. If the date not the same day with construction complete,
the date is refer to when it brought to use.
Example: Date of construction completed on 1.2.2020, but it brought into use on

6.6.2020. So the company can begin to claim agriculture allowance on the qualifying
agriculture expenditure on the date of used 6.6.2020.
b) In any other case, the day qualifying agriculture expenditure incurred is the day on
which the amount of any expenditure becomes payable.
Example: Date of construction completed on 1.1.2020 but the date of business

commenced on 1.10.2020, so the company can begin to claim agriculture allowance is
on the date of business commenced 1.10.2020. The expenditures become payable.
2.9 FOREST ALLOWANCE
2.9.1 Definition of Forest Allowance under Paragraph 8(2), Sch 3, ITA 1967
Forest allowance is given to a person who is carrying on the business of extracting

timber in a forest and has incurred qualifying forest expenditure. Paragraph 29, Schedule
3 Income Tax Act 1967, specifies that a person who is entitled to forest allowance in
respect of any expenditure shall not be entitled to any other allowance under Schedule 3
in respect of the same expenditure. A forest is defined in Paragraph 8(2) Schedule 3 to
mean a forest in Malaysia in respect of which a person has a concession or a license to
extract timber there form for the purposes of a business of his which consists wholly or
partly of that extraction.
2.9.2 Qualifying Forest Expenditure (QFE)
QFE consists of capital expenditure incurred by a person on the construction in a forest

such as:
a) a road or building used for the purpose of a business of his which consists wholly
or partly of the extraction of timber from the forest; or
b) a building provided by him for the welfare of persons, or as living accommodation
for persons, employed in or in connection with such extraction
Notes :
Expenditure incurred on plant and machinery used to extract timber is eligible for a
capital allowance under Plant & Machinery (IA = 20% and AA = 14%)
54
2.9.3 Annual Allowance Rates for Forest Allowance
Capital Expenditure Rate (%)

A road or building used for the purposes of the business 10%
A building provided for the welfare of persons, or as living 20%
accommodation for the person, employed in or in connection with such
extraction
 Qualifying Building Expenditure (QBE) – for purposes of industrial buildings

allowance is the cost of construction of buildings or structures which are used as
industrial buildings. In the case of a purchased building, the QBE is the purchase price.
 Industrial buildings – an industrial buildings includes a building used as or for ; a

factory, warehouse, a dock, wharf, jetty, working a farm, mine, supplying water or
electricity, or telecommunication facilities, approved training, a private hospital,
maternity home and nursing home which is licensed under the law, an old folks’ care
centre approved by the Social Welfare Department, for school or an educational
institution approved by the Minister of Education, technical or vocational training
approved by the Minister of finance and a hotel registered with the Minister of
Tourism.
 Other QE – Expenditure on construction or purchase of an airport and a motor racing

circuit approved by the Minister of Finance, including expenditure on extension or
improvement of ancillary structures.
 An office building physically forms part of an industrial building and where its cost
does not exceed 10% of the total building cost.
 Owners of new buildings occupied by MSC Malaysia status companies in Cyberjaya are
eligible for Industrial Building Allowance for 10 years. The Minister of Finance may
prescribe a building used for a person’s business as an industrial building.
 The rate of allowance for industrial building, whether constructed or purchased

(w.e.f YA 2002); Initial Allowance (IA) 10% and Annual Allowance 3%.
 Where ‘Unexpired Life’ is the overall life of 50 years reduced by the number of
expired years commencing from the first year in which the building was completed.
55
TUTORIAL 2
Tutorial 2-1
1) Syarikat Kape Sdn. Bhd., whose accounting date ends on 31 December each year,
construct a building in the year 2011. The following expenses incurred in the
construction of the building:
Particular Cost (RM)

Legal fee (RM 6,000 related to the acquisition of land) 10,000
Architect’s fees 11,000
Demolishing of existing factory 12,000
The building was completed in July 2013. The company used 12% as an office. On 28
July 2019, the company stops the operation in that building. On 9 September 2019, the
building was sold to Syarikat Haq Sdn. Bhd. for RM1,800,000 (including RM310,000
for land). Syarikat Haq Sdn. Bhd. accounting date ends on 30 March each year. The
company used the whole building as factory.

For all the relevant years of assessment until the YA 2020, calculate the industrial
building allowances and balancing charge (if any) due to Syarikat Kape Sdn. Bhd. and
Syarikat Haq Sdn. Bhd.
(20 Marks)
2) Lavender Sdn. Bhd wants to enhance their business activities by planting the organic
grapefruits due to high demand in the market. The company seek advice from you
about their plan. In order to minimize the company’s tax liability, you are need to
advise on FOUR (4) qualifying agriculture expenditure.
(6 marks)
Tutorial 2-2
Work SMART Sdn. Bhd. was incorporated on 1st February 2013. Its account is made to
June 30 annually. The company bought a piece of land for RM200,000 for the purpose of
constructing a building. The following expenses were incurred in the construction of the
building :
Date Particular Cost (RM)

2.3.2014 Legal Fee (of which RM4,000 was related to acquisition of site) 10,000
15.4.2014 Architect’s fee and payment to local authority for approval of 24,000
plan
31.5.2014 Cost of demolishing an old building on the site 20,000
10.6.2014 Construction costs 1,800,000
1.3.2015 Wiring and plumbing costs 100,000
This building was completed on 1 June 2015 and was leased to QUE Sdn. Bhd. (accounting
year ends 31 December annually) for 20 years starting from 1 July 2015 at an annual
56
rental for RM30,000. QUE Sdn. Bhd. used the building for industrial, technical of vocational
training.
QUE Sdn. Bhd. terminate their business operation due to the financial problem on 30
September 2019 and 1 November 2019, Work SMART sold the whole building to Syarikat
Ke3 Sdn. Bhd. (accounting year ends 31 December annually) for RM2.1 Million.
Syarikat Ke3 Sdn. Bhd. used the whole building as a factory to manufacture a frozen food.
Syarikat Ke3 Sdn. Bhd. incurred the following cost of preparing a site to install a freezer on
20 January 2020.
Cost of freezer RM120,000

Cost of preparing site for installation the freezer RM380,000
Cost of installation the freezer RM25,000

a) State, with reason which company is qualified to claim industrial building allowance
on that building. (5 Marks)
b) Calculate industrial building allowance and balancing charge (if any) until year of
assessment 2020 for eligible companies.
(20 Marks)
Tutorial 2-3
a) Ocean Sdn. Bhd. constructed a building and incurred a qualifying expenditure of
RM7,800,000 on 16 March 2011. The building was used as a factory until 13 October
2014 when a fire destroyed part of the roof. The factory was being repaired during the
period from 1 November 2016 to 30 June 2017. From 1 July 2017, the factory was
brought back into use. Ocean Sdn. Bhd. closes its accounts on 31 December each year.

Compute the IBA for Ocean Sdn. Bhd. for all years concerned up to a year of
assessment 2020.(5 Marks)
b) ACC Sdn. Bhd. constructed a factory at the cost of RM1,900,000 of which RM400,000
was for the land. The building was completed on 1 November 2016, and 1/11 of the
building used as an office. On 1 February 2019, the building was sold to CIM Sdn. Bhd.
for RM2,200,000 including RM700,000 for the land.
CIM Sdn. Bhd. used the whole building as a factory. CIM Sdn. Bhd. constructed an
extension to the building costing RM120,000. Bhd. on 2 May 2020. The extension was
completed and brought into use as a warehouse for the storage of raw materials for
manufacturing. Both companies ended their accounts on 31 December.

Compute the Industrial Building Allowance and Balancing Charge (if any) for both
companies for all the relevant years of assessment up to the year of assessment 2020
(20 Marks)
57
Tutorial 2-4
a) Based on the types of Industrial Building, fill in the blank with the correct percentage
of Initial and Annual Allowance. (5 marks)
Initial Annual
No. Industrial Building Allowance Allowances
(IA) (AA)
1 Living accommodation for employees*
(constructed)
Pre-requisite : An industrial building exist
2 Building for welfare of workings and living
accommodation for employees* working in a farm
3 Airport
4 Child care centre – constructed or purchased
5 Factory (mill, workshop, the building used to
house machinery and raw materials, building
within the same cartilage to factory used for
storage of raw material)
b) Compute the balancing charge or balancing allowance in the following case:

(5 marks)
RM
Cost of industrial building 1,800,000
Qualifying building expenditure 1,500,000
Residual balance value 1,120,000
Sales proceeds 1,400,000
c) Premier Sdn. Bhd, a computer manufacturer for the domestic market, has been
carrying on business for several years. The company prepares its account for 31
December annually. In May 2016, the company completed the construction of its
factory at the following costs:
RM
Land 600,000
Legal fees relating to the acquisition of land 90,000
Demolition of the existing industrial building 78,000
Architect’s fees 92,500
Construction cost (including the cost of wiring and plumbing 1,850,000
amounting to RM15,000)
TOTAL COSTS 2,710,500
The company used the total area of the building as respectively:
a) 8 percent (10%) - canteen

b) 12 percent (12%) - office
c) 80 percent (78%) - factory
You are required to : Computes the industrial building allowances for Premier Sdn. Bhd.
for the relevant year’s assessment up to year assessment 2020. (15 marks)
58
Tutorial 2-5
Air Asli Sdn. Bhd. (AASB), a manufacturing company which closes its accounts on 31st
December annually. In 2015, the company purchased a piece of land in Penang for
RM85,000 (including legal fees of RM5,000) which is developed by constructing a building
costing for RM810,000. The building was brought into use in June 2016.
The total floor area of the factory was 30,000 square feet comprising manufacturing
facilities of 25,000 square feet; canteen and staff facilities of 1,000 square feet; and offices
of 4,000 square feet. In 2020, AASB had to drastically reduce its manufacturing capacity
and sold the whole building in Penang.
a) Calculate the qualifying building expenditure including 10% rule for AASB. (5 marks)
b) Calculate industrial building allowance for AASB for the relevant years of assessment
until the year of assessment 2020. (15 marks)
c) Calculate the balancing charge or balancing allowance applicable to the disposal of
building in Penang in the year 2020 if the selling price was :
i. RM600,000 (including land RM100,000)
ii. RM1,000,000 (including land RM100,000) (5 marks)
Tutorial 2-6
a) What is the meaning of ‘within the same curtilage’? (2 Marks)
b) List SIX (6) types of qualifying building expenditure. (3 Marks)
c) Borneo Smart Stick Sdn. Bhd. (BSmart), a company manufacturing USB stick for Asian
region market has been carrying on business since the year 2006. The company
accounts are made up to December 31 annually. Due to business expansion, a new
building complex in Shah Alam, used partly as factory and partly as an office and
showroom at the following costs:
RM
Cost of land 3,000,000
Legal fees and stamp duty (RM5,000 related to land) 12,000
Cost of terracing and leveling land 65,000
Building plan approval cost 6,000
Architect's fees 45,000
Construction costs 7,500,000
Wiring and plumbing 25,000
Air-cooling system for manufacturing 42,000
Special building for industrial waste management 30,000
Advanced safety system 70,000
TOTAL COSTS 10,795,000
59
1. The 5 storey building was completed and brought into use in April 2013. BSmart used
¼ ground floor as a showroom and a ¾ top floor as an office.
2. Air cooling system was designed mainly to be used for production.
3. A special building for industrial waste management is built within the same curtilage
of the existing building.
4. A new warehouse for the storage of finished product in Subang Jaya was bought and
ready for using in early 2010. The cost of this warehouse was RM1.5 million
(including RM500,000 cost of land).
5. On 15.10.2019 the whole building in Shah Alam was sold to SmartDisk Sdn Bhd for
RM12 millions of which RM3.5 million relates to the cost of land. SmartDisk Sdn Bhd
makes up its account to September 30 annually. This company uses the whole building
for manufacturing advanced disk.

i. Compute the QBE for Borneo Smart Stick Sdn. Bhd. and SmartDisk Sdn. Bhd. (9
marks)
ii. Compute the industrial building allowances (IBA) for Borneo Smart Stick Sdn Bhd and
SmartDisk Sdn Bhd up to the year of assessment 2020. (11 marks)
Tutorial 2-7
1) Defined the meaning of
a) Industrial Building Allowance
b) Agriculture Allowance
c) Forest Allowance (3 Marks)
2) How much the annual allowance for Qualifying Forest Expenditure?
Expenditure Rate (%)

A road or building used for the purposes of the business
A building provided for the welfare of persons, or as living
accommodation for the person, employed in or in connection with
such extraction
(2 Marks)
60
3) Syarikat Sayang Sayang Sdn. Bhd. was buying a factory to process a dried food on 31
March 2020. The expenses involved as follows:
RM
Qualifying Expenditure (Seller) 185,000
Residual Expenditure by the seller 170,000
Purchase Price 250,000
Industrial Building Allowance demanded by the seller 40,000
The accounting period for the company ends on 30 November every year. Determine
the Qualifying Building Expenditure and Industrial Building Allowance until the year
assessment 2020. (5 marks)
4) Mr Aizar and Mr Hazdi is a best friend since former school and they decide to form
Karib Sdn. Bhd. as a service company. To start a company, the partnership made an
equal contribution to construct an industrial building in January 2017. The expenses
involved as follows :
Date Expenses Total (RM)

15/1/2017 Cost of Land 300,000
20/2/2017 Construction Costs I 550,000
24/5/2017 Fees Payment
- Land 30,000
- Building 50,000
30/6/2017 Architect’s fees 125,000
30/7/2017 Cost of installing Industrial Refrigerator 1,550,000
15/8/2017 Industrial Refrigerator (Equipment) 400,000
30/9/2017 Construction Costs II 650,000
The building was completed on 1st December 2017. They agree to use the building as
warehouse for company who wants to store their product before shipping. The
operation started on 16 January 2018 and the accounting year ends on 31 December.
1/8 of the building was used as an administrative office.

Compute the qualifying expenditure and industrial building allowance for Syarikat
Karib Sdn. Bhd for all the relevant years of assessment up to and including year
assessment 2020. (15 marks)
61
Tutorial 2-8
Rimba Sdn Bhd, a newly incorporated company, constructed a hotel building on a site an
existing industrial building had been previously located. The total costs involved were
RM5 million. The hotel was completed and put into operation on 1 March 2016. Rimba Sdn
Bhd closes its accounts on 30 September annually.
The breakdown of the total cost above is shown below :-
RM
Cost of land 1,375,000
Demolition of an existing factory building 35,000
Building plans and related fees 85,000
Internal roads and parking 175,000
Legal fees in connection with the newly constructed building 80,000
Cost of plant & machinery 50,000
Installation of plant & machinery cost 156,000
Total 5,000,000
The floor space of the building was utilized in the following manner :
Guest rooms - 70% Store - 15% Administrative office - 15%
In February 2017, Rimba Sdn Bhd constructed an additional building as living

accommodation for its hotel employees. The company paid RM 980,000 for the building.
The living accommodation was ready to be used on 1 October 2017.

Compute the industrial building allowances for Rimba Sdn. Bhd. for all relevant years of
assessment up to a year of assessment 2020.
Show all the relevant workings. (25 Marks)
POST QUIZ 2 : INDUSTRIAL BUILDING ALLOWANCE & OTHERS

(CLO 1 - Justify precisely total income and tax payable and capital allowance in the
appropriate procedures)
a) Laguna Sdn. Bhd. is the bag's manufacturer since the year 2012. Due to expanding
the business, the company construct a new factory in Perlis. Thus, the existing
factory was sold to Kurnia Sdn Bhd., a manufacturing company on 12 August 2020.
Laguna Sdn. Bhd. construct an existing factory in June 2015 at the cost of
RM900,000. The accounting dates for Laguna Sdn. Bhd. and Kurnia Sdn. Bhd. are 31
March and 31 December respectively.
62
Calculate balancing charge or balancing allowance (if any) for Laguna Sdn. Bhd. if the
building was sold for :
i. RM 1,250,000 ii. RM700,000
b) Han Min Sdn. Bhd. constructed an industrial building. The building was completed
and put into operation on 1 September 2015. Han Min Sdn. Bhd. closes its accounts on
30 June annually.
The company had incurred the following expenses:
RM RM
Cost of land 858,000 Warehouse in the same 275,000
compound
Demolition of an old 32,000 Cost of installing fittings and 60,000
building wiring
Architect’s fees 55,000 Cost of plant and machinery 70,000
Construction cost 3,445,000 Cost of installation plant and 160,000
machinery
Cost of clearing the land 50,000 Incidental expenditure for 70,000
drainage scheme, installation
of water and electricity
The company used the total area of the building as respectively:
Factory - 78% Office - 8% Canteen - 10% Showroom – 4%
Han Min Sdn. Bhd. sold the factory building to Hebat Mekar Sdn. Bhd. for RM3,200,000.
Hebat Mekar Sdn. Bhd. closing date is 31 December annually.
The building was fully used as the factory.

Compute the industrial building allowances and balancing charge or balancing charge (if
any)
a) Han Min Sdn. Bhd. and
b) Hebat Mekar Sdn. Bhd.
for all relevant years of assessment up to a year of assessment 2020. (15 Marks)
63
3 CHAPTER 3 : COMPANY TAXATION (CLO1 & CLO2)
OBJECTIVES
 Meaning of management and control of company.
 Calculation of adjusted and statutory income.
 Calculation of chargeable income of business, approved donation
 Computation of tax liability.
PRE QUIZ 3 : COMPANY TAXATION
Retro Guava Sdn. Bhd., a manufacturing company that involved in producing instant food.
The extracted profit and loss account of the company for the year ended 31st August 2020
as follows:
Retro Guava Sdn. Bhd.

Statement of Comprehensive Income for the year ended 31st August 2020
Notes RM RM
Gross profit 696, 000
(+) Others incomes 1 24, 000
720, 000
(-) Expenditures :
Salaries 2 93, 100
EPF Contributions 2 17, 400
Entertainment 3 5, 784
Loss on disposal of machine 4 352
Repairs 5 9, 600
Depreciation 5, 600
Legal fees 6 4, 000
Rental 1, 440
Water & electricity 2, 592
Directors fee 62, 400
Bad debts 7 2, 080
Provision of retirement gratuity 30, 800
Donations 8 3, 200
Taxation 9 14, 160 252, 508
Net Profit 467, 492
64
1. Other incomes consist of investment income RM8,000 and rental of business premise
RM16,000
2. Salaries and EPF contributions are as below:
Name of Employee Salary (RM) EPF Contributions

(RM)
Redha 21,300 4,400
Firdaus 20,900 3,970
Sofea 15,500 2,910
Alya (special needs person) 17,400 3,000
Aryan 18,000 3,120
3. Entertainment:
Entertain distributor during the company’s annual dinner RM1,120

Wedding gift to customer RM2,080
Sample of new items (wholly related to sales) RM2,584
RM5,784
4. Loss on disposal of machine

Sold old machine on 1st December 2019 at RM12,000 . The residual balance for the
machine on 1st September 2019 is RM11,000 . The book value on 1st September 2019
is RM12,450. Annual capital allowance is 14%.
5. Repairs include:
Replace the entire roof with similar roof because badly RM8,240
damaged during recent storm
Repair the leaks in drainage systems RM1,360
6. Legal fee comprise :
Fine on illegal “HALAL” logo RM1,600

Taxation filing fee RM2,400
RM4,000
7. Bad debts account :
RM RM
Bad debt written off 3,840 Specific provision b/f 4,000
Specific provision c/f 2,560 General provision b/f 4,800
General provision c/f 4,480 Profit and loss 2,080
10,800, 10,800
65
8. The donation arises:
Give 100 children’s storybooks to the public library RM1,200

Cash wakaf contribution to a public university approved by the RM2,000
state religious authority
RM3,200
9. Taxation comprises :
Tax assessment of the business building RM2,400

Import duty (goods sold) RM8,000
Tax provision RM3,760
RM14,160
10. Other information :
Industrial building allowance for the year of assessment 2020 RM6,080

Capital allowance for the year of assessment 2020 RM7,280
Business loss b/f 2019 RM27,000
(a) Show the calculation of non-allowable expenditure for EPF and computation on
balancing allowance or balancing charge for disposal of the machine. (5 Marks)
(b) Calculate tax payable by Retro Guava Sdn. Bhd. for the year of assessment 2020
(20 Marks)
66
3.1 INTRODUCTION
Tax computation of a company would then be constructed based on the audited accounts
and additional schedules provided by the company. Prior to YA 2001, the tax authorities
would require the return Form C, tax computation together with the audited accounts to
be submitted for raising an assessment.
Under Self-Assessment, a company is required to submit the tax return (Form C) within
7 months after closing the company’s year-end. The company keeps the tax computation
and audited accounts for the inspection of IRB tax audit in future years.
It is a mandatory requirement for the company to maintain and complete the following
worksheets for every YA to facilitate the IRB inspection during a tax audit:
a) Computation of statutory income for :

i. Business
ii. Dividends (w.e.f. 1.1.2014, Malaysia derived dividend are exempted from income tax)
iii. Interests
iv. Royalties
v. Rents (with details of properties)
b) Current year business loss

c) Withholding tax payment to non-resident
d) Information on 5 directors and 5 shareholders who are controlling the company.
Liability to tax:
 Resident company = income accrued or derived in Malaysia only
 Non-resident company = only its Malaysian source income
*** Offshore income (income from outside Malaysia) is not exposed to tax***
3.2 RESIDENTIAL STATUS OF THE COMPANY
A company carrying on a business or businesses is resident in Malaysia if, at any time in

the basis year for a year of assessment, the management and control of its business or
any of its businesses is exercised in Malaysia [Section 8 (1) (b)].
Some of the more important aspects of a company’s position, in relation to its residence,
considered by the Revenue are:
 The place of registration and whether the place of residence is indicated in the
memorandum and articles.
 The place where the annual general meetings are held and what transpires at these
meetings.
 Director’s board minutes and the decisions taken relevant to management and
control.
 The location where the board meetings are held.
67
3.3 RESIDENT COMPANIES TAX RATE
Table 3.1
Rate for
YA 2020
Company (paid-up capital > RM2.5 million) 24%
Small and Medium Scale Company (paid up capital ≤
RM2.5m)
 1st RM600,000 of chargeable income 17%
 Next (> RM600,000) 24%
 Non-resident company 24%
Rate for Rate for

YA 2017 - 2018 YA 2019
Company (paid-up capital > RM2.5 million) 24% 24%
Small and Medium Scale Company
(paid up capital ≤ RM2.5m)
 1st RM500,000 of chargeable income 18% 17%
 Next (chargeable income – RM500,000) 24% 24%
With effect from YAs 2017 and 2018, the income tax rate will be reduced based on
the % of the increase in chargeable income (current year) as compared to the
immediate preceding year of assessment (previous year).
Table 3.2
% of Increase in Chargeable % Point of Reduced Income Tax
Income as Compared to the Reduction on Rate on Increase in
Immediate Preceding Year of Income Tax Chargeable Income
Assessment Rate (%)
Less than 5% Nil 24%
5% - 9.99% 1 23%
10% - 14.99% 2 22%
15% - 19.00% 3 21%
20% and above 4 20%
68
3.4 FORMAT TAX COMPUTATION FOR COMPANY
Syarikat TAX II Sdn. Bhd.
Computation of Tax Payable for the YA 2020
RM RM
Net Profit before taxation/(Loss) xx
(-) Non Business Income (which recorded in Income Statement):
- Dividend x
- Rental x
- Royalty x
- Real Property Gains x
- Profit on Sales of Fixed Asset x
- Others Income (etc) x
- Investment income x (xx)
GROSS INCOME FROM BUSINESS xx
(+) Non Allowable Expenses / Any Restricted Items :
 Expenses that are not incurred x
 Capital Expenditure x
 Expenses related to investment income x
 Section 39 prohibited expenses x
 Donation (both: approved and non-approved institutions) x
 Business Zakat x
 Capital assets expensed off to Statement of Comprehensive x
Income (PnL)
 Illegal expenses such as traffic penalty (employer or x
employees)
 Loss on disposal/ sales of the assets x
 Secretarial fee and tax filing fee (if > RM15,000) x
 Etc (refer notes) x xx
xx
(-) Double Deductions:
 Expenditure on training the employees x
 Remuneration of disabled employees x
 R&D x
 Etc (refer double deduction notes) x (xx)
ADJUSTED INCOME FROM BUSINESS XXX
Unabsorbed Capital Allowance (previous year - YA 2019 and (x)
below)
Capital Allowance (current year – YA 2020) (x)
Industrial Building Allowance (IBA) (x) (x)
STATUTORY INCOME FROM BUSINESS xxx
(-) Previous years’ business losses (not need the same business) (xx)
XXX
69
(+) Statutory income from others :
- Interest and Discount X
- Rental, Royalty and Premium X
- Others income X
- Dividend ex xx
AGGREGATE INCOME XXX
(-) Current Year Business Loss (x)
(-) Donation for the approved institution under Sec 44(6)
- State government (full donation’s amount) x
- Public Library (restricted to RM20,000) x
- Other institutions (restricted to 10% of aggregate income) x
(-) Zakat Business
- (restricted to 2.5% of aggregate income @ zakat paid: which is x (xx)
lower)
CHARGEABLE INCOME (CI) XXX
TAX PAYABLE
** A. If paid-up capital >RM2.5 million
TAX PAYABLE ( CI x xxx
24%)
or
B. If paid-up capital ≤ RM2.5 million (SME’s Company)
Tax payable : (First RM600,000 of CI x 17%) xx
Next (>RM600,000) of CI x 24% xx
TAX PAYABLE XXX
** Choose either A or B based on company’s paid-up capital
Example 3-1
Syarikat An-Nahl Sdn. Bhd. is corporate in Malaysia on 2006. The paid-up capital is
RM3,500,000. The chargeable income for year assessment 2020 is RM720,000.
Paid up capital = RM3,500,000 so more than RM2.5 million

Solution: Use Situation A (refer to the format of tax computation).
Syarikat An-Nahl Sdn Bhd

TAX PAYABLE RM
RM_____________ (CI) x 24% 172,800
70
Example 3-2
Syarikat An-Nahl Sdn. Bhd. is corporate in Malaysia on 2005. The paid-up capital is
RM2,000,000. The chargeable income for year assessment 2020 is RM720,000.
Paid up capital = RM2,000,000 so less than RM2.5 million (SME)

Solution: Use Situation B (refer to the format of tax computation).
Syarikat An-Nahl Sdn Bhd

TAX PAYABLE RM
First RM600,000 (CI) x _____% 102,000
Next CI RM________________ [RM720k – RM600k] x ______%
Tax payable net 130,800
3.5 BUSINESS INCOME
Business income includes:
 Insurance compensation for loss of trading stock

 Compensation from trade creditors for defective goods
 Interest on overdue trade accounts (debtors/customers)
The above income not need to add back or deduct in tax payable computation.
Gains on realization of long term investment such as shares, residential properties,

motor vehicles are capital gains and would be excluded from income tax.
Investment income such as rental income, dividend income and interest income are
separately assessed and thus should be excluded in arriving at the adjusted income of
the business.
3.6 NON-ALLOWABLE EXPENSES
Non-allowable expenses can be categorized into four groups:
1) Expenses that are not incurred

2) Capital Expenditure
3) Expenses related to the investment income
4) Section 39 prohibited expenses
71
3.6.1 Expenses that are not incurred:
 General provision for bad and doubtful debts

 Provision for gratuity/retirement benefits
 Provision for warranty cost, stock obsolescence
 Depreciation
 Amortisation for the renovation of premises, lease amortization
 Unrealized exchange loss in relation to acquisition of raw materials
 Provision for repair and maintenance
 Preliminary expenses written off
3.6.2 Capital Expenditure:
 Cost of printing and distribution of annual reports

 Stamp duty and secretarial fees for increased share capital
 Stock listing expenses
 Pre-commencement business expenses (please refer 3.4.2.2 for further
explanation)
 Entrance fees to club
 Legal and professional fees relating to violation of laws, capital structure of
company, acquisition of loan or assets
 Donations (irrespective of whether approved or unapproved donations)
 Business Zakat
 Lump sum payment for early termination of lease
 Loan written off in relation to that of employees’ or suppliers’
 Fine imposed for violation of law (example: traffic illegal, summons)
 Penalty on withholding tax
 Foreign exchange gain/loss on acquisition of plant and machinery, repayment
of foreign loan
 Registration of trademark
 Fees for designing company logo
 Compensation to competitor to restrict competition (restrictive covenant)
 Loss on disposal of long-term investments
3.6.2.1 Capital Asset Expensed Off to Statement Of Comprehensive Income
Capital asset should be recorded in Statement of Financial Position. Thus, if this capital
expenditure are recorded in the Statement of Comprehensive Income, all the expenses
incurred has to be excluded (add back in the tax computation). Some of the examples
are:
a) Renovation of factory, office premises

b) Improvements for repairs
c) Small value capital items e.g. chairs, calculators etc.
d) Installation cost of machines charged in repair and maintenance account
e) Cost of stand used in advertising
f) Deposits paid for telephone or utilities
g) Replacement of electrical alarm system
72
3.6.2.2 Pre-Operational and Pre-commencement business is categorized as non-
allowable expenses.
But there is exemption for some situation whereby the expenses can be allowed:-
Allowable Pre-Operational business expenses
a) Pre-operational business expenditure (Sch. 4B, ITA) can be claimed by a

company if:
 The expenditure relation to a proposal to undertake investment in a business
venture in a country outside Malaysia
 The company must be resident in Malaysia
 The business venture has been approved by the Minister of Finance
b) The pre-operational business expenses which qualify are:

 Conduction of feasibility studies, including the cost of employing consultants
 Market research or survey or the obtaining of market information, including
the cost of employing consultants
 Fares for travel to a country outside Malaysia by a representative of the
company for purposes of conducting feasibility study or market survey
 Actual expenses not exceeding RM400 per day for accommodation and
sustenance for the world period commencing with the representative’s
departure from Malaysia and ending with his return to Malaysia
c) Allowable Pre-commencement of business training expenses
Training to its employees prior to the commencement of its business and its
allowable if:-
 the training is to impart basic skills to enable the company to commence its
business
 the training expenses are incurred within one year prior to the commencement
of the business
 the training expenses are of the kind that is allowable under section 33 of the
ITA.
 expenses on the recruitment of employees to enable the person to commence
his business
 expenses of the kind allowable under section 33 of the ITA relating to the
recruitment of employees
 expenses incurred within the period of 1 year prior to the commencement of
his business.
73
3.6.3 Expenses related to investment income
Any expenses relating to the investment income is not deductible against business
income. It has to be added back. These expenses will be set off against individual
investment source of income.
3.6.4 Section 39 prohibited expenses:
 Private and domestic expenses (dual purpose).

 Expenses that are not wholly and exclusively laid out or expended for the purpose
of producing gross income, for e.g. excessive remuneration paid to family members.
 Capital employed or money withdrawn as capital
 Contribution to unapproved pension / provident / saving scheme.
 Withholding tax and penalty on late payment on withholding tax imposed on
interest, royalty, contract payment, Sec. 4A payment, public entertainers,
remuneration, Sec. 4(f) payment (to non-resident) not paid to the tax authorities.
 Leave passage (other than yearly leave passage provided to employees – 3 times in
local and one in oversea; limit max RM3,000).
 License or permit fees to extract timber to persons other than State Government,
statutory authority or body approved by Minister
 Lease rental exceeding RM50,000 (or RM100,000 in special circumstances) in
aggregate on passenger vehicle
 Entertainment to non-employees (including reimbursement to staff in relation to
entertainment of client or entertainment allowance to employees) is given 50%
deduction. However, entertainment which is related wholly to sales will be fully
deductible.
 “Entertainment related wholly to sales” means entertainment directly related to
sales provided to customers, dealers and distributors but excluding suppliers.
The tax treatment for several examples of entertainment expenses:
Entertainment is defined in the Income Tax Act as;
a) the provision of food, drink, recreation or hospitality of any kind and

b) the provision of accommodation or travel in connection with or for the purpose of
facilitating entertainment of the kind mentioned in (a); by a person or an employee in
connection with a trade or business carried out by that person.
Allowed a
Not allowed a
deduction
Types of deduction of
No of ITA Provision
entertainment
100 50 100 50%
% % %
1 Entertainment given to Not wholly and exclusively
a potential customer √ incurred under subsection
in a closed transaction 33(1) of the ITA
2 Entertainment given to Proviso (vii) to paragraph
potential or existing √ 39(1)(I) of the ITA
customers during the
74
Allowed a
Not allowed a
deduction
Types of deduction of
No of ITA Provision
entertainment
100 50 100 50%
% % %
launching of
company’s new
product
3 Wedding gift to Not wholly and exclusively
customer √ incurred under subsection
33(1) of the ITA
4 Entertainment to Not wholly and exclusively
employees of related √ incurred under subsection
companies 33(1) of the ITA
5 Entertainment for Not wholly and exclusively
annual general √ incurred under subsection
meeting of company 33(1) of the ITA
6 Cash contribution for Not wholly and exclusively
customer’s annual √ incurred under subsection
dinner 33(1) of the ITA
7 Annual dinner to Proviso (i) to paragraph
√
employees 39(1)(I) of the ITA
8 Gift with business Not included under
logo for customer’s provisos (i) to (viii) to
√
annual dinner paragraph 39(1)(I) of the
ITA
9 Gift without business Not included under
logo for customer’s provisos (i) to (viii) to
√ √
annual dinner paragraph 39(1)(I) of the
ITA
10 Free trip as an Provisos (vii) to paragraph
incentive to sales agent 39(1)(I) of the ITA
√
for achieving the sales
target
11 Gift of flower for Not included under
customer’s opening of provisos (i) to (viii) to
√ √
new outlet paragraph 39(1)(I) of the
ITA
12 Entertainment to Not included under
suppliers provisos (i) to (viii) to
√ √
paragraph 39(1)(I) of the
ITA
13 Hampers for Not included under
customers during provisos (i) to (viii) to
√ √
festive seasons paragraph 39(1)(I) of the
ITA
Taxpayers are required to keep records in respect of entertainment expense incurred.
75
Other examples of Entertainment Expenses:
Entertainment expense 100%

deductible
1. Provision of entertainment such as food, drink and recreation to Yes
employees.
Examples – Free meals and refreshments for staff, annual dinners and
family day.
2. A taxpayer whose business consist of providing entertainment to Yes
paying customers such as restaurant or cinema.
Examples – Meals provided by airlines or other transportation business
to passengers and cultural shows provided by hotels or restaurants.
3. Promotional gifts at trade fairs, trade exhibitions or industrial Yes
exhibitions held outside Malaysia for the purpose of promoting exports.
Examples – Souvenirs, bags and travel ticket to visitors at trade fairs.
4. Promotional samples of tax payers’ products Yes
Examples – Free samples to guests at launching of product and giving
away of health drink samples to school children.
5. Provision of entertainment for cultural or sporting events which are Yes
open to the members of public for the purpose of promoting the
business.
6. Promotional gifts within Malaysia consisting of articles incorporating a Yes
conspicuous advertisement or logo of the business. The promotional
gifts need not be the product of the business as long as the business
logo is affixed on those articles. The promotional gift should be given to
the public on a non-discriminatory basis.
7. Provision of entertainment which is related wholly to sales arising from Yes
that business.
Examples:
- Expenses incurred on food and drink during launching of a new
housing project –
- Redemption vouchers and lucky draw prizes given for purchases
made
- Free gifts for purchases exceeding a certain amount
- Redemption gifts based on a scheme of accumulated points
- Free service charges or contribution to sinking fund by property
developers
- Expenditure on trips given as an incentive to dealers for achieving
sales target
- Expenditure incurred on refreshments given to its customers while
waiting for their cars to be serviced.
8. Provision of benefit to an employee consisting of leave passage Yes
Examples – Costs of travel to facilitate yearly event within Malaysia
which involves employer, employee and immediate family members of
the employee
76
3.7 CAPITAL EXPENDITURE BUT SPECIAL DEDUCTION (Allowable Expenses)
Capital expenditure incurred in the production of business income is non-allowable

expenses as it is prohibited by sec. 39 of the Act. Therefore, the Government has to
legislate gazette orders to grant special deduction (allowable expenses) to relief the
business person. It is deductible (allowable) to arrive at adjusted income of the business.
3.7.1 Proprietary Rights

(available to manufacturing company) it means patents, industrial designs or
trademarks. The cost includes purchase consideration of the:
 proprietary rights (patents, industrial design or trademarks)

 consultancy fees
 legal fees
 stamp duties.
The deduction will be given 20% each year (total 5 years) of the total cost incurred by
manufacturing company (70% Malaysian owned).
3.7.2 Listing in the ACE Market or the LEAP market

Tax deduction of up to RM1.5 million be given to technology-based companies and SMEs
seeking to raise additional capital through listing in the ACE Market or the LEAP market.
The tax deduction is on the following listing costs:
 fees to authorities;
 professional fees; and
 underwriting, placement and brokerage fees.
3.8 DOUBLE DEDUCTION
Double deduction refers to revenue expenses incurred that are given twice the amount as
deduction in arriving at the adjusted income of a business. This is a tax incentive provided
by the government to provide tax relief to business persons and to encourage the use
of promoted activities such as research, local facilities, etc. To qualify for double
deduction, such expenses must be:
a) Revenue Expense and

b) Not prohibited by Sec. 39 of the Act
Expenses qualified for double deduction are normally gazette, legislated in the Act or in
Promotion of Investments Act 1986.
77
Below are the expenses qualify for DOUBLE DEDUCTION:
a) Revenue expenses for approved training. The double deduction for training is
available to:
 Manufacturing company
The objective of the training provided to employees must be for the purpose of
upgrading and developing the employees’ craft, supervisory and technical skills or
increasing the productivity or quality of its product under:
i. a training program approved by the Malaysian Industrial Development
Authority or
ii. a training program conducted by training institution – Malaysian Productivity
Centre (formerly known as National Productivity Centre).
 Non-manufacturing company
The approved training on its employees must be under :
i. a training programme approved by the Minister of Finance or any agency
appointed by the Minister of Finance or
ii. a training programme conducted by a training institution
 Company carrying on a hotel or tour operating business

This is available to company carrying on a hotel registered with the Tourist
Development Corporation of Malaysia or a company carrying on a tour operating
business registered with the Tourist Development Corporation of Malaysia. There
shall be allowed on any expenditure incurred in training its employees under :
i. a training programme approved by the Minister of Culture, Arts and Tourism

or
ii. a training programme conducted by a training institution
iii. the hotel of tour operating business must be registered with the Malaysian
Tourism, Promotion Board
 Training of handicapped persons

Where a company incurred training expenditures, there shall be allowed as double
deduction of any expenditure incurred in training any handicapped person
registered with the Ministry of National Unity and Social Development, who is
not an employee of the company under :
i. a training programme approved by the Minister of Finance, which is conducted
in Malaysia or
ii. a training programme conducted by a training institution and the training
programme is for the purpose of enhancing his employment prospect.
 Training by all companies

i. a training programme conducted by agencies appointed by the Minister of
Finance,
ii. the training programme is for the purpose of obtaining industry-recognized
certifications and professional qualifications (e.g. accounting, finance and
project management)
78
b) Research expenditure – an approved research projects/companies/institution
 Cash contributions to approved research institutes

 Service fee to approved research institutes
 Service fee to an R&D company or a contract R&D company
c) Remuneration (salary, allowance, bonus etc.) of disabled employees – physically

or mentally disabled and is not able to perform the work of a normal person.
d) Export credit insurance premium (conventional) and it is paid to the conventional

insurance companies approved by the Minister of Finance (notes : Payment from
purchaser to avoid default)
e) Export credit insurance contribution based on takaful (Islamic) concept and it is

paid to a company approved by the Ministry of Finance.
f) Approved outgoings and expenses incurred for the promotion of exports from
Malaysia
 the products must qualify for an export allowance or abatement of statutory

income for exports
 the company must resident in Malaysia
g) Approved international trade fair – expenses incurred for participation in an

approved international trade fair held in Malaysia for the promotion of exports and
the trade fair must be approved by Minister of International Trade and Industry.
The expenses must be a kind allowable under Sec. 33 of the ITA 1967 but excludes
the cost of exhibits.
h) Interest payable on loans to small-scale business
i) Outgoings and expenses incurred for the promotion of export of services by service
sectors such as transportation, communication and utility sector
j) Outgoings and expenses incurred for the promotion of export of professional

services – legal, accounting, architectural, engineering and integrated engineering
services, medical and dental
k) Advertising on Malaysian brand name goods within Malaysia (locally):

 the company is at least 70% Malaysian owned
 the brand name is owned by the company or its related company and is
registered in Malaysia or outside Malaysia and
 company’s product must achieve export quality standard
l) Advertising on Malaysian brand names overseas. The qualify expenses are:

 expenses on advertising of Malaysian brand names registered overseas
 professional fees paid to companies promoting Malaysian brand names
79
m) Registration of patent, trademarks and product licensing in overseas – for the
purpose of promoting the exports of goods, agricultural products manufactured,
produced, processed, graded or sorted and assembled in Malaysia.
n) Expenses incurred in obtaining certification for recognized quality systems, standards

and halal certification.
o) Expenditure incurred by companies participating in Skim Latihan 1Malaysia for

unemployed graduates (extended until 31 December 2020).
p) Expenditure incurred by companies in conducting the structured internship

programme approved by the Talent Corporation Malaysia Berhad in collaboration
with the Ministry of Higher Education for: (YA 2017 to YA 2021).
 students are Malaysian citizen pursuing full-time programme in higher

education institution.
 minimum period is 10 weeks internship programme
 monthly allowance minimum RM500.
 the expenses is restricted to RM5,000 per students for each year or assessment
(excluding the internship allowance)
 the student’s academic level include Bachelor’s degree, diploma, vocational
(DKM Level 4&5), SKM Level 3, students in all academic fields.
 to claim double deduction, a company need an approval letter from TalentCorp
q) Tax incentives for Industry4WRD for the manufacturing and manufacturing-related

services sector:
 Expenditure up to RM1 million per annum to be claimed for 3 consecutive Y/As

incurred by anchor companies in implementing the Industry4WRD Vendor
Development Program to develop local vendors.
 Scholarships awarded to students pursuing full time studies at technical and
vocational levels, diplomas and degrees in the fields of engineering and
technology.
 Expenses for conducting internship programme for undergraduate students in
fields of engineering and technology approved by the Ministry of Human
Resources
 Expenditure incurred on approved training
i. a training programme approved by MIDA
ii. training for the purpose of upgrading and developing the employees’
technical; skills in Industry 4WRD Technology
 Expenses incurred for articipating in the National Dual Training System
Training Scheme for Industry4WRD programmes approved by the Ministry of
Human Resources (MOHR)
r) Remuneration paid to senior citizens and ex-convicts provided:

 senior citizens who are above 60 years old or
 ex-convicts
 employment must be on full-time basis
80
 monthly remuneration does not exceed RM4,000
 the employer is not a relative of the employee
s) Expenses incurred by companies carrying on the business of providing higher

education in Malaysia for the purpose of promoting the export of higher education.
The company must be:-
 resident in Malaysia
 registered with the Ministry of Education Malaysia (MOE)
t) Ship freight charges incurred for shipping goods from Sabah and Sarawak to
Peninsular Malaysia – provided it was claimed by manufacturer and used ports in
Peninsular Malaysia.
u) 50% of the rental payment incurred by a Tun Razak Exchange (TRX) Marquee Status
Company provided the rented commercial building is for business purpose only.
v) Expenditure incurred for the provision and maintenance of child care centre (must be
registered with the Department of Social Welfare) and payment of child care
allowance to the employees.
w) Expenses incurred in the issuance of retail debenture and retail sukuk issued under
Murabahah, Bai’ Bithaman Ajil, Mudharabah and Istisna’
3.9 STATUTORY DEDUCTION (allowable expenses)
Section 34 of the Act specifically allows tax deduction against the business income:
Section Particulars
34(2) Specific provision for bad debts on trade debtors arising from sales.
34(4) EPF – maximum allowable deduction is 19% of employees’ remuneration
34(6)(e) Provision of equipment and renovation expense to special needs person,
necessary to assist in the performance of employees’ duties.
34(6)(f) Translation/publication of cultural, literary, professional, scientific or
technical books into Bahasa Malaysia approved by Dewan Bahasa dan
Pustaka.
34(6)(g) Provision of library facilities to public library and contribution to public
libraries, libraries of schools and institutions of higher education
(maximum RM100,000)
34(6)(h) Provision of services, public amenities and contribution to charity,
community project pertaining to education, health, housing, conservation
or preservation of environment, enhancement of income of the poor,
infrastructure, ICT. Furthermore infrastructure expenses for public use in
relation to business
34(6)(i) Provision and maintenance of childcare centre for the benefit of
employees.
34(6)(j) Establishing and managing the musical or cultural group.
34(6)(k) Sponsoring any local (maximum RM1,000,000), foreign (restricted to
RM300,000), arts, cultural or heritage activity approved by the Minister
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Section Particulars
34(6)(l) Provision of scholarship to students.
34(6)(m) Revenue expenditure, incurred by a company in the relevant period for
the purpose of obtaining accreditation for a laboratory or as a certification
body, as evidenced by a certified issued by the Department of Standards
Malaysia.
34(6)(n) Practical training in Malaysia to resident non-employees.
34(6)(o) Participating in ISO activities approved by the Department of Standards
Malaysia.
Exercise 3.1
Classify all the expenditure below accordingly and please indicate the amount:
DD – Double Deduction: NA – Non Allowable expenses: A – Allowable expenses
No Item DD / NA / A
1 A Proton Inspira which cost RM105,000 was leased at a monthly rate
of RM1,500 since November 2014. It was not licensed for
commercial transportation. The company prepares accounts
annually to 31 July every year (compute until YA 2020)
st
2 Fine of RM1,000 imposed on the company for overloading a van

3 RM5,000 was incurred on obtaining HALAL certification.
4 RM47,000 was incurred on legal action taken to recover trading
debts from various dealers.
5 Company sponsored a gift without business logo for customer’s
annual dinner, RM5,000
6 During the month of Ramadhan, the company shows the appreciation
by giving hampers for customers amounted RM 35,000
7 Renovation cost to the factory building to increase the production
RM240,000
8 Research expenses incurred on an approved project RM75,000
9 Routine product testing and quality control expenses RM200,000
10 Export credit insurance premium based on Takaful concept,
RM5,000.
11 Insurance premium paid for export of cargo to China and insured
with a China insurance company
12 A service director of a company Mr F had embezzled cash collections
of RM10,000
13 Miss D was employed as an accounts clerk at the company and
embezzled RM3,000 from sales collection. The company terminated
the services of Miss D.
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3.10 CAPITAL ALLOWANCE (CA) /INDUSTRIAL BUILDING ALLOWANCE (IBA)
Fixed Asset / Non-Current Asset Initial Annual

Allowance Allowance
Plant and machinery (P&M) – heavy [example : Crane etc.] 20% 20%
Plant and machinery – general [Air-Cond, lift, lab and 20% 14%
medical equipment etc.]
Office equipment, furniture, fitting 20% 10%
Motor vehicles 20% 20%
Imported heavy machine for building and construction, 10% 10%
mining, plantation and timber
Environmental protecting equipment 40% 20%
Reinvestment in qualifying projects, agricultural projects 40% 20%
Power quality equipment 20% 40%
Buses using natural gas 40% 20%
P&M (non-imported) for building construction 30% 14 or 20%
P&M (non-imported) for extraction of timber & tin mining 60% 14 or 20%
P&M of a manufacturing company used exclusively for 40% 20%
recycling waste or further processing of wastes into a
finished product
P&M of agriculture/plantation companies 20% 40%
Moulds used in the production of industrialised building 40% 20%
system component
Small value asset (each asset ≤ RM2,000) (max RM20,000) 100% -
Tun Razak Exchange – renovation cost 20% 40%
Industrial Building (Factory) 10% 3%
ICT equipment 20% 20%
Development cost on customized computer software 20% 20%
 New vehicles purchased on or after 28.10.2000:
o where on-the-road price is RM150,000 or less; Maximum QE is RM100,000.
o vehicles other than the above (more than RM150,000); Maximum QE is RM50,000
 Commercial vehicles (such as lorry, truck, bus, minibus, van, station wagon or taxi used in
the business); no limit.
 Expenditure on assets with lifespan of not more than 2 years is allowed on a replacement
basis.
83
Example 3.3
Ayudia Sdn. Bhd. manufactures biscuits for the local and overseas demand. For the year
ended 31 December 2020, the company has made lease rentals for the following vehicles:
Accumulated lease rental on Cost of car

31.12.2020 RM
RM
Car (Proton Suprima S) 30,000 80,000
Car (Honda Odyssey) 120,000 220,000
Lorry 75,000 140,000
You are required to determine Qualifying Expenditure for the above lease rental vehicle
for the YA 2020.
Solution Example 3.3
Accumulated Maximum
Cost of Non
lease rental on (allowable) QE
car Allowable
31.12.2020 (RM100k @
RM Expenses
RM RM50k)
Car (Proton 30,000 80,000
Suprima S)
Car (Honda 120,000 220,000
Odyssey)
Lorry 75,000 140,000
 Solution for car (Honda Odyssey) = RM120,000 – RM50,000 = RM70,000 (Non Allowable
Expenses)
 Lorry is commercial vehicle and for business used = no limit
Exercise 3.2
Tiptop Sdn. Bhd. involved in bag manufacturing for the local and overseas demand. For
the year ended 31 December 2020, the company has made lease rentals for the following
vehicles:
Accumulated lease rental on Cost of car

31.12.2020 RM
RM
Cargo Van 30,000 109,300
Car (Honda Accord 2.0 Vti-L) 120,000 149,000
BMW 85,000 210,000

Determine total non-allowable expenses for the above lease rental vehicle for the year
assessment 2020.
84
3.11 DONATIONS UNDER SECTION 44(6) ITA 1967
Types of Donation Approved amount

 Gift of money to the Government, state
government or local authority [subsection Full Amount of Donation (RM)
44(6)]
 Gift of money to approved institutions,
Restricted to 10% of the aggregate
organizations or funds [proviso to subsection
income
44(6)]
 Gift of money for any sports activity approved Restricted to 10% of the aggregate
by the Minister of Finance [Subsection 44(11B)] income
 Gift of money or cost of contribution in kind for
Restricted to 10% of the aggregate
any project of national interest approved by the
income
Minister of Finance [Subsection 44(11C)]
 Cash wakaf contribution to a state religious
authority or body established by the state
religious authority to administer wakaf;
 Cash wakaf contribution to a public university Restricted to 10% of the aggregate
approved by the state religious authority to income
receive wakaf; and
 Cash endowment contribution to a public
university. [Subsection 44(11D)]
 Gift of artefacts, manuscripts or paintings On the value determined by the
[Subsection 44(6A)] Director General of Museum
Malaysia or Director General of the
National Archives
 Gift of money for the provision of library ≤ RM20,000
facilities or to libraries [Subsection 44(8)] Section 44(8) and Section 34(6)(g)
are mutually exclusive.
 Gift of paintings to the National Art Gallery or On the value determined by the Art
any state art gallery [Subsection 44(11)] Gallery or State Art Gallery
Example 3-4
Syarikat An-Nahl Sdn. Bhd. is corporate in Malaysia on 2005. The amount of aggregate
income for the year of assessment 2020 is RM400,000. In the year of assessment 2020,
the company made cash donation amounted RM35,000 to Yayasan Anak Yatim Selangor
(an approved institution).
How much value of donation can be deducted from tax payable?
 Gift of money to approved institutions, Restricted to 10% of the

organizations or funds [proviso to subsection aggregate income
44(6)]
85
Workings:
AGGREGATE INCOME RM 400,000

(-) Donation for approved institution under Sec 44(6)
Restricted to : 10% x RM400,000 = _______________ @
______________ (amount of donation given)
** choose the lower amount between RM40,000 @
RM35,000
CHARGEABLE INCOME (CI)
Exercise 3.3
the company made cash donation amounted RM60,000 to the local authority. How much
value of donation can be deducted from tax payable?
Solution for Exercise 3.3
 Gift of money to the Government or local authority Deduction is the amount

[subsection 44(6)] donate (full amount)
Workings:

(-) Donation to the local authority under Sec 44(6)
Exercise 3.4
the company made cash donation amounted RM33,000 to the public library in Penang.
How much value of donation can be deducted from tax payable?
Solution for Exercise 3.4
 Gift of money for the provision of library facilities or to libraries ≤ RM20,000

[Subsection 44(8)]
Workings:

(-) Donation to the local authority under Sec 44(6)
86
3.12 BUSINESS ZAKAT
Business Zakat is an obligation for all Muslim practitioners in the business. The amount of
business zakat paid to Zakat Collection Centre in Malaysia shall be given tax deduction
does not exceed 2.5% of the aggregate income of the company.
The deduction will be lower of:
a) Business Zakat paid; or

b) 2.5% x aggregate income
Example 3-5
Syarikat Maryam Sdn. Bhd. is corporate in Pulau Pinang, Malaysia on 2010 with paid-up
capital RM3 million. These are information about the company for the year of assessment
2020:
 Aggregate Income is RM900,000

 Company have paid RM40,000 for Business Zakat in YA 2020 to Zakat Collection
Centre Pulau Pinang.
How much of Business Zakat can be deducted?
AGGREGATE INCOME RM900,000

(-) Approved Donation -
(-) Business Zakat
RM900,000 x 2.5% =_______________ @ __________________
(restricted to 2.5% of aggregate income) @ zakat paid
(choose the lower)
CHARGEABLE INCOME RM877,500
3.13 SECRETARIAL FEE AND TAX FILING FEE
 Both expenses are given special allowable deduction in arising the business adjusted
income.
 With effect from YA 2020, the threshold for tax deduction on company’s secretarial fees
and tax filing fees are combined at RM15,000 for each YA.
87
Example 3-6
Xtra Shining Bhd is a wholly owned Malaysian company which is in the business of
producing fine bullions gold and jewellery. The company closes its accounts on 31st
December each year. The paid-up capital on the first day of the basis period for the year of
assessment 2020 is RM2.5 million.
The Statement of Comprehensive Income of Xtra Shining Bhd for the year ended 31st
December 2020 is as follows:
Xtra Shining Bhd.

Statement on Comprehensive Income for the year ended 31st December 2020
Notes RM RM
Sales 15,150,000
(-) Cost of sales 1 (11,120,000)
Gross Income 4,030,000
(+) Other incomes 2 32,250
4,062,250
(-) Operating expenses:
Loss on disposal of asset 50,000
Foreign exchange loss 3 2,000
Professional and legal fees 4 46,000
Bad and doubtful debts 5 40,000
Repairs and maintenance 99,000
Salaries and wages 6 1,200,000
Entertainment expenses 7 94,000
Advertising and promotions 74,000
Miscellaneous expenses 8 141,000
Lease payments 9 100,000 (1,846,000)
Net Profit 2,216,250
1. Cost of sales includes:

i. Depreciation of factory building, plant, machinery and vehicles amounted to
RM73,000.
ii. Export credit insurance paid to Malaysian Export Credit Insurance Bhd. amounted
to RM14,000.
88
2. Other incomes comprise:
i. Dividend income: RM21,250

The dividend warrants relating to the above dividend income are as follows:
RM
Tan Beng Holdings Bhd. 11,250
Goh Builders Bhd. 10,000
ii. Interest income RM7,000 was from a fixed deposit account of Maibank Bhd.
iii. Foreign Exchange Gain, RM4,000 arising from conversion of balances owning by
overseas trade debtors at year-end
3. Foreign exchange loss: RM2,000

Foreign exchange loss of RM2,000 (unrealized) arose from buying a machinery from
supplier located in Japan.
4. Professional and legal fees comprise of: RM
Secretarial fee and tax filing fees 20,000

Legal fees for tax appeal 4,000
Legal fees to recover trade debts 14,000
Annual subscription to Federation of Malaysian Manufacturers 8,000
46,000
5. Bad and doubtful debts account is as follows: RM
Private loan to an employee 10,000

Specific provision for bad and doubtful debts 12,000
General provision for bad and doubtful debts 18,000
40,000
6. Salaries and wages include: RM
Salaries paid to two special needs receptionists 20,000

Two-day company retreat cum staff family holiday to Pangkor 27,000
Island including directors, staff and immediate families
7. Entertainment expenses include: RM
Entertainment of supplier 26,000

Entertainment of company’s clients 10,000
Entertainment of staff 28,000
Allowance to staff in the marketing department 20,000
89
8. Miscellaneous expenses include: RM
Cash donation to approved organizations 10,000
Speeding and parking fines of the company drivers 4,000
Purchase a new Photostat machine 5,000
Business Zakat 25,000
9. Lease payments
The company leased two vehicles from a local leasing firm and payments details are as
follows:
Vehicle type Original cost of new Payments for the year

vehicle (RM) ended
31 Dec 2020 (RM)
Lorry 300,000 45,000
Luxury car 250,000 75,000
Total 550,000 10,000
i. Capital allowance for the year of assessment 2020 is RM84,000 (not included notes
no.8)
ii. Unabsorbed business losses brought forward from the year of assessment 2019 is
RM26,000. There is no substantial change of shareholders in the immediately
preceding and during the relevant year of assessment.

a) Compute the chargeable income of Xtra Shining Bhd. for the year of assessment
2020. (Show your working for balancing allowances of a disposed fixed asset)
b) Compute the income tax liability of Xtra Shining Bhd. for the year of assessment
2020. (Show all relevant working computation) (25 Marks)
90
a)
Xtra Shining Bhd.
Computation of Tax Payable for the year of assessment 2020
RM RM
Net profit 2,216,250
(-) Non-Business Income:
Dividend
Interest
Foreign Exchange Gain
2,188,000
(+) Any Item /Non-Allowable Expenses
Loss on disposal of assets
Depreciation
Foreign exchange loss (bought machine)
Secretarial fee and tax filing fees
Legal fees for tax appeal
Private loan to an employee
General provision for bad and doubtful debts
Entertainment of supplier (50% x RM26,000)
Staff Allowance (50% x RM20,000)
Lease payments (RM75,000 – RM50,000)
Cash donation
Speeding and parking fines
Purchase a new Photostat machine
Business Zakat (254,000)
(-) Double deduction

Export credit insurance
Salaries to special needs workers
ADJUSTED INCOME FROM BUSINESS 2,408,000
(-) Capital Allowances
New Machine: (IA: 20% x RM5k) + (AA: 14% x
RM5k)
Unabsorbed business (YA 2019)
STATUTORY INCOME FROM BUSINESS 2,296,300
(+) Statutory income from others
Interest from fixed deposit – Maibank Bhd
Dividend – Tan Beng Holdings Bhd (derived from
Malaysia)
– Goh Builders Bhd (derived from Malaysia)
AGGREGATE INCOME 2,296,300
(-) Donation to approved organizations (restricted to)
[(RM2,305,300x10% =RM230,530) @ RM10,000] (lower)
(-) Business Zakat
[(RM2,305,300 x 2.5% = RM57,632.50 @ RM25,000] (choose lower)
CHARGEABLE INCOME 2,261,300
91
Xtra Shining Bhd.
Computation of Tax Payable for the year of assessment 2020
b) TAX PAYABLE:
First RM600,000 x 17%
Next RM (RM2,261,300 – RM )
x 24%
TAX PAYABLE NET RM500,712
1. Resident Status for Company
A company carrying on a business or businesses is resident in Malaysia if, at any

time in the basis year for a year of assessment, the management and control of its
business or any of its businesses is exercised in Malaysia [Section 8 (1) (b)].
2. Resident Companies Tax Rate

a) General Companies - 24%
b) SMEs (paid up capital less RM2.5 million)
– 1st RM600,000 (17%) and next (24%)
3. Format of tax computation to determine the tax payable.

4. Other Business Income treatment
5. Non-allowable Expenses :
i) Expenses that are not incurred

ii) Capital Expenditure
iii) Expenses related to the investment income
iv) Section 39 prohibited expenses
6. Special deduction for capital expenditure (Allowable Expenses)

7. List of Double Deduction (less)
8. Statutory Deduction (Allowable Expenses)
9. Donation under Sec 44(6) ITA 1967
Gift of money to approved institutions, Restricted to 10% of

organizations or funds [proviso to subsection 44(6)] the aggregate income
10. Business Zakat
Business Business Zakat Paid or 2.5% from aggregate Income

Zakat (which is LOWER)
11. Secretarial Fee and Tax Filing Fee – special deduction RM15,000 (YA2020)
92
TUTORIAL 3
Tutorial 3-1
Yamyam Sdn. Bhd. is a manufacturing company in Penang. It prepares accounts annually
to 31st July. For the year ended 31st July 2020, its Statement of Comprehensive Income
was as follows:
Note RM RM
Sales 3,000,000
Less: Cost of sales 1 (1,946,700)
Gross profit 1,053,300
Add: Gain on disposal of fixed asset 2 12,200
Other income 3 134,400 1,199,900
Less: Operational Expenses
Operating expenses 110,000
Payroll costs 4 295,600
Depreciation 15,000
Leasing 5 18,000
Travelling 6 35,000
Entertainment 7 62,000
Professional fees 8 26,000
Provision for doubtful debts 9 10,000
Interest expense 10 56,000
Research & Development 11 59,000
General expenses 12 45,000
Loss on foreign exchange 13 8,000
Donation 14 22,500 762,300
Net profit before tax 437,600
Taxation paid (15,000)
Net profit after taxation 422,000

1. Cost of sales included in the cost of sales are:
 Damaged goods written off RM13,500
 Provisions for obsolete stock RM 5,000
2. Gain on disposal of motor vehicle:

The gain on disposal was in respect of a non-commercial motor vehicle purchased on
1st August 2015 costing RM120,000 and was disposed off on 1 June 2020 at a value of
RM32,000.
3. Other income comprises:

 Interest on overdue trade accounts is RM3,400
 Net dividend from Mustika Bhd. is RM75,000
 Rental of the company’s warehouse is RM22,000
 Interest from Thailand is RM34,000
93
4. The payroll comprises:
 Salaries and bonuses is RM240,000
 Salary and bonus for disabled employee is RM3,600
 EPF contributions is RM52,000
5. Leasing:
A car (brand Proton Inspira) which cost RM109,000 was leased at a monthly rate of
RM1,700 since November 2014. It was not licensed for commercial transportation.
6. Travelling expenses:
RM15,000 represented the costs of air tickets and accommodation for the Family Day
occasion which involved all staff in the Yamyam Sdn. Bhd. while RM20,000
represented the director’s family travelling expenses.
7. Entertainment expenses includes:

 Wedding gift to the customer is RM6,000
 Entertainment for an annual general meeting of the company is RM26,000
 Gift with business logo for customer’s annual dinner is RM30,000
8. Professional fees comprises:

 Audit and accounting fees are RM11,000
 Tax filing fees are RM12,000
 Legal fees for the purchase of land is RM3,000
9. Provision for doubtful debt:
Provision for Doubtful Debts

RM RM
Trade bad debts written off 6,000 Specific provision b/f 35,000
Specific provision c/f 37,000 General provision b/f 22,000
General provision c/f 24,000 Profit and loss 10,000
67,000 67,000
10. Interest expense comprise :
 Interest expense of RM31,000 was paid to a non-resident company.

Withholding tax requirement has not been paid yet.
 Interest expense of RM25,000 represented interests charged on loan
employed as business working capital.
11. Research and Development comprises :
 Cash contributions to approved research institute RM45,000

 Routine product testing and quality control expenses RM14,000
94
12. General expenses comprises:
 The annual fee to a trade association is RM4,000

 Compensation paid to a client who sued the company for late delivery of
goods (sales purposes) is for RM41,000
13. Foreign exchange loss, RM8,000 regarding for payment to the raw materials’
supplier.
14. Donation comprises:

 Cash endowment contribution to a public university is RM16,000
 Donation made to the state government is RM2,500
 Business religion fees (Zakat) is RM4,000
15. Capital allowance for the current year and brought forward from the previous year
were RM20,500 and RM60,000 respectively.
Additional Information:
On 1st July 2020, paid-up share capital of Yamyam Sdn. Bhd., amounted RM3 million.

Compute the Tax Payable by Yamyam Sdn. Bhd. for the year of assessment 2020.
(25 Marks)
Tutorial 3-2
a) List FIVE (5) expenses incurred by the company in Malaysia that are qualified as
double deduction expenses. (5 Marks)
b) Fannan Sdn. Bhd. manufactures and sells musical instruments under its brand ‘Hizra’.
The draft profit before tax of Fannan Sdn. Bhd. for the year ended 31 December 2020
is expected to be RM 2,250,000. Below are notes regarding some items of expenditure
currently in the income statement for the year ended 31 December 2020.
1. Insurance premiums comprised :
Insurance paid for staff medical benefits RM80,000

Payments to Secured (M) Sdn. Bhd. (insurance) on RM100,000
instruments exported
RM180,000
2. Directors’ remuneration comprised:

Entertainment allowances RM800,000
Salaries RM3,000,000
Contributions to Employees’ Provident Fund (EPF) made at RM760,000
the rate of 20% on the entire remuneration (salaries and
allowances)
RM4,560,000
95
3. Construction and maintenance expenses comprised the following:
 The replacement of wooden door with insulated glass at the administrative

office building RM200,000
 The installation of smart toilets in a public park RM100,000
 Installed ramp for a wheelchair user in the front office to allow disabled
employees better mobility to perform their duties RM20,000
4. Cost of sales includes a payment of RM 500,000, being an advance made to a

supplier of raw materials to be supplied in 2021.
5. A new building for living accommodation of employees was purchased in January

2020 for RM 230,000.
6. Promotional expenditure
The entertainment gave during the launching of company’s RM40,000

new product
Entertainment for an annual general meeting of the company RM5,000
Hampers for customers during the festive season RM45,000
RM90,000
7. Expenses on art and culture
 The company also incurred RM 750,000 to sponsor Malaysian heritage

exhibitions. The relevant Minister approved all the expenses.
8. Training expenses
 This item included a scholarship of RM 15,000 provided to Mansur, a needy

student, to pursue a full-time vocational training (Malaysian Skills Certificate
Level 3).
9. Additional information:
The following cost incurred on foreign exchanged and was included in the
Statement of Comprehensive Income:
Loss on the acquisition of plant and machinery RM55,000

The unrealised loss on payment to the raw material supplier RM19,000
Provision for foreign exchange loss RM6,000
RM80,000
Required:
i. Show the calculation on the tax treatment for EPF on Notes no 2 and the Industrial
Building Allowance on Notes no 5. (5 Marks)
ii. Compute Fannan Sdn. Bhd.’s tax liability for the year of assessment 2020. (15 Marks)
96
Tutorial 3-3
a) All income accrued or derived in Malaysia is taxable and needs to be declared to the
Inland Revenue Board (IRB). Explain the process that needs to be followed by the
company under self-assessment as per required by the IRB. (3 marks)
b) Aina Sdn. Bhd. has been in the business of manufacturing tiles since 2000. The paid-
up capital for the company is RM2.3 million. For the year ended 31 December
2020, its statement of comprehensive income was as follows:
Note RM
Sales 22,000,000
Less: Cost of sales 1 (16,868,000)
5,132,000
Add: Other income 2 90,000
5,222,0000
Less: Operating expenditure
Salary 3 2,750,000
Professionals fees 4 300,000
Donations 5 255,000
Bad and doubtful debts 6 50,000
Administrative expenses 24,000
Profit before taxation 1,843,000
Notes:
1. Cost of sales including:
i. Depreciation of factory plant, machinery and vehicles amounted to

RM85,500.
ii. Export credit insurance premiums paid to local insurance company,
RM70,000.
2. Other income comprises:
i. Interest charged on trade debtors for late payment of account worth

RM50,000.
ii. Rental of warehouse worth RM40,000.
3. Salary including:
i. Entertainment allowance for staff worth RM60,000

ii. Wages for securities in warehouse amounted RM 20,000
4. Professional fees:
i. Legal fees on recovery trade debts worth RM250,000.

ii. Stamp duty on the increase in authorised share capital worth RM50,000
iii. Legal fees for acquired working capital RM3,000
97
5. Donation comprises:
i. Cash donation of RM30,000 for the public library.

ii. Cash donation of RM30,000 for the state government.
iii. Cash donation for Hari Sukan Komuniti RM20,000
iv. RM175,000 was made to an approved institution.
6. Bad and doubtful debts accounts in respect of trading debts are made up of the
following movements during the year:
i. Bad debt written off RM10,000

ii. General bad debts provision RM20,000
iii. Specific debts provision RM20,000
Capital allowances for the year assessment 2020 were RM100,000.

Compute the company tax payable for Aina Sdn. Bhd. for the YA 2020. (15 Marks)
Tutorial 3-4
a) Compute statutory business income for ABC Co. Ltd. for year assessment 2020 based
on the information given below:
RM
Sales 2,000,000
Capital Allowance 55,000
Allowable expenses 1,500,000 (5 Marks)
98
b) Rezqi manufactures component parts for vacuum cleaner in Pasir Gudang, Johor, a
firm with a paid-up share capital of RM3.2 million as of January 1, 2016, closes its
accounts for the year ending December 31.
Rezqi Hitech Sdn. Bhd. (Rezqi) disclosed statement of comprehensive income for the
financial year ended 31 December 2020 is as follows:
Rezqi Hitech Sdn. Bhd.

Statement on Comprehensive Income for the year ended 31st December 2020
Notes RM RM
Sales 51,000,000
(-) Cost of Sales 1 (33,000,000)
Gross Profit 18,000,000
(+) Other income
Dividend Income 12,000
Interest income on overdue trade 75,000
receivables
Foreign exchange gains 2 75,000 162,000
18,162,000
(-) Expenses
Company secretarial fees (paid to a 10,000
company secretary registered with
relevant authority)
Marketing expenses 3 230,000
Salaries 4 6,016,000
Tax filing fees (paid to approved tax 19,000
agent)
General Expenses 5 650,000 (6,925,000)
Profit Before Tax 11,237,000
Notes:
 Depreciation of plant, property and equipment is RM12,000,000
 Research and development expenditure is RM1,200,000. Rezqi claims for double
deduction expenditures on:-
 material for research project is RM200,000 and
 research staff salaries RM1,000,000
2. Foreign exchange gain on trade receivables (realized) is RM75,000.
3. Marketing expenses comprise:

 RM100,000 for gifts of company product with logo for a customer’s annual
dinner
 RM130,000 incurred in International trade fair held in London for promotion of
export and approved by MITI
4. Salaries include remuneration of RM12,000 for a member of staff who was certified
disabled by the relevant authority.
99
5. General expenses comprises:
 Business zakat amounted for RM540,000
 Donation RM110,000 to approved institution
6. The capital allowances for the year of assessment 2020 have been computed at
RM48,000.

Calculate the chargeable income of Rezqi Hitech Sdn. Bhd. for the year of assessment
2020.
(15 Marks)
c) Differentiate the expenditure below whether it is capital expenditure or revenue

expenditure.
i. An expenditure incurred to discharge a revenue liability

ii. It is shown in the statement of financial position (SOFP)
iii. Its increases the earning capacity of the business
iv. Modification of factory and business premises
v. The cost of installation of machines that are included in the repairs and
maintenance accounts.
(5 Marks)
Tutorial 3-5
a) Define the meaning of management and control for the determination of residential
status under Section 8, ITA 1967. (2 marks)
b) One Sdn. Bhd. (OSB) was incorporated on 1 January 2016 and commenced its operations
on 1 April 2016 with an authorised and issued share capital of RM2,000,000. OSB is in
the business of manufacturing furniture and makes up its accounts annually to 31
December.
The statement of Profit and Loss of OSB for the financial year ended 31 December 2020 is
as follows:
Note RM RM
Sales 54,000,000
Less: Cost of Sales 1 (17,000,000)
(+) Other income
Dividend income 500,000
Other income 2 30,000 530,000
(-) Expenses
Statutory audit fees 43,000
Cash losses due to theft and embezzlement 3 50,000
Donations 4 100,000
Foreign exchange loss 6 170,000
Insurance premium 90,000
100
Note RM RM
Legal and professional fees 7 28,000
Repair and maintenance expenses 8 68,000
Salaries and wages 9 5,832,000
Travelling expenses 79,000 (6,556,000)
Profit before tax 30,974,000
Notes:
1) The cost of sales includes depreciation of RM26,000 in respect of the factory and
plant and machinery.
2) The other income derived from a rent out the property.
3) This figure includes an amount embezzled of RM20,000 by one of the directors. A
police report was lodged but was dismissed.
4) OSB contributed building materials worth RM100,000 to an approved charitable

institution.
5) Entertainment expenses comprise: RM

Gifts without a business logo for a customer’s annual dinner 50,000
Entertainment of employees of related companies 8,000
Entertainment of director’s family 38,000
96,000
6) The foreign exchange loss comprises: RM

Foreign exchange loss realized on trade payables 180,000
Foreign exchange gain realized on the purchase of machinery (10,000)
Total 170,000
7) Legal and professional fees comprise: RM

 Cost of defending legal proceedings brought by former employees 10,000
claiming unjust dismissal
 Tax fees for appealing against a penalty on a late instalment tax 12,000
payment
 Company secretarial fees 6,000
Total 28,000
8) Repair and maintenance expenses include the costs of installing a ramp to provide
access for special needs staff for RM3,000.
9) Salaries and wages include:
Leave passage – a local trip for staff and managing director RM20,000
Salaries for special needs staff RM500,000
Salaries for directors RM2,000,000
EPF contributions for directors RM380,500
10) OSB’s capital allowances have been computed at RM2 million for the year of
assessment 2020.
101
Required:
i. List THREE (3) expenses entitled to a double deduction for One Sdn. Bhd. (OSB) year
of assessment 2020 (not necessarily charged in the above Statement of
Comprehensive Income). (3 Marks)
ii. Compute the chargeable income of One Sdn. Bhd. for the year of assessment 2020.
(20 Marks)
Tutorial 3-6
Printcopy Marketing Sdn. Bhd., a company trading in printing equipment, prepared its
profit and loss account for the year ended 31 December 2020 as follows:
Printcopy Marketing Sdn. Bhd.

Income Statement For the year ended 31 December 2020
Notes RM RM
Sales 1,337,500
Less: Cost of sales 1 (450,000)
887,500
Less:
Salaries and wages 2 138,650
Staff welfare 3 37,000
Freight and insurance 107,500
Travelling and entertainment 4 65,000
Advertising 34,050
Rental 5 69,700
Repairs and maintenance 35,000
Legal and Professional Fees 6 19,050
Miscellaneous expenses 7 108,000 (614,450)
273,050
Other Income:
Rental income from shop house 29,700
Gain from disposal of shares 34,600 64,300
Net Profit Before Taxation 337,350
Notes:

a. Depreciation amounting to RM45,000
b. Three units of printing equipment from the opening stock were transferred
to company’s fixed assets. The cost price for the three units was RM75,000
and the normal selling price is RM90,000.
2. Included in salaries and wages was a monthly salary of RM1,700 to a physically

special needs person who was employed as a clerk for 11 months.
102
3. Staff welfare comprises:
a. Staff medical and dental benefits are RM15,000
b. Personal loan to employees written off is RM10,000
c. Payment of child care allowance to the employees is RM12,000
4. Travelling and entertainment:

a. Business entertainment to expense customers RM20,000
b. Business entertainment to expenses suppliers RM12,000
c. Entrance fee to a club for the managing director RM15,000
5. Included in rental are:

a. Rental for warehouse (3 months from 1/11/20 – 31/1/21) RM15,000
b. Rental of motor vehicles RM34,500
6. Legal and professional fees include:

a. Secretarial fees of RM15,500.
b. Payment for stamp duty of rental agreement for shophouse of RM2,300
c. Fine of RM1,000 imposed on the company for overloading a van
7. Miscellaneous expenses comprise:

a. Stamp duty on increase in authorized share capital RM3,000
b. Approved cash donation (RM17,000 for the public library) RM27,000
8. Fixed assets:
Qualifying Residual Expenditure as Annual

expenditure as on on January 1, 2020 Allowance Rate
January 1, 2020 %
Plant & Machinery RM100,000 RM66,000 14
Motor Vehicles RM450,000 RM270,000 20
Office Equipment & RM350,000 RM245,000 10
Furniture
9. On 1st January 2020, paid-up share capital of Printcopy Marketing Sdn. Bhd.
amounted RM3.5 million.

Compute the tax payable by Printcopy Marketing Sdn. Bhd. for the year assessment 2020.
(25 Marks)
103
Tutorial 3-7
Rattan Creation Sdn Bhd (RCSB) operates as a manufacturer of high-quality rattan
furniture for local and international market since 2005. The company started its business
with paid-up capital RM10 million. The company’s income statement for the year ending
31 December 2020 is as follows:
RATTAN CREATION SDN. BHD.

Statement of Comprehensive Income for the year ended 31 December 2020
Note RM’000 RM’000
Sales
(-) Cost of Sales:
Opening stock 2,500
Cost of goods manufactured 1 15,775
18,275
(-) Closing stock (1,900) (16,375)
Gross profit 15,175
(-) Expenses
Salary 1,950
Advertisement 730
Repairs and maintenance 2 450
Donation 3 910
Miscellaneous expenses 646
Loss on disposal of fixed asset 70
Provisions for doubtful debts 4 510
Interest on loan 182
Travelling and entertainment 428
Professional fees 5 250
Foreign exchange loss 6 144 6,270
8,905
(+) Other income 7 128
Profit before taxation 9,033
Notes:
1. Cost of goods manufactured includes :
Depreciation of machine RM400,000
Payment for the use of services of an approved research institute RM150,000
Insurance premium paid to a local insurance company for RM 50,000
imported raw material
2. The following are the information related to the factory building at 1 January 2020 :
Residual Annual Allowance

Cost
Expenditure Rate (%)
Factory Building RM4,000,000 RM3,120,000 3
Included in Repair and Maintenance, renovation cost to the factory building to

increase the rattan furniture production RM240,000
104
3. Donation comprise :
 Contributions in terms of facilities for handicapped person in public use is

RM100,000
 Donation in term of monetary for local authorization (receipts are disclosed) is
RM810,000
4. Provision for doubtful debt comprises :
General provision for doubtful debt RM100,000

Specific provision for doubtful debt RM310,000
Bad debts written off RM100,000
RM510,000
5. Professional fees:
Legal fees incurred on trade debt recovery RM80,000

Stamp duty on increase in authorized share capital RM30,000
RM110,000
6. Realized foreign exchange loss comprises :
Loss arising from payments to foreign suppliers of raw material RM60,000

Loss arising from payments to foreign suppliers for purchasing RM84,000
machine
RM144,000
7. Other income comprises :
Discount receivable from suppliers of raw material RM42,000

Interest charged on trade debtors for late payment of accounts RM35,000
Dividend RM51,000
8. Capital allowances for the year assessment 2020 is RM840,000

(excluded Note No. 2).

Compute the tax payable of Rattan Creation Sdn Bhd for the YA 2020. (25 Marks)
105
Tutorial 3.8
Lingo (M) Sdn. Bhd. was incorporated in Malaysia on 8 October 2010 with authorized
share capital of RM3,000,000. It commenced its business of food manufacturing on 1
January 2011 with paid-up capital of RM2,600,000.
The company’s income statement for the year ended 31 December 2020 is as follows:
Lingo (M) Sdn. Bhd.

Notes RM RM
Turnover 1,080,020
Less: Cost of sales 526,690
Gross profit 553,330
Add: Dividend Income 1 17,600

Interest Income 2 450
571,380
Less: Expenses
Audit Fees 1,500
Depreciation 17,770
Marketing and promotions 3 9,500
Rental of premises 24,000
Staff annual dinner 3,800
Staff costs 4 389,800
Sundry expenses 5 22,710
Travelling expenses 6 15,280 484,360
Profit before tax 87,020
Notes:
1. Dividend income RM
Dividend from Malaysian resident company (net) 15,000
Dividend from co-operative society 2,600
17,600
2. Interest income RM
Fixed deposit interest from Hong Long Bank 300
Interest charged on trade debtors for late payment 150
450
3. Marketing and promotions RM

Cost of promotional samples of products 3,500
Lucky draw prizes for customers (with companies logo) 6,000
9,500
4. Staff costs include:

(a) Remuneration of a special needs employee amounting to RM9,600.
(b) Contribution to EPF at the rate of 21% for the general manager whose
remuneration for the year 2020 was RM120,000.
(c) Staff entertainment allowance of RM7,200.
106
5. Sundry expenses include:
(a) Annual fee to trade association of RM350.

(b) Cash donation to the approved organization of RM3,000.
(c)Cash donation to the unapproved organization of RM1,000.
6. Travelling expenses
The travelling expenses include overseas leave passage for directors costing RM6,000.
Capital allowance YA 2020 is RM32,600 and unabsorbed loss b/f 2019 is RM30,000

Calculate tax payable by Lingo (M) Sdn. Bhd. for the year assessment 2020. (25 Marks)
Tutorial 3-9
Tip Top Sdn. Bhd. is engaged in the manufacture of tyres with paid-up capital RM3 million.
The company’s profit and loss account for the year ended 31 December 2020 shows the
following:
Note RM RM
Sales 1,450,550
Gross profit 836,150
Less: Expenses
Salaries, wages and EPF 2 78,000
Legal expenses 3 14,000
Repair and maintenance 4 32,000
Depreciation 80,000
Annual General Meeting Expenses 5 19,000
Donations 6 60,000
Export Credit Insurance Premiums 7 17,000
Penalty on late submission of tax 10,000
return
Provision for doubtful debts 5,000 (315,000)
(specific)
Profit before taxation 521,150
Notes:
1. Included in cost of sales is the provision of warranty claims for faulty tyres in respect
of claims not yet settled RM27,000
2. Salaries, wages and Employee Provident Fund (EPF) include in the sum of RM12,000
paid to a manager whom special needs.
107
3. Legal expenses comprise:
 Legal cost on trading goods lost in transit RM6,000
 Legal expenses to obtain a new trading license RM8,000
4. Repair and maintenance consist of an extension to the company existing factory

amounting RM32,000.
5. Annual general meeting (AGM) expenses were in respect of postage notice of meeting
and cost of printing directors’ report and accounts.
6. The following donations were made:

 To an approved public library RM33,000
 Sports equipment for an activity approved by Minister RM10,600
 Business zakat RM14,800
 Cash for State Government RM1,600
7. Export credit insurance is from company approved by the Minister of Finance.
For the year 2020, capital allowances in respect of a business fixed assets were RM84,500.

Calculate the tax payable for the Tip Top Sdn. Bhd. for the year of assessment 2020.
(25 Marks)
Tutorial 3-10
a) Identify these companies residential status :
No The company was Management and control STATUS

registered in : are an exercise in : (Resident/Non-
Resident)
1. Malaysia Japan
2. Malaysia Malaysia
3. Taiwan German
4. Indonesia Malaysia
5. Japan South Korea
(5 marks)
108
b) First Buck Sdn Bhd (FBSB) was incorporated on 1 January 2009 and commenced its
operation with an authorized and paid up share capital of RM3,000,000. FBSB is a
manufacturing company and prepares its account annually on 31 December.
Below is the Statement of Comprehensive Income for the year ended 31 December
2020.
First Buck Sdn Bhd (FBSB)

Not RM RM
e
Sales 46,002,000
Less : Cost of sales (25,002,000)
GROSS PROFITS 21,000,000
Add : Other Income
Bad debt recovered 50,000
21,050,000
Less : Expenses
Audit fee 30,000
Company secretarial fee 23,000
Staff cost 1 5,782,300
Provision for doubtful debt 2 130,000
Repair and maintenance 3 167,000
Donation 4 236,700
Advertisement 6 470,000
Depreciation 2,600,000
Travelling expenses 7 390,000
Certification expenses 8 26,000
Cash losses due to theft and embezzlement 9 55,000 (10,100,000)
PROFIT BEFORE TAX 10,950,000
Notes to the account :
1. Staff costs including remuneration for Razali whom senior citizen permanent staff, age
61 years. His monthly salary was RM3,000 per month starting February 2020.
2. General provision for doubtful debt during the year is 10% from trade receivable
account. The trade receivable account’s balance on 31 December 2019 is RM950,000.
3. Included in repair and maintenance expenses is an amount of RM8,000 which related

to a damaged office glass door.
4. Donations comprises from:

 Gift of money to State Government RM180,000
 Business zakat RM56,700
109
5. Entertainment expenses comprises of:
 Annual dinner for staff RM102,000
 Reimbursement to marketing staff (spent on the customers) RM88,000
6. RM275,000 of advertisement expenses spent during the product promotion in Seoul,

South Korea.
7. Travelling expenses including holidays fees for senior management personnel families
to Bali, Indonesia amounted RM11,000.
8. Certification expenses include the payment made for HALAL certification amounted
RM10,000.
9. A former accountant was caught for the theft and embezzlement and a police report
was made.
 Brought forward loss of RM920,000 from the year of assessment 2019
 Current capital allowance is RM1,300,000

Compute the chargeable income of First Buck Sdn Bhd for the year of assessment 2020.
(15 Marks)
c) Categorize the following item into allowable expenses and non-allowable expenses.
i. Monthly birthday party expenses for all staffs.
ii. Legal fees for obtaining a new loan facility.
iii. Legal fees for handling income tax appeal.
iv. Legal fees for collecting trade debts
v. Annual company’s general meeting expenses. (5 Marks)
d) Estimate the tax payable amount for the year of assessment 2020 if the chargeable
income for Mesra Bhd is RM2,900,000 according to these circumstances:
i. when the paid-up share capital is RM1,500,000

ii. when the paid-up share capital is RM3,500,000
at the beginning of the basis period for the year of assessment. (5 Marks)
110
POST QUIZ 3 : COMPANY TAXATION
Indera Sempurna Steel Sdn. Bhd, a steel based manufacturing company, reports the
following financial information for the year 2020.
Indera Sempurna Steel Sdn. Bhd.

Statement Of Comprehensive Income For The Year Ended 31 December 2020
NOTES RM RM
Sales 1,612,000
Add: Other Income 2 75,000
Less: Expenses
Selling & Distribution 3 444,000
Administrative 4 275,000
Finance 5 98,750
Other 42,250 860,000
Net Profit 257,500
1. Cost of sales includes insurance premium from Malaysian’s insurance company for
imported goods cost RM17,500.
2. Other income includes RM30,000 profit on disposal of asset and RM45,000 from the
rental of machines.
3. Selling and distribution expenses includes:

 salaries for special needs workers cost RM48,000
 annual dinner for the staff of RM20,000
 entertainment of supplier for RM30,500
 employee’s salary and bonus RM245,700
 EPF contribution RM49,800
4. Administrative expenses includes:

 Cash donations to the National Heart Foundation (approved) cost RM10,500
 Donations to an employee who had an accident cost RM9,000
 Audit and accounts services of RM8,500
 Company secretarial fees of RM9,800
 Expenses on research and development cost RM14,700
5. Include in finance expenses is:

 RM12,500 for the provision of foreign exchange loss on the stock
 RM6,000 bad debts for one of the directors of the company
111
In the year 2020, capital allowance for the assets is RM54,300 while balancing charge is
RM13,700.
You are required:

a) Calculate income tax payable of Indera Sempurna Steel Sdn. Bhd. for the year of
b) Calculate income tax payable of Indera Sempurna Steel Sdn. Bhd. for the year of
assessment 2020 if the company’s paid-up capital as at 1st January 2020 was
RM1,645,000. (5 Marks)
c) As expertise in taxation, proposed TWO (2) double deduction expenses that can be
claimed by companies that are not included in the above questions.
(5 Marks)
112
4 CHAPTER 4 : REAL PROPERTY GAIN TAX (CLO 1 & CLO 2)
OBJECTIVES :
 Definition of RPGT,
 Chargeability of RPGT.
 The treatment of gift.
 Allowable loss and loss relief
 Private residence exemption
PRE QUIZ 4-1 : REAL PROPERTY GAIN TAX
1) Define land in the meaning of RPGT Act 1976. (3 Marks)
2) Date of sale and purchase agreement is 1.2.2020. Date of completion of the disposal is
1.3.2020. Determine the disposal date? (2 Marks)
3) Date of sale and purchase agreement is 1.7.2020, meanwhile the accounting year end
is 30.4.2020. Determine the acquisition date? (2 Marks)
4) Show the format how to compute the Disposal Price. (5 Marks)
5) Show the format how to compute the Acquisition Price. (5 Marks)
4.1 INTRODUCTION
Real Property Gains Tax (RPGT) is a form of capital gains tax which is imposed on the
disposal of an interest in real property in Malaysia. The acquisition and sale of real
property can be construed as a trade or a business and be subject to income tax. However,
if the transaction is not considered to be a business for income tax purposes, then RPGT
would be applicable. RPGT is governed by RPGT Act 1976.
4.2 CHARGEABILITY
RPGT is chargeable on capital gains made on the disposal of real property (referred to as
chargeable asset). The charging section under the RPGT Act is S.3 and it provides that the
RPGT is charged on a chargeable gain accruing on the disposal of any chargeable asset by a
chargeable person in a year of assessment.
113
4.3 CHARGEABLE ASSET
The term “real property” is defined as “any land situated in Malaysia and any interest,
option or other right in or over such land”. Land includes;
Land Explanation
The surface of the earth and
For example, land includes any clay deposits (with
all substances forming thatcommercial value for the making of bricks) found
surface on the land.
The earth below the surfaceIf a piece of land is found to contain oil, minerals or
and substances therein other valuable substances, the gross sale value of
such land, including the value of such deposits, will
be the disposal value subject to RPGT.
Buildings or structures A piece of land with a building put up on it will
attached to land include the land, the building erected, and anything
permanently fastened to the building – for example,
air-conditioning systems, solar panels etc.
Standing timber, crops and If teak trees or rice or any other crops are planted
other vegetation growing on the land, they form part of land. The operative
on land; and word is ‘standing’. Thus, if the crop is
felled/harvested and sold, there is no disposal of
land, neither does the felled/harvested crop
constitute part of land.
Land covered by water. A piece of land with lakes, rivers or disused mining
pools on it would include such water bodies.
4.4 WHO IS CHARGEABLE (Section 6 & Schedule 1 of the RPGT Act 1976)
Every person whether resident or non-resident in Malaysia, is chargeable in respect of

any chargeable gains he has made on the disposal of a chargeable asset. The “person”
includes a company, a partnership, a body of persons, limited liability partnership
and a corporation sole.
4.5 DATE OF DISPOSAL AND DATE OF ACQUISITION
The year of assessment for RPGT would be on the current calendar year. The disposal of
an asset shall be deemed to take place:
1) Where there is an agreement for disposal or acquisition, on the date of such

agreement,
2) Where there is no agreement, on the date of completion (fully payment) of the
disposal of the asset,
3) In the case of conditioned contracts, the disposal date is the date of the contract.
In the case where a contract is revoked but subsequently renewed, the date of
disposal is the date when the contract was renewed,
4) The acquisition of an asset by an acquirer shall be deemed to coincide with the
date of disposal of that asset by the disposer to the acquirer.
114
Example 4-1
Date of Sale and Purchase Agreement is 1.11.2020. Date of completion of the disposal is
1.1.2021. Determine the disposal date?
Date of disposal is 1.1.2020, thus will take YA2020 into consideration. (based on the
calendar year)
4.6 TAX RATES (w.e.f 1.1.2019)
Disposal Companies Individuals / Individuals

Incorporated in Partnership (Non-Citizen/Non-
Malaysia or Trustee (Citizens and Permanent Resident or a
of a Trust Permanent Company Not Incorporated
Residents) in Malaysia)
Within 3 years 30% 30% 30%
Within 6 years
and subsequent 10% 5% 10%
years
Example 4-2
Harraz purchased a semi-detached house in Bertam Perdana and signed a Sale & Purchase
Agreement on 1.5.2016. However, on 1.2.2020, he had to move to Kuala Lumpur and sold
his house to Sarrah on 1.4.2020.
Determine the holding period and RPGT rate if he is a resident and non-resident.
(5 Marks)
Solution for Example 4-2 :
Harraz : YA2020
a) Resident
Date of Acquisition : 1.5.2016 1.5.2016 – 30.4.2017 ---- 1 year
Date of Disposal : 1.10.2019 1.5.2017 – 30.4.2018 ---- 1 year
1.5.2018 – 30.4.2019 ---- 1 year
1.5.2019 – 1.4.2020 ---- 11 months
3 years 11 months
(considered within 4 years, RPGT Rate = 20%)
b) Non –Resident (considered within 4 years : RPGT Rate = 30%)
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PRE QUIZ 4-2 : REAL PROPERTY GAIN TAX
Encik Qalis is Malaysian citizen. He signed the Sales and Purchase Agreement on 1st April
2015 in order to purchase the residential house amounted RM417,000. However, the
ownership transfers completely on 1st Mac 2016. The incidental cost for Encik Qalis
incurred on acquisition are Legal Fee RM2,500 and Stamp Duty RM4,500.
On 1st May 2016, he made a renovation to the house cost, RM63,000. Besides that, he also
paid for the legal fee in defending the title to the house amounted RM3,000 when the
former owner claimed back the house.
In period of the ownership the house, Encik Qalis has received the:
 Compensation from the housing developer company amounted RM5,000 for the
cause of damages from the construction of the playground.
 In 2016, Encik Qalis’s house was flooded but insured by the insurance company,
and he received RM6,000.
On 1st January 2020, Encik Ahmad would like to purchase the house for RM520,000. Encik
Ahmad paid the deposit amounted RM2,000. However, Encik Ahmad changed his mind
and the deposit was aborted.
On 26th January 2020, a new buyer, Encik Abu agreed to pay an amount of RM560,000 the
house. The agreement was signed on 1st March 2020. The incidental cost for the disposal
process were Legal Fee RM4,000 and advertisement cost amounted RM1,600.
a) Compute the RPGT for Encik Qalis if he is resident for the YA 2020. (20 Marks)
b) Compute the RPGT for Encik Qalis if he is non-resident for the YA 2020. (5 Marks)
4.7 DISPOSAL PRICE
The disposal price of an asset is the consideration received less any of the following
expenses:
1) Expenses wholly and exclusively incurred in enhancing or preserving the value of

the asset such as renovations, improvements, extensions and cost of construction of
building on the land
2) Expenses incurred, after acquiring the asset, in respect of preserving or defending
the title of the land,
3) Incidental expenses relating to the disposal of real property such as brokerage fees,
valuation fees, commissions, legal fees, advertisement cost to seek a buyer of the
property.
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Example 4-3
Hello Sdn. Bhd. disposed of a chargeable non-commercial asset on 3.3.2020 (date signing
the Sales & Purchase agreement) for consideration of RM1,250,000. The disposal price is
arrived at as follows:
Date of Disposal : 3.3.2020 (YA2020) RM RM

Consideration received 1,250,000
Less : Para 5(1)(a) : Alterations and extensions 90,000
Para 5(1)(b) : 35,000
Legal expenses for protection of title of asset
Para 5(1)(c) : Incidental expenses 16,000 (141,000)
(stamp duty/Advertising/legal fee/others)
DISPOSAL PRICE OF ASSET 1,109,000
4.8 ACQUISITION PRICE
The acquisition price of an asset is the consideration paid plus any incidental costs or
expenses that are relevant such as: Fees, commissions, remuneration paid for professional
service, e.g. accountants, lawyers, surveyors, architects, costs of transfer, e.g. stamp duty
and cost of advertising to attract (find) sellers. Any revenue expenses that can be
claimed under ITA 1967 will not rank for deduction in arriving at the acquisition price,
such as interest on money borrowed to buy the property. Sch. 2, Paragraph 4 also
provides that in computing the acquisition price, the following receipts must be deducted:
1) Compensation or similar receipts for any damage, injury or destruction to the
asset,
2) Receipts under an insurance policy for any damage, injury to the asset, and
3) Any deposits forfeited in respect of the asset.
Example 4-4
Al Quyyum Sdn. Bhd. acquired a non-commercial property in 1.1.2020 for consideration of
RM600,000. The acquisition price, taking into consideration incidental costs and
deductions, is computed as follows:
Date of Acquisition : 1.1.2020

RM RM
Total Consideration paid 600,000
Add : Incidental Costs
Professional fees (valuer, lawyer) 4,000
Stamp Duty 12,000
Other costs – advertising 5,000 21,000
621,000
Less : Capital Receipts
Para 4(1)(a): Compensation for damage of asset by 82,500
developer
Para 4(1)(b): Insurance recovery 243,000
Para 4(1)(c): Deposits forfeited by potential buyer 8,000 (333,500)
ACQUISITION PRICE OF ASSET 287,500
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4.9 CHARGEABLE GAINS
Chargeable gains = Disposal Price > Acquisition Price

Allowable loss = Disposal Price < Acquisition Price
> more than , < less than
Real property gains tax is computed on a scale rate depending on the length of ownership
of the chargeable income.
Example 4-5
House 1 House 2
Disposal Price RM700,000 Disposal Price RM550,000
Acquisition Price RM500,000 Acquisition Price RM700,000
Chargeable Income Allowable Loss

= RM700,000 – RM500,000 = RM200,000 = RM550,000 – RM700,000 = RM150,000)
4.10 FORMAT FOR COMPUTATION OF RPGT
COMPUTATION OF RPGT INDIVIDUAL/COMPANY FOR YA 2020

Date of Acquisition (Purchased) : xx/xx/xx (refer to sub 4.5)
Date of Disposal (Sold) : xx/xx/xx (refer to sub 4.5)
RPGT Rate (refer to sub 4.6) : (resident or non-resident)/Individual or Company)
DISPOSAL PRICE (refer to sub. 4.7) RM

Received from disposal xx
Less (-) :
Paragraph 5(1)(a) :
Expenses wholly and exclusively incurred, in enhancing or preserving the value of (xx)
the asset, such as alterations, improvements and extensions.
Paragraph 5(1)(b) :
Expenses incurred in defending the title to the asset. (xx)
Paragraph 5(1)(c) :
Incidental expenses on disposed such as fees, commissions, professional fees to
accountants, lawyers, surveyor’s architect, cost of transfer (including stamps
duties**), advertising costs to find purchasers and costs of any valuation or market (xx)
value.
DISPOSAL PRICE (DP) XXX
ACQUISITION PRICE (refer to sub. 4.8)

Payment for acquisition xxx
Plus (+) : Incidental Expenses on purchased
Lawyer’s fees, commissions, remuneration paid for professional services of xx
accountants, surveyors, value architects, Expenses of transfer (including stamp
duty), Costs of advertising (if paid up by buyer), Quit Rent & Tax Assessment and etc.
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COMPUTATION OF RPGT INDIVIDUAL/COMPANY FOR YA 2020
Less (-) :
Paragraph 4(1)(a) :
Compensation or receipts for any damage or injury, destruction, dissipation, (xx)
depreciation or risks of depreciation of the chargeable asset
Paragraph 4(1)(b) :
Insurance recoveries for any damage or injury (xx)
Paragraph 4(1)(c) :
Deposits forfeited, if any in respect of an cancelled sale of an asset (xx)
ACQUISITION PRICE (AP) XXX
CHARGEABLE GAINS [Disposal Price (DP) – Acquisition Price (AP)] (refer to sub. 4.9) A
(-) Exemptions [10% from A or RM10,000 (higher)] * (refer to sub. 4.12) (10,00
(individual only) 0)
CHARGEABLE GAINS B
RPGT = Chargeable Gain (A or B) x RPGT Tax Rate XXX
(-) Loss Relief b/f from 31.3.2007 until 31.12.2009
RPGT (net)
* Exemption for individual on or after YA 2010 (w.e.f on 1.1.2010) – RM10,000 or 10%

x CI (higher)
* A = Chargeable gain for company * B = Chargeable gain for individual
** Stamp Duty will be increased from 3% to 4% on disposal price (if more than RM1
Million) – w.e.f YA 2019
Example 4-6
Puan Noorul (individual) has disposed her house and the disposal information as below;
RM
Disposal Price 700,000
(-) Acquisition Price (550,000)
Chargeable Gain 150,0000
(-) Exemption (RM150,000 x 10% = RM15,000 or RM10,000 – (15,000)
higher)
CHARGEABLE GAIN (net) 135,000
If Noorul Sdn. Bhd. (company – no exemption)
RM
Disposal Price 700,000
(-) Acquisition Price (550,000)
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4.11 ALLOWABLE LOSS AND LOSS RELIEF
4.11.1 Allowable Loss (b/f from 1 January 2010 – after RPGT exemption)
Refers to a situation where the acquisition price of a chargeable asset is higher than the
disposal price (Disposal Price < Acquisition Price).
Both the disposer and acquirer are required to submit a tax return form (CKHT 1 and
CKHT 2) even when there is no chargeable gain and no RPGT payable from the disposal.
The form must be submitted to the IRB within 60 days of the disposal date. The
submission is important to ensure that the allowable loss can be set off against future
RPGT payable of the disposer.
With effect from 1 January 2010, allowable loss from disposal of real property would
allowed to be set off against the chargeable gain from another disposal either in the same
YA or following YA till it fully utilized.
4.11.2 Loss Relief (b/f from 1 April 2007 till 31 December 2009)
Where there is an allowable loss in respect of a disposal, a tax relief shall be allowed.
The tax relief is calculated by taking the amount of the allowable loss, multiplied by the
rate of tax applicable based on the length of ownership before disposal. The relief given as
a deduction from the total RPGT. Any unabsorbed tax relief for losses may be carried
forward to future year indefinitely.
Example 4-7 (disposed within 5th years)
In 15.04.2016, Puan ABA had purchased a piece of land in Seremban for RM1,000,000 with
transferred cost amounted to RM24,000. She disposed a land in 10.02.2019 for
RM1,000,000. Cost of renovation RM250,000 and incidental cost during disposal is
RM11,400. Apart from that she also obtained fire insurance fund amounted to RM62,600.
Puan ABA also disposed a land at Jitra for RM500,000 on 12.3.2019 which she bought on
1.2.2015 for RM150,000.
You are required to compute the RPGT for Puan ABA. Puan ABA informed you that she has
RPGT loss relief brought forward from 31 March 2008 amounting RM20,000.
Solution for Example 4-7 :
Land in Seremban Land in Jitra

Date of Acquisition : 15.4.2016 Date of Acquisition : 1.2.2015
Date of Disposal : 10.2.2019 Date of Disposal : 12.3.2019
15.04.2016 – 14.04.2017 1.2.2015 – 31.1.2016
15.04.2017 – 14.04.2018 1.2.2016 – 31.1.2017
15.04.2018 – 10.02.2019 1.2.2017 – 31.1.2018
2 years 10 months = considered within 3 years 1.2.2018 – 31.1.2019
[RPGT rate = 30%] 1.2.2019 - 12.3.2019
4 years 1 month + = considered within
5 years
[RPGT rate = 15%]
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RPGT for Puan ABA : YA2019
Land in Land in
Seremban Jitra
RM RM
Received from disposal 1,000,000 500,000
(-) Para 5(1)(a) : Renovation cost 250,000
(-) Para 5(1)(c) : Incidental cost 11,400
DISPOSAL PRICE 738,600 500,000
Payment for acquisition 1,000,000 150,000

(+) Incidental Expenses: Transferred cost 24,000
1,024,000
(-) Para 4(1)(b): Fire insurance (62,600)
ACQUISITION PRICE 961,400 150,000
(Allowable Loss) / Chargeable Gain (222,800) 350,000

(-) Exemption
[10% x RM350,000 = 35,000 @ RM10,000] higher (35,000)
Chargeable Gain 315,000
(-) Allowable Loss for YA 2019 **(222,800)
RPGT rate 15%

RPGT Payable [92,200 x 15%] 13,830
(-) Loss relief b/f 31.3.2008 (RM20,000 – restricted to) (13,830)
RPGT payable (Net) 0
Balance RM20,000 – RM13,830 = RM6,170

** Any unabsorbed allowable loss or tax relief for losses may be carried forward to future
year indefinitely.
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4.12 EXEMPTIONS OF REAL PROPERTY GAINS TAX
1. Exemptions under the RPGT Act 1976 :

a) An individual will be given an exemption equal to RM10,000 or 10% of the
chargeable gain, whichever is greater.
b) Transfer by way of security in or over an asset.
c) With effect from 1.1.2019, disposal of low cost, medium low and affordable
residential homes of RM200,000 and below, in the 6th and subsequent years.
d) Disposal of assets to REITs and Property Trust Funds.
e) An individual who is a Malaysian citizen or a permanent resident will be given an

once-in-a-lifetime exemption on any chargeable gain arising from the disposal
of his/her private residence if he/she elects in writing for the exemption to apply
to that private residence. Effective from 1.10.2005 (in budget 2006), a once in a
lifetime RPGT exemption on residential property can be given to husband and
wife on their own residential property. The conditions are attached to such
exemption:
i. The individual must be a citizens or permanent resident of Malaysia.
ii. The real property ,must be a residential property or part of the building is
used for residence
iii. The residential building is occupied / rented / fit for occupation
iv. The disposer had not elected for the exemption prior to this as the
exemption is only available once in a life time.
2. Transactions in which the disposal price is deemed equal to acquisition price (i.e. “No
gain no loss” transactions) — per Para 3 Sch. 2 of the RPGT Act 1976:
a) Devolution of a deceased person’s assets to his trustee or legatee.
b) Transfer between spouses.
c) Transfer between an individual and a nominee who has no vested interest in the
assets.
d) Gifts to the Government, local authority or charity exempt from income tax.
e) Disposal due to compulsory acquisition.
f) Disposal of chargeable assets pursuant to an approved financing scheme which is in
accordance with Syariah principles, where such disposal will not be required for
conventional financing schemes.
3. Gifts are deemed to be “No gain no loss” transactions, provided that the donor is a
citizen of Malaysia.- per Sch. 2 Para 12 of the RPGT Act 1976. Gift between:
a) husband and wife
b) parent and child or
c) grandparent and grandchild
4. Transfers between companies ; per Para 17 Sch. 2 of the RPGT Act 1976:
a) Transfers within the same group to bring about greater efficiency and for a
consideration consisting substantially of shares in the transferee company.
b) Transfers between companies for the purposes of reorganisation, reconstruction
or amalgamation where the transferee company is being restructured to comply
with the Government’s policy on capital participation in industry.
122
c) Assets distributed by a liquidator under a scheme of reorganisation,
reconstruction or amalgamation where the transferee company is being
restructured to comply with the Government’s policy on capital participation in
industry.
5. Stimulus package titled “Pelan Jana Semula Ekonomi Negara” or “PENJANA” is primarily
aimed at helping businesses recover from the impact of COVID-19. The advantage on
RPGT is:
a) Gains arising from disposal of residential properties by Malaysian citizens between
1 June 2020 to 31 December 2021 will be exempted from RPGT. Such exemption is
given up to three (3) residential properties per individual.
b) Home Ownership Campaign (HOC) will be reintroduced. Under this campaign, the
following stamp duty exemption will be given:
 On the instruments of transfer – on the first RM1,000,000 of the residential
property value;
 On the loan agreement – full exemption.
The conditions for exemption are:

 The residential properties must be valued between RM 300,000 and RM
2,500,000
 The sales and purchase agreement (SPA) must be executed between 1
June 2020 and 31 May 2021
 Property developer participating in this HOC must provide at least 10%
discount for the property
4.13 TREATMENTS OF GIFTS
In a situation where a gift is made and the donor and the done are related, i.e husband
and wife, parent and child, or grandparent and grandchild, and donor is Malaysian
citizen, the donor is deemed to have received no gain and suffered no loss and therefore
any gains will be exempted from RPGT.
The beneficiary is deemed to acquire the asset at the donor’s acquisition price plus all the
permitted expenses incurred by the donor.
If the donor is not a citizen or permanent resident of Malaysia, the asset transferred would
be deemed disposed at market value on the date of transfer. As a result, the beneficiary
is deemed to have acquired the chargeable asset at market value on the date of transfer.
Furthermore, if the chargeable asset is acquired as a gift up on the death of the donor, the
recipient (beneficiary) is deemed to acquire the asset at its market value as on the date of
transfer of ownership of the asset to the recipient.
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Example 4-8
On 4.3.2020, Encik Halim who is Malaysian citizen gave his daughter, Amy, one of his
houses which he purchased on 1.8.2014 for RM190,000. Stamp duty RM10,000 and legal
fees RM2,500 incurred during the acquisition. Encik Halim incurred a renovation of
RM3,700. The market value of the house on 4.3.2020 was RM210,000.
Advice the RPGT implication to both parties.
Since it was a gift from the parent to his child, and Encik Halim is Malaysia citizen, there
is no chargeable gain or allowable loss from the transfer of the above property.
RM RM
Consideration paid 190,000
Add : Stamp duty 10,000
Legal fees 2,500 12,500
202,500
Permitted expenses: Renovation 3,700
The acquisition price to Cik Amy is therefore RM206,200.

= Acquisition price of donor + Permitted expense of donor
= RM202,500 + RM3,700
= RM206,200
If Cik Amy obtained the property as a gift up to the death of her father, the acquisition
price to her would be the market value on the date of transfer of ownership of the
property to her, that is RM210,000.
Example 4-9
Qamariah is Malaysian cirizen. She sold the following properties over the years :
1) House
This property was sold for RM160,000 on 4.5.2020. Qamariah has to pay RM3,200
for stamp duty and RM200 for advertising in find the buyers. It was purchased for
RM60,000 on 9.3.2017. Legal fees of RM500 were incurred in connection with the
purchase. Stamp duty on purchase was RM2,000. In 2017 an extension to the house
was built at a cost of RM50,000. On 5.8.2017, Qamariah received the sum of
RM80,000 as compensation for damages caused to the house.
124
2) Residential house
This property was sold for RM520,000 on 14.8.2020. Qamariah incurred expenses as
follows:
RM
Cost of purchase on 7.8.2018 RM410,800
Stamp Duty on purchase RM6,000
Renovation Cost RM40,000
Installed Built in Furniture RM10,000
Advertising for buyer RM300
Received (from insurance company) RM15,000
Quit rent and assessment (2018-2020) RM600
3) Non-Commercial Land
This non-commercial land was sold for RM90,000 on 10.3.2020. It was purchased for
RM130,000 on 5.10.2018 and the construction of building costs RM35,000 was
incurred on 5.12.2018.

a) Compute the RPGT payable, if any, by Qamariah on the disposal of properties.
(25 Marks)
COMPUTATION OF RPGT FOR QAMARIAH : YA 2020

House Residential Land
House
Date of Acquisition 9.3.2017 7.8.2018 5.10.2018
Date of Disposal 4.5.2020 14.8.2020 10.3.2020
RPGT Rate Within 4 Within 3 years - Within 2
years -20% 30% years - 30%
Disposal Price 160,000 520,000 90,000

(-) Para 5(1) (a) :
Extension (50,000)
Renovation Cost (40,000)
Built in Furniture (10,000)
Construction of Building (35,000)
(-) Para 5(1)(c) :
Stamp Duty (3,200)
Advertising (200) (300)
DISPOSAL PRICE 106,600 469,700 55,000
House Residential Land

House
Acquisition Price 60,000 410, 800 130,000
(+) Stamp Duty 2,000 6,000
Quit Rent and Assessment 600
125
(-) Para 4(1)(a): Compensation (80,000)
Para 4(1)(b): Received from (15,000)
Insurance
ACQUISITION PRICE (18,000) 402,400 130,000
CHARGEABLE GAIN/LOSS 124,600 67,300 (75,000)
(-) Allowable Loss (75,000)
CHARGEABLE GAIN (net) 49,600 *Exempted -
x 20%
RPGT /Allowable Loss 9,920
Total RPGT RM9,920
*Tax Planning :
The residential house is disposed on 14.8.2020 (during the period of RPGT exemption:
1.6.2020 – 31.12.2021). This is more economical in terms of tax payments.
4.14 RETURNS AND ASSESSMENT
For each disposal, both the disposer and acquirer are required to submit RPGT return
respectively within 60 days from the date of disposal. Payment by disposer is required
to settle the balance of RPGT payable within 30 days from the date of the notice of
assessment. The type of RPGT returns form; CKHT1A (disposed property), CKHT1B
(disposed share in property company), CKHT2A (acquisition share or property in
property company), CKHT 501 (payment slip for disposer) and CKHT 502 (payment slip
for acquirer).
Exercise 4-1
a) List the RPGT form should be fill by disposer.

b) Explain each of the form.
Exercise 4-2
Ayu Sdn. Bhd. acquired a piece of property on 30 October 2018 for RM196,000. She
incurred RM4,000 on stamp duty, legal fees, etc. She disposed of the property on 31
March 2020 for RM210,000.
COMPUTATION OF RPGT FOR AYU SDN. BHD. YA 2020

First : Compute the withholding years:
30 October 2018 – 29 October 2019

30 October 2019 – 31 March 2020 ______________________________
RM
Disposal price
Less: Acquisition Price
Add: Incidental cost
Chargeable Gain
RPGT (CG x Tax Rate) = _______________________________

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 Real property is defined as “any land situated in Malaysia and any interest, option or
other right in or over such land”.
 RPGT Tax Rates ; Individual (5-30% - for resident/citizen), Company (10-30%) and
Non Resident (5 and 30%) – all depends on holding period > 3 to > 6 years.
 The disposal price of an asset is the consideration received less any of the following
expenses: Expenses wholly and exclusively incurred in enhancing or preserving the
value of the asset such as alterations, improvements or extensions, Expenses incurred,
after acquiring the asset, in respect of preserving or defending the title to the asset,
Incidental expenses relating to the disposal of the asset (fees, commissions, lawyers,
surveyors, etc.) and Advertising
 The acquisition price of an asset is the consideration paid plus any incidental costs or
expenses that are relevant such as: Fees, commissions, remuneration paid for
professional service, e.g. accountants, lawyers, surveyors, architects, costs of transfer,
e.g. stamp duty and cost of advertising to attract (find) sellers and less with the any
received such as from compensation, insurance company or deposit forfeited.
 An allowable loss refers to a situation where the acquisition price of a chargeable asset
is higher than the disposal price (Disposal Price < Acquisition Price). The relief given
as a deduction from the total tax assessed on the chargeable gains of a taxpayer for YA
in which the loss arises if disposed in 5 years.
 Exemption 10% or RM10,000 (which is higher) only for individual or partnership

(partners) not company.
 They are few situation the RPGT will be exempted ; transferring between son and
father, husband to wife and etc. Also one of disposal of residential house can exempted
(one house only in a lifetime).
127
TUTORIAL 4
Tutorial 4-1
(a) Define allowable loss and loss relief.

(b) Prepare the computation of RPGT for Puan Ashikin & Encik Khairul for the YA 2020
if they disposed the real properties on 31 May 2020. Both of them is Malaysian
resident.
Puan Ashikin Encik Khairul

Date of acquisition 1.10.2015 1.10.2016
Paid for acquisition RM150,000 RM168,000
Incidental Cost (on acquisition) RM2,000 RM3,000
Incidental Cost (on disposal) RM3,500 RM2,700
Compensation RM20,000 -
Deposit Forfeited - RM10,000
Legal fee to defend the title - RM3,000
Disposal Price RM200,000 RM350,000
Loss b/f (2018) (RM5,000) (RM7,000)
(c) Would your answer be different if Puan Ashikin disposed her residential property
on 31 August 2020?
Tutorial 4-2
Encik Al Hayyu is a Malaysian citizen. He had been informed that he would be transferred
overseas for five years commencing from 1.7.2020. In sorting out his affairs, he was
considering disposing of his real properties before 31st May 2020, details of which are as
follows :
a) Land in Gurun, Kedah

This had been acquired on 12.3.2016 for RM250,000. He received a firm’s offer of
RM400,000 for the land. Other disposal expenses is RM4,000. Sales & Purchase
agreement was signed on 30.4.2020.
b) House in Kelana Jaya, Selangor

The house was acquired on 5.5.2015 at a cost of RM390,000 and co-owned with his
wife; this had been and was still the family residence. The current market value on
2019 was RM550,000. The house successfully sold on 12.5.2020.
c) 5-acre agricultural land in Segamat, Johor

This was an oil palm smallholding which Encik Al Hayyu acquired on 15.8.2017 at a
cost of RM350,000. Other acquisition expenses were :
Legal fees RM1,800

Stamp Duty RM4,200
Estate agent’s commission RM5,200
TOTAL RM11,200
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Encik Al Hayyu had incurred a futher RM65,000 on improvements to the land, e.g. roads
and drains since it was purchased.
In December 2019, a prospective buyer, Encik Malik placed RM20,000 with Encik Al
Hayyu as a non-refundable deposit but subsequently failed to raise the funds to complete
the acquisition. But Encik Al Hayyu had forfeited 50% of that deposit.
Recently, the owner of the neighbour lot offered RM450,000 to take over the land from
Encik Al Hayyu. He signed the sale and purchase agreement on 29.2.2020.

(a) Compute the RPGT would be payable for the year assessment 2019.
(b) What would you advised Encik Al-Hayyu if he want to reduce the tax payable for RPGT
within the ambit of law?
Tutorial 4-3
(a) State THREE (3) types of ‘no gain no loss’ transactions under paragraph 3 of Schedule
2, Real Property Gains Tax Act 1976.
(b) On 12 April 2015, Elmany signed a sale and purchase agreement to acquire a piece of
land for RM250,000. She made full payment of the purchase price on 10 June 2015
and took possession of the land on 11 June 2015. The title to the land was transferred
to her on 30 September 2015. She then set up a fertigation farm on this piece of land.
Her expenditure was as follows :
RM RM
Stamp duty on acquisition 4,800 Farm buildings 23,500
Legal fees on acquisition 2,400 Fencing 7,000
Drainage and irrigation system 15,000 Legal fees to defend her title to 32,000
the land
On 1 February 2020, she disposed of the entire fertigation farm for RM766,000. Her
expenditure on disposal was as follows :
Expenses RM Expenses RM
Real estate agent’s fees 10,000 Stamp Duty 1,500
Advertisements for sale 2,000 Legal Fees 1,000
Valuation fees 2,000 Other expenses 1,200
Elmany informed you that she has a RPGT loss relief brought forward (b/f) from 31
September 2009 amounting to RM5,000.
Required :
Compute the RPGT for Elmany for the YA 2020.
129
Tutorial 4-4
Al Quddus Sdn. Bhd. acquired a double-storey link house from developer on 20 November
2017 for RM250,000. The legal fees incurred for the acquisition was RM20,000. On 1
January 2018, the house was leaking and the company manages to claim damages from the
developer for RM60,000.
The house was put on sale on 15 February 2020 but the sales was not successful and an
amount RM8,000 deposit was forfeited. Based on the valuation report, the market value of
the house as at 1 January 2020 is valued at RM480,000.
The company received a sum of RM76,000 being insurance compensation for damage on
15 February 2020. The house was put on sales for the second time on 31 March 2020 but
the sales again was not successful and only 20% from RM40,000 deposit was forfeited.
Lastly, on 1 May 2020, they find the real buyer, Puan Jahan Kaur and asked her for
RM500,000. They also incurred the following expenditure in connection with the sales :
Valuation Fee RM7,700 Brokerage fees RM14,500

Cost of advertising RM2,300 Legal Fees for defending the title RM5,200
Required :
(a) Compute the RPGT for Al Quddus Sdn. Bhd. if the company is resident on YA2020
(b) Would there any different if Al Quddus Sdn. Bhd. is non-resident on YA 2020.
Tutorial 4-5
Anna purchased a house for RM170,000 on 1st July 2017 from DWS Housing Bhd. Anna
paid lawyers and stamp fees on acquisition as follows:
a) Lawyer’s fee RM15,000.

b) Stamp free RM5,000.
Anna made some improvements to the house as follows:

a) Expansion of living room RM200,000 on 1st October 2017.
b) Extension of room RM150,000 on 1st November 2017.
Other details are as follows:

a) Assessment and quit rent paid until the date of disposal amounted to RM800.
b) Broker’s fee paid is RM20,000.
c) Advertisement in newspapers in respect of sale is RM1,000.
d) Allowable loss (other property) from YA 2019 amounted RM10,000.
e) Anna sold the house on 1st April 2020 for RM750,000.
Prepare the computation of real property gains tax payable for year of assessment 2020.
Assist Anna regarding the date of disposal for tax savings, if any. Show your complete
calculation in order to convince her. (25 Marks)
130
Tutorial 4-6
Marini is the owner of four private residences. Due to financial problem, she sold all of the
houses in 2019. The information relating to the disposal made in 2019 as follows :
House 1 Commercial House 2

Property
Acquisition Date 7.3.2015 10.5.2017 31.12.2018
Acquisition Price RM195,000 RM195,500 RM200,500
Disposal Date 30.4.2020 25.5.2020 30.4.2020
Disposal Price RM274,500 RM172,800 RM305,000
The house 4 was bought on 1.8.2014 with the cash consideration of RM199,500 and the
legal transferred was completed on 15.9.2014. The relevant information of the house is as
follows :
Year Item RM
2014 Legal Fee (on acquisition day) 5,900
2015 House repair 14,700
2018 Deposit Forfeited 7,410
2018 Compensation received on fire insurance 23,000
On the acquisition date, Marini paid stamp duty on the acquisition price amounting to 1%
on the first RM100,000 and 2% on the balance. On 15.3.2020, a house 4 in Puchong was
disposed of for RM301,000. 20% of the consideration amount was received on 1.2.2020.
Other expenses incurred in respect of the disposal are Legal Fee and stamp duty is for
RM9,000 and Valuation Fee RM3,500.

a) Compute the RPGT for Marini for YA 2020 (if resident) (10 Marks)
b) Compute the RPGT for Marini for YA 2020 (if she is non-resident). (10 Marks)
c) Explain, when the disposer and acquirer have to submit RPGT form? (5 Marks)
Tutorial 4-7
Hanisah purchased a shop house with price RM205,000 at Alam Cahaya, Penang on 1 st
June 2015. Details of income and expenditures are as follow :
Income/Received :
House Rental RM800 per month
Compensation from developer for house damage RM8,500
Insurance Claimed RM6,000
Expenditure :
Repair the bathroom for rent house RM500
Living area renovation RM95,000
Kitchen Cabinet Extension RM12,000
Initial Cost involved during the acquisition :
Legal Fee RM15,000
Stamp Duty RM10,000
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Other Information :
i) Hanisah sold her shop house to Isratun with the price of RM380,000 on 1st April
2020.
ii) Legal fee to defend house title RM3,800.
iii) Incidental cost for disposal of the house included agent fee RM5,000 and
advertising expenses RM1,200.
iv) Hanisah is Malaysian citizen.

a) Compute the Chargeable Gain/Loss Net for Hanisah for YA 2020. (20 Marks)
b) Calculate RPGT by Hanisah for YA 2020.
c) Calculate RPGT if she sold on 31st July 2020. How much the tax savings? (5 Marks)
Tutorial 4-8
Mr. Siva is a director of a company located in Johor Bahru. He is a Singaporean. In 2014,
Mr. Siva bought a completed unit of commercial property in Johor Bahru from a developer.
On 3rd January 2015, he paid a deposit of RM50,000 and signed the sale & purchase
agreement. The balance of the purchase price was paid through a bank loan of RM450,
000. Mr. Siva also incurred the following expenditures in respect of acquisition the
commercial property:
a) Stamp duty and lawyer’s fee on the sale and purchase agreement RM6,500
b) Repainting of front office RM1,800
c) Purchase of furniture and fittings RM15,000
d) Expansion of office area RM22,000
e) Advertise through Facebook RM5,000
The commercial property was let out to business operator in that area for RM1,500 per
month. In May 2016, Mr. Siva received RM23,000 from a house and property developer as
compensation for damages to his property caused by construction work on a nearby
housing area.
Mr. Siva tenure as a director of the company expired on 30th July 2020 and he did not seek
re-appointment due to family matters. In 2nd July 2020, he returned to his home town in
Singapore, in order to spend more time with his family. After giving serious thoughts to
sell the property, he finally, forked out an amount of RM2,000 to advertise the property in
a newspaper.
On 20th November 2020, he received a deposit of RM7,000 from a potential buyer who
eventually call off the deal. Hence, Mr. Siva forfeited the potential buyer’s deposit.
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On 30 December 2020, Mr. Siva successfully sold the property (evidenced by the sale and
purchase agreement). As a consideration for disposal of the commercial property, he
received the following payments from the buyer:
10 December 2020 Deposit of RM20, 000

20 December 2020 Partial payment of RM242,000
30 December 2020 Final payment of RM440,000
Mr. Siva paid a sum of RM18,500 as the legal cost and stamp duty in relation to the
disposal of his property in Johor Bahru.

(a) Determine either Mr. Siva is resident or non-resident for the YA 2020. (5 Marks)
(b) Compute the real property gains tax payable, if any, by Mr. Siva for the YA 2020. (20
marks)
Tutorial 4-9
Afnan is Malaysian citizen and owner of two bungalows in Jitra. She disposed of her assets
in 2020 and provides you with the following information :
Bungalow 1 Bungalow 2 Shop house

Date of acquisition 1.12.2014 1.3.2015 1.7.2017
Date of disposal 1.5.2020 1.9.2020 31.3.2020
Cost of purchase RM200,000 RM300,000 RM250,000
Renovation RM20,000 - RM15,000
Deposits by buyer forfeited in 2016 RM10,000 - -
Rental Received RM12,000 RM3,000 -
Received from Insurance Company RM5,000 - -
Incidental Costs :
- On acquisition RM20,000 RM30,000 RM15,000
- On disposal RM15,000 RM20,000 RM5,000
Received from selling the property RM360,000 RM450,000 RM250,000

a) Compute the RPGT for Afnan for YA2020. (20 marks)
b) Compute if this properties are owned by Afnan Sdn. Bhd. (5 Marks)
133
Tutorial 4-10
(a) Indicate FIVE (5) exemptions of Real Property Gains Tax. (10 Marks)
(b) Daniel, a Malaysian citizen, acquired a bungalow on 1st October 2015 for RM550,000
in Melaka. The legal fees incurred for the acquisition was RM50,000. On 30th June
2016, the bungalow was cracked and Daniel managed to claim damages from the
developer for RM120,000. The bungalow was put on sale on 1st December 2018 and
received RM80,000 deposit, but the sales was not successful and the deposit was
forfeited. On 30th January 2020, Daniel sold the bungalow to Maria for RM800,000.
Daniel also incurred RM12,300 for valuation fee, RM3,000 for advertising cost and
RM15,000 for brokerage fee.
Based on the above statement, calculate the Real Property Gains Tax for Daniel for
YA 2020. (15 Marks)
Tutorial 4.11
Rafael, a Malaysian resident, sold his bungalow to Nazri with a price of RM850,000 on 2nd
May 2020 as stated in the Sales and Purchase Agreement. Before that, Rafael paid
RM2,000 for the cost of advertisement in order to find serious buyer and RM10,500 as
legal fees in relation to the disposal of his bungalow. Before the bungalow was successfully
sold to Nazri, Rafael received a deposit of RM10,000 from Azlan who wanted to buy the
bungalow but then Azlan called off the deal and the deposit was forfeited.
Rafael bought the bungalow at the price of RM425,000 which he paid in full on 31st
October 2015. On the acquisition date, Rafael paid RM 2,500 for stamp duty and RM3,000
for legal fees. Those expenses were incurred during the ownership of the bungalow :
Kitchen renovation RM50,000

Cost of defending the title of the bungalow RM4,300
In April 2016, Rafael received a compensation amounted RM75,000 from the takaful
company for damages cause by fire to his bungalow.

Calculate the Real Property Gains Tax Payable for Rafael for year of assessment 2020 by
assuming that he does not claim exemption under private residence. (20 marks)
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POST QUIZ 4 : REAL PROPERTY GAIN TAX
a) List 2 exemptions for individual and company regarding to the RPGT.(4 Marks)
b) Explain the situation which market price applied for dispose the property. (4
Marks)
c) Define ‘person’ who are chargeable in RPGT. (2 Marks)
d) Noorul & Azizah Enterprise (partnership) doing the printing business since 2014.
They also bought one commercial lot at Bertam Perdana amounted RM480,000 on
1.11.2017. They also paid RM10,000 for other expenses and incurred RM50,000 for
renovation. Other expenses incurred was quit rent amounted RM800. RM15,000
was claimed from insurance company due to the damages of the building. After a
few years, they decided to sell the commercial lot at Bertam Perdana due to some
problems. They advertised in newspaper to find a buyer which costed them
RM2,000. Finally, Dato’ Adiebah offered RM560,000 for the lot. They signed the S&P
Agreement on 1.9.2020 and also paid RM10,000 for legal fee and stamp duty
regarding to this disposal.
Based on the information aboved, compute the RPGT for the partnership if they sell
the lot on 1.9.2020 and 31.11.2020. What is your advice regarding this situation?
(15 Marks)
135
5 CHAPTER 5 : INVESTMENT INCENTIVES (CLO1, CLO 2 & CLO 3)
OBJECTIVES
 Incentives under Promotion of an Investment Act 1986
 Incentives under Income Tax Act 1967.
PRE QUIZ 5 : INVESTMENT INCENTIVES
a) List 3 incentives under Promotion of an Investment Act 1986. (3 Marks)
b) List 3 incentives under Income Tax Act 1967. (3 Marks)
c) Define these following terms in investment incentives under the scope of Promotion
of Investments Act 1986 and Income Tax Act 1967. State the relevant examples.
i. Promoted Activity (3 Marks)
ii. Promoted Product (3 Marks)
d) Describe the investment incentives stated below ;

i. Pioneer Status (5 Marks)
ii. Investment Tax Allowance (5 Marks)
e) Shyro Boy Bhd, a manufacturing company, located in Penang provides the following
details :
Year of assessment YA 2019 YA 2020

Adjusted Income RM210,000 RM620,000
Capital Allowance RM125,000 RM150,000
Capital Expenditure incurred RM300,000 RM400,000
If the company eligible for Reinvestment Allowance (RA) for both years of assessment,
compute the chargeable income for Shyro Boy Bhd. (5 Marks)
RESIDENT COMPANIES TAX RATE
 Company
YA 2009-2015 YA 2016 - 2018 YA 2019-2020
Company’s Tax Rate 25% 24% 24%
 Small and Medium Scale Company (paid-up capital ≤ RM2.5m)
YA 2009- YA 2017 -
YA 2016 YA 2019 YA 2020
2015 2018
1st RM500,000 20% 19% 18% 17%
Next 25% 24% 24% 24%
1st RM600,000 17%
Next 24%
136
5.1 INTRODUCTION
Investment incentives (also known as tax incentives) are offered by the Government to
attract foreign direct investment (FDI) to stimulate private sector interest to relocate and
set up their business operations in Malaysia. These incentives are put forward in various
industries range from manufacturing, trading, agricultural, information and
communication technology, education, tourism, healthcare to research and development
and Islamic financial services.
There are various forms of tax incentives introduced by the Government such as :
 Exemption on income
 Double deduction of expenses
 Special deduction of expenses
 Preferential tax treatment for promoted sectors
 Exemption of import duty and excise duty
The main objectives of tax incentives are :
a) To stimulate social and restructuring

b) To provide employment
c) To stimulate capital investment in certain industries
d) To generate increased revenue by way of the multiplier effect
Investment incentives are governed by the Promotion of Investments Act 1986 and the
Income Tax Act 1967.
The investment incentives enacted under the Promotion of Investments Act 1986 are:
a) Pioneer Status (income tax exemption ranging from 70% or 100% for a period of
5 or 10 years)
b) Investment tax allowance (60% or 100% on qualifying capital expenditure for 5
years or 10 years)
c) Infrastructure allowance (withdrawn from 1 January 2011)
d) Export Allowance (withdrawn from 1 January 2004)
e) Industrial adjustment allowance (withdrawn from 1 January 2008)
f) Double Deduction for Promotion Exports
The incentives enacted under the Income Tax Act 1967 are:
a) Reinvestment Allowance (60% on qualifying capital expenditure for 15

consecutive years)
b) Incentives for approved service project
c) Increased export incentives
d) Incentive for investment holding company
e) Incentive for unit trust
f) Incentive for venture capital company
g) Incentive for approved operational headquarters
h) Incentive for foreign fund management
137
i) Incentive for closed end fund
j) Double deductibility of qualifying expenses
The incentives for specialized industries such as investment holding company, unit trust,
venture capital company, approved operational headquarters, foreign fund management
and closed funds.
Investment Incentives in Malaysia are classified into two types :
a) Indirect Incentives ; exemption are given to tax payers for specific products or
services (imported or produced locally) such as exemption from import duty, sales
taxes and excise duty. This is under Excise Duty 1976, Sales Tax 1972, Service Tax
Act 1975 and Custom Act 1967.
b) Direct Incentives ; the government provides grants or tax exemptions either

partial of full relief from paying income tax for a specified period (s). This is under
PIA 1986 and ITA 1967.
Note :
Malaysia presently offers more than 100 different types of incentives to
promote investment in the economy. These are disbursed in three main forms : Pioneer
Status, Investment Tax Allowance and Reinvestment Allowance.
5.2 PIONEER STATUS (Section 5-25 PIA, 1986)
5.2.1 Promoted Products Or Activities
Pioneer status is granted to all companies participating in a promoted activity or

producing a promoted product for an initial period of five years commencing from the
production day. Applications for pioneer status have to be addressed to Malaysian
Industrial Development Authority (MIDA). The power to determine any product or activity
lies with the Minister of International Trade and Industry (MITI). Presently, gazette lists
for the promoted products or activities are as follows in Section under Promotion of
Investments Act 1986:
A) Promoted products or activities of national and strategic importance (Sec 21C)

B) Promoted products or activities in promoted areas (Kelantan, Terengganu,
Eastern region of Pahang and Johor, Sabah and Sarawak – Sec 21D)
C) Promoted products or activities for contract research and development
company (Sec 21E)
D) Promoted products or activities for high-technology companies or industrial
adjustment program (Sec 21F)
E) Promoted products or activities for small scale companies;
Promoted activities and products means industrial or commercial activity

determined by Minister under Section 4 and includes activities referred to in Section 4A
and Section 4B 0f the PIA 1986.
138
Under the Promotion of Investments (Promoted Activities and Promoted Products for
Selected Industries) Order 2012 which replaced the Order 2008, the activities and
products of five selected industries listed below are gazetted as promoted activities and
promoted products:
Industry Activities / Product

Machinery and  Machine tools
equipment  Material-handling equipment
 Robotics factory automation equipment
 Modules and components for machine tools, material-handling
equipment, and robotics and factory automation equipment
Specialised  Specialised or process machinery or equipment for specific
machinery and industries
equipment  Packaging machinery
 Modules and components for specialised or process machinery or
equipment for specific industries and packaging machinery
Oil palm biomass Utilisation of oil palm biomass to produce value-added products
Renewable energy Generation of renewable energy
Energy Conservation of energy
conversation
5.2.2 Pioneer Certificate – Section 7 of the PIA
According to Section 7(1) of the Promotion of Investments Act 1986, any company which
has been granted pioneer status shall within six months from the date of such grant or
such extended period as the Minister allow, request for pioneer certificate. Section 7(2)
Promotion of Investments Act 1986 further explains that the pioneer certificate shall
state:
1) The marketable quantities of the relevant promoted product produced by the

factory prior to the request for the pioneer certificate.
2) The date on which the factory commenced the production of the promoted product
in marketable quantities at the rate of production thereof.
3) The rate of production
4) The location of the factory and;
5) That the conditions imposed under Section 6(2) Promotion of Investments Act
1986 have been complied with, or where any of the conditions have not been
complied with, the reasons therefore.
Failure to apply for the pioneer certificate or to comply with the conditions may result in
withdrawal of the pioneer status.
5.2.3 Tax Relief Period – Section 14 of the PIA
The tax treatments of both the pre-pioneer and post pioneer periods are different. The
reason being that, the company shall be deemed to have set up and commenced a new
business on the day it commences the production of promoted product/activity.
139
Additionally on the day following the end of its relief period, it is deemed to have set up a
new business. According to Section 15(c) of the Promotion of Investments Act 1986, the
pioneer company shall make up the accounts of its pioneer business:
1) For a period not exceeding one year commencing from the date when the pioneer
business of the company commenced
2) For successive periods of one year thereafter and
3) For the period not exceeding one year ending at the date when its tax exemption
period ends.
The tax relief period of a pioneer company begins on:
a) Production day
b) Continues for 5 years and
c) Thereafter extends by another 5 years [not for applications received on or after
1.11.1991, except where pioneer status was granted under Section 6 (1AB) –
projects of national and strategic importance].
The initial period of 5 years or the extended period can be shortened if the pioneer
certificate is cancelled.
5.2.4 Benefits Of Pioneer Status
The person are eligible to apply for pioneer status;

a) Companies
b) Partnership, sole proprietorship and association solely engaged in agriculture
The most important advantage of acquiring pioneer status is the total or partial
exemption from income tax for a period of five years. The exempt incomes are credited
to the exempt account from which exempt dividends are distributed to the shareholders of
the company. If the shareholder is a company any dividends paid by that shareholding
company to its shareholders out of that amount shall also be exempt from tax in the
hands of those shareholders.
The pioneer period for companies participating in promoted activity or producing

promoted products of national and strategic importance is extended to 10 years. The
tax exemption period commences from the company’s production day.
The pioneer period can be extended up to five years if the following criteria are met:
1) Incurred capital expenditure of RM25 million or employs 500 full-time Malaysian

employees by the end of the tax relief period or
2) The pioneer company, in the opinion of the Minister, promotes or enhances the
economic and technological development of Malaysia parallel to government policy.
140
NO CATEGORY EXEMPTION NO. OF
(% OF SI)* YEARS
1 Normal PS for promoted products or activities (manufacturing 70 5
and non-manufacturing, such as agricultural, hotel projects and
small companies) [S.5(1)]
2 National and strategic importance [S.5(1A)] 100 10
3 Contract Research and Development (R&D) Company [S.5(1C)] 100 5
4 High Technology company including new and emerging 100 5
technologies and Industrial Linkage Programme [S.5(1D)]
5 Selected industries – machinery and equipment industry, 100 10
specialised machinery and equipment industry, utilisation of
biomass to produce value-added products, generation of
renewable energy [S.5(1DB)]
6 Automotive component modules [S.5(1DC)] 100 5
7 Company undertaking reinvestment in post-pioneer period 70 @ 100 5
[S.5(1DD)]
8 Commercialisation of R&D findings [S.5(1DF)] 100 10
*SI – STATUTORY INCOME
Example 5-1
Co. ABC which is located in Penang has been granted pioneer status on 1.4.2017 in respect
of a promoted product. The tax relief period of 5 years commenced on 1.10.2017 and
accounts are made up to 31 December annually. Given in Year of Assessment 2020 the
following:-
Pioneer Business (P) - Adjusted Income RM5,000,000

Capital Allowance RM500,000
Non-Pioneer Business (NP) - Adjusted Loss (RM2,000,000)
Pioneer adjusted loss (YA 2018) RM500,000
Adjusted Rental income RM20,000
The restriction to the statutory income of the pioneer company in respect of its pioneer
business for purposes of exemption and the computation of the total income of its pioneer
business for purposes of taxation is as follows :
Pioneer Business YA 2020 RM

Adjusted pioneer income 5,000,000
Less : Capital Allowance (500,000)
Statutory income 4,500,000
Less : Exemption for PS (70% x RM4,500,000)** (3,150,000)
Pioneer Income 1,350,000
Non-Pioneer Business for YA 2020 RM
Adjusted Non Pioneer Business NIL
Less : Sec 43(2) Loss (utilised against pioneer business)# NIL
Rental income 20,000
141
Add : Total Income from Pioneer Business 1,350,000
Aggregate Income 1,370,000
Tax Payable : 24% x RM1,370,000 = RM328,800
Exemption Income Account YA 2020

RM
**Exemption for PS : 70% x RM4,500,000 3,150,000
Less : Adjusted Loss non pioneer # (2,000,000)
1,150,000
Less : Pioneer Adjusted Loss (YA 2019) (500,000)
Exemption Account (b/f) 650,000
Exercise 5-1
Daisy Sdn. Bhd. (SME’s company) submitted an application for pioneer status on
December 1, 2016. The company was granted a pioneer status on 15.3.2017. The company
closes its account on 31st December annually. Further details are as follows:
Pioneer Status Non-pioneer status

Year Income Capital Income/ Capital Dividend Approved
ended / Allowance (Loss) Allowance Income (Gross) Donation
(Loss)
RM RM RM RM RM RM
31.12.2019 70,000 25,000 (9,500) 1,000 7,000 2,400
31.12.2020 85,000 5,000 16,000 7,000 6,000 -
Daisy Sdn. Bhd. enjoyed a tax relief period of five years commencing from 15.3.2016 to
14.3.2022. The company distributed RM78,000 dividend in 2020, its chargeable income
and exempt income account for the YA 2019 and 2020 is as follows :
Solution for exercise 5-1
Pioneer Business YA 2019 (RM) YA 2020 (RM)

Adjusted Income/(Loss) 70,000 85,000
Less : Capital Allowance (25,000) (5,000)
Statutory Income 45,000 80,000
Exemption : 70% x RM45,000 @ 80,000 (31,500) (56,000)
PIONEER INCOME 13,500 24,000
Non Pioneer Business YA 2019 (RM) YA 2020 (RM)
Adjusted Income/(Loss) - 16,000
Capital Allowance b/f - (1,000)
Capital Allowance (1,000) (7,000)
c/f to YA 2020
STATUTORY INCOME - 8,000
Add : Dividend Income Exemption Exemption
AGGREGATE INCOME - 8,000
Less : Approved Donation - -
TOTAL INCOME - 8,000
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Add : PIONEER INCOME 13,500 24,000
CHARGEABLE INCOME 13,500 32,000
Tax Payable : YA 2019 (RM) YA 2020 (RM)

[17% x RM 13,500] RM2,295 -
[17% x RM 32,000] - RM5,440
Exemption Income Account
Balance b/f - RM22,000
Pioneer Status: (70% x RM45,000 @ 80,000) RM31,500 RM56,000
Less : Non pioneer losses RM (9,500) -
Amount credited to Exempt Income Account RM22,000 RM78,000
Dividend paid - (RM78,000)
Balance c/f RM22,000 -
5.3 INVESTMENT TAX ALLOWANCE (ITA)
Any company participating or intending to participate in a promoted activity or producing

a promoted product may be eligible to apply for ITA. Similar lists of promoted products or
activities as applied for pioneer status would also be applied for ITA. ITA and pioneer
status are mutually exclusive in respect of the same promoted activity or product. The
same activity or product which has been granted pioneer status or ITA previously cannot
qualify for pioneer status or ITA again.
The sector eligible for investment tax allowance (ITA) are manufacturing, agricultural,
hotel and tourism. The incentive will be a specified proportion of Qualifying Capital
Expenditure (QE). Additionally investment tax allowance is restricted to a certain
percentage of the statutory income for each year of assessment.
5.3.1 Qualifying Capital Expenditure
A. Qualifying capital expenditure for the various sectors are defined in the PIA
1986.
1) Manufacturing
Expenditure is incurred on factory or on any plant and machinery used in Malaysia
in connection with and for the purposes of the promoted activity or product.
2) Agricultural
Expenditure for the clearing and preparation of land; the planting of crops; the
provision of irrigation or drainage system; the provision of plant and machinery
used in Malaysia for the purposes of crop cultivation, animal farming, aquaculture,
inland or deep-sea fishing and other agriculture or pastoral pursuits; the
construction of access roads including bridges; the construction or purchase
buildings (including those provided for the welfare of persons or as living
accommodation for persons) and structural of crop cultivation, animal farming,
aquaculture, inland fishing and other agriculture or pastoral pursuits.
143
3) Hotel Business
Expenditure incurred on the construction of a hotel building of the approved
standard in Malaysia, including any alteration, extension and renovation or on the
provision of plant and machinery or other facilities used in connection with hotel
business.
4) Tourism Projects
Capital expenditure is incurred in respect of a tourism project in Malaysia and
includes capital expenditure on clearing of land for the purposes of a tourism
projects; planting of trees and plants; construction of roads and other
infrastructure facilities, provided that they are on land forming part of the land and
used for the purposes of a tourism project; provision of birds, animals and other
exhibits; provision of plant and welfare of persons or as living accommodation for
persons), structural improvements on land and other structures on land forming
part of the land used for purposes of a tourism project.
B. Non Qualifying Expenditure
Sec 29(5) PIA 1986, noted that QE shall not include capital expenditure incurred on
buildings, plant and machinery where such buildings, plant and machinery are provided
wholly or partly for the use of a director or an individual who is a member of the
management, administrative or clerical staff.
5.3.2 Rate of Investment Tax Allowance
The table below lists out the rate of Investment Tax allowance, years of exemption and
restriction to the statutory income for the different categories of companies. (Budget
2019)
No. Companies and other particulars Period Rate of ITA Restricted

(years) (% of QE) to % of SI
1. Normal ITA (manufacturing and non-manufacturing, 5 60 70
such as agricultural, hotel projects and small company)
[S.26]
2. National and Strategic Importance [S.26A] 5 100 100
3. Contract R & D Company [S.26C] 10 100 70
4. R&D Company [S.26D] 10 100 70
5. In-House Research [S.26E] 10 50 70
6. High Technology Company including new and emerging 5 60 100
technologies and Industrial Linkage Programme [S.26F]
7. Technical or vocational training company and private 10 100 70
higher educational institutions [S.26G]
8. Selected industries – machinery and equipment 5 100 100
industry, specialised machinery and equipment
industry, utilisation of biomass to produce value added
products, generation of renewable energy. [S.26I]
9. Automotive component modules [S.26J] 5 60 100
10. Company undertaking reinvestment in post-pioneer 5@10 50,60 @ 100 70@100
period [S.26K]
144
11. Production of halal food product [S.26M] 5 100 100
12. Conversation of energy for own consumption [S.26N] 5 60 100
QE = Qualifying Expenditure SI = Statutory Income
Example 5-2
Syarikat Smartnonics Sdn. Bhd. (SME’s company) was granted ITA of 60% for producing a
promoted product commencing from 1.1.2020. It closed its accounts on 31.12.2020 and
incurred capital expenditure of RM50,000. Capital Allowance for YA 2020 is RM20,000
and non-allowable expenses to be added back is RM10,000. Net Profit is RM100,000.
Syarikat Smartnonics Sdn. Bhd.: YA 2020 RM

Net Profit 100,000
Add : Non allowable expenses 10,000
Adjusted income 110,000
Less : Capital allowance (20,000)
Statutory income 90,000
Less : ITA [60% x RM50,000 = 30,000]* Restricted to : (70% x 90,000 = 63,000*)
ITA utilized (30,000)
Chargeable income 60,000
Tax payable (SME’s - 60,000 x 17% ) = 10,200
Note : ITA to be fully allowed since the sum is less than the restricted sum of RM63,000 i.e.
70% of Statutory Income (RM 90,000).
Example 5-3
Using same information as in Example 1, the company has incurred capital expenditure of
RM200,000 for YA 2020.
Syarikat Smartnonics Sdn. Bhd. : YA 2019 RM

Statutory income 90,000
Less : ITA [60% x 200,000 = RM120,000 (63,000)
Restricted to : (70% x 90,000 = 63,000)]
Chargeable income 27,000
Unabsorbed ITA c/f to YA 2020 (RM120,000 - RM63,000) = RM57,000 (transfer to YA 2021)
Tax payable on RM27,000 x 17% [SME’s] = RM4,590
 The unabsorbed allowances available as at the end of ITA period are allowed to be
carried forward up to maximum of 7 consecutive years of assessment only, w.e.f.
YA2019
145
Exercise 5-2
Sonata Bhd. a Korean company (SME’s Company) is a Malaysian resident involved in the
production of electric chips. The company, which was operating in Sabah, has been
enjoying Investment Tax Allowance since 2016. In 2020, the directors declared a dividend
amounting RM7,000,00.
A detail of the company’s income and expenditure during its three-years operation as an
investment tax allowance company is as follows :
2018 (RM) 2019 (RM) 2020 (RM)

Adjusted Income/(Loss) (2,000,000) 16,000,000 15,000,000
Capital Allowances 500,000 3,200,000 4,300,000
Approved Donation - - 90,000
Capital Expenditure :
Land - 2,500,000 -
Building 2,800,000* 1,000,000 -
Plant and Machinery 3,000,000 5,000,000 5,000,000
Tax Rates :
1st RM500,000 / 1st RM600,000 (YA2020) 18% 17% 17%
Next 24% 24% 24%
* The capital expenditure on the building includes of RM500,000 for a bungalow, which was
bought for the use of the company’s managing director. The balance relates to the
construction cost of the company’s factory.
Solution for Exercise 5-2 (fill in the blank)
YA2018 YA2019 YA2020

Land - - -
Building 2,300,000 1,000,000 -
Plant & Machinery 3,000,000 5,000,000 5,000,000
Qualifying Expenditure 5,300,000 6,000,000 5,000,000
60% 3,180,000 3,600,000 3,000,000
YA 2018 YA 2019 YA 2020

RM RM RM
Adjusted Income/(Loss) - 16,000,000 15,000,000
Less : Capital Allowance b/f - (500,000)
Current year Capital Allowance (3,200,000) (4,300,000)
Statutory Income - 12,300,000 10,700,000
Workings: ITA [60% x RM12,300,000] 3,600,000
ITA [60% x RM10,700,000] 3,000,000
ITA b/f 3,180,000 -
6,780,000 3,000,000
Restricted to : SI [70% x RM 12,300,000] - 8,610,000
SI [70% x RM 10,700,000] 7,490,000
Less : ITA utilized (6,780,000) (3,000,000)

Less : Unabsorbed Loss b/f (2,000,000)
146
Aggregate Income - 3,520,000 7,700,000
Less : Current Year Loss -
Approved Donation - (90,000)
Chargeable Income - 3,520,000 7,610,000
Tax Payable :
RM500,000 x 17% 85,000
Next RM3,020,000 x 24% ] 724,800
RM600,000 x 17% 102,000
RM7,010,000 x 24% 1,684,800
Total of Tax Payable nil 809,800 1,786,800
Exemption Income Account

Balance b/f - 6,780,000
ITA utilized 6,780,000 3,000,000
Amount credited to Exempt Income 6,780,000 9,780,000
Account
Dividend paid - (7,000,000)
Balance c/f 6,780,000 2,780,000
5.4 LESS DEVELOPED AREAS (New Incentives)
Malaysia Government currently sets up five economic regions with the intention of
employment creation, substantiate rural development and balance economic growth
among the states in Malaysia. There are:
 Northern Corridor Economic Region (NCER)

 East Coast Economic Region (ECER)
 Sabah Development Corridor
 Sarawak Corridor of Renewable Energy (SCORE)
 Iskandar Malaysia
The company must comply with value-added, local employment, managerial, technical and
supervisory staff indexes as setting up by the Ministry of Finance.
Company can opt for incentive:
i. Income Tax Exemption – 100% of statutory income for 5 years will be exempted.
ii. ITA – 100% of qualifying capital expenditure (restricted to 100% of statutory income)
for a period of 10 years is exempted.
147
5.5 REINVESTMENT ALLOWANCE (RA)
Reinvestment Allowance available to company which had exit from pioneer status or
investment tax allowance. Thus, the manufacturing companies that reinvest their
capital to embark on a project for either expansion of existing production capacity,
modernisation or automation of the production facilities, or diversification into related
products can apply this incentive.
RA is also available to companies engaged in agricultural projects and this incentive is

provided under Sch 7A of the Income Tax Act 1967. As per Para 1 of Sch 7A to the Income
Tax 1967, a company can claim RA if it :
1) Malaysian resident
2) Has been in manufacturing operation for at least 36 months
3) Had incurred qualifying expenditures for either expansion, modernising or
automating, or diversifying its existing manufacturing business within the
same industry
The rate for RA is 60% of QE and restricted to 70% of statutory income for each year
assessment. A company can claim RA up to 100% of its statutory income in a
particular year of assessment if the company could demonstrate that the level of
process efficiency ratio exceeds the industrial average for the year.
The amount of allowance utilized will be transferred to an exempt income account from
which two-tier tax exempt dividends can be distributed. The allowance is granted upon
capital expenditure incurred in the basis periods for 15 consecutive years of assessments
commencing from the year the first claim by a company. Any unabsorbed RA can be
carried forward up to a maximum period of 7 consecutive years of assessment only, w.e.f.
YA 2019.
More details and clarification regarding activities of RA, refer Sch. 7A ITA 1967. The
manufacturing company for RA is referring to:
a) conversion by manual or mechanical means of organic or inorganic materials into a

new product by changing the composition, nature or quality of such materials
b) assembly of parts into a piece of machinery or products
c) mixing of materials by a chemical reaction process including biochemical process
that changes the structure of a molecule by the breaking of the intra molecular
bonds or by altering the spatial arrangement of atom in the molecule;
But does not include :

i) the installation of machinery or equipment for the purpose of construction
ii) a simple packaging operations such as bottling, placing in boxes, bags and cases
iii) a simple fixing
iv) a simple mixing of any products
v) a simple assembly of parts
vi) any activity to ensure the preservation of products in good condition during
transportation and storage
vii) any activity to facilitate shipment and transportation
148
viii) any activity of packaging or presenting goods for sale
ix) any activity that may be prescribed by the Minister, notwithstanding the above
interpretation
Example 5-3
Janji Sdn. Bhd. qualifies for Reinvestment Allowance. The company incurred qualifying
capital expenditure of RM120,000. Statutory Income RM200,000. Compute the
chargeable income for Janji Sdn. Bhd. YA 2020.
RM
Statutory Income 200,000
Less : RA claimed (60% X (72,000) restricted to: 70% x RM200,000 =
RM120,000) RM140,000
Chargeable Income 128,000
Exercise 5-4
Moon Bhd, a manufacturing company provides the following details :
2019 (RM) 2020 (RM)

Adjusted Income 200,000 600,000
Capital Allowance 100,000 150,000
Capital Expenditure incurred 200,000 300,000
If the company eligible for RA for both years of assessment, compute the chargeable
income for Moon Bhd.
(25 Marks)
YA 2019 YA 2020
RM RM
Less : Capital Allowance (100,000) (150,000)
Statutory Income 100,000 450,000
Reinvestment Allowance (RA)
60% x RM200,000 = RM120,000
Restricted to :70 % x RM100,000 = (70,000)
RM70,000
RA : 60% x RM300,000 = RM180,000

Restricted to : 70 % x RM450,000 = (180,000)
RM315,000
RA b/f (RM120,000 – RM70,000 = (50,000)
RM50,000)
Statutory Income after RA deduction / 30,000 220,000
Chargeable Income
149
5.6 EXPORT INCENTIVES
The incentives are given to the Malaysian companies on exporting agricultural and
manufactured goods and it’s expended to include export of services.
5.6.1 Export a Manufactured Goods And Agricultural Produce
1. Exemption of income for increased exports

a) Malaysian International Trading Company
b) Allowance for Increased Exports
c) Exemption of income for significant increase in export, penetration of new
markets and for Export Excellent Award.
d) Exemption of income for increase export of manufactures motor vehicles,
automobile components parts
2. Double Deduction for promotion of exports

a) Expenses incurred in respect of publicity and advertisements in any media
outside Malaysia
b) Expenses directly attributable to the provision of samples without charge to
prospective customers outside Malaysia, including the cost of delivery of the
samples
c) Expenses directly attributable to carrying out export market research or the
obtaining of export marketing information
d) Expenses directly attributable to the preparation of tenders for the supply of
goods or agricultural produce (not being goods or agricultural produce of the
same kind and specifications as those regularly manufactured, produced or
supplied by the company) to prospective customers outside Malaysia
e) Expenses by way of fares in respect of travel to a country outside Malaysia by a
representative of the company, being travel necessarily undertaken for the
purpose of negotiating or concluding contracts for sales of goods or agricultural
produce on behalf of the company or for the purpose of participating in trade
fairs or industrial exhibitions approved by the Minister, and actual expenses,
subject to maximum of two hundred ringgit per day, for accommodation and
sustenance for the whole of the period commencing with the representative's
departure from Malaysia and ending with his return to Malaysia
f) Expenses for giving technical information to persons outside Malaysia relating
generally to goods or agricultural produce of the company offered for sale,
excluding expenses for giving technical information to purchasers after
purchase
g) Expenses directly attributable to the provision of exhibits for trade fairs or
industrial exhibitions approved by the Minister
h) Expenses for services rendered for public relations work connected with export
i) Expenses directly incurred for participating in trade fairs or trade or industrial
exhibitions approved by the Minister other than the expenses specified in
subparagraphs (e) and (g)
j) Expenses for the cost of maintaining sales offices overseas for the promotion of
exports from Malaysia
k) Premiums for export credit insurance based on takaful concept to takaful
operators approved by the Minister of Finance
150
l) Premiums for conventional export credit insurance to companies
approved by the Minister of Finance
5.6.2 Export of Services
1. Exemption of income for increased exports of :

a) 16 qualifying services
b) Healthcare services provided in Malaysia to foreign clients
2. Double deduction for qualifying expenses in promoting export of :

a) All services
b) Professional services
c) Higher education
3. Single deduction for hotel accommodation.
 Pioneer Status (PS) is granted to all companies participating in a promoted

activity or producing a promoted product for an initial period of five years
commencing from the production day. The incentive is given either 100% or 70%
exemption for the incomes gained from pioneer activities.
 Investment Tax Allowance (ITA) also given to all the companies participating in
a promoted activity or producing a promoted product. The allowance is given on
capital expenditure incurred but restricted to the some percentage of statutory
income based on the types of sectors involved.
 Export Incentives is given to all the resident companies engaged in

manufacturing or agricultural, which has exported manufactured products or
agricultural produce or services.
 Infrastructure allowance is given at a rate of 100% of capital expenditure

incurred on infrastructure for five years from 29.10.1993 to be deducted against
the statutory income which is restricted to 55%.
 Double Deduction for export is given twice deductible of export expenses such
as for marketing expenses, product sampling, R&D etc.
 Reinvestment Allowance which came into effect in YA 1950 is granted to

companies that are expanding; modernizing; or diversifying into a related product
within the same industry. The rate for RA is 60% of QE. Additionally the RA for
projects located outside Sabah, Sarawak and Eastern Corridor of Peninsular
Malaysia is restricted to 70% of statutory income for each year assessment.
151
TUTORIAL 5
Tutorial 5-1
a) ”Investment incentives are the government schemes aimed at stimulating private
sector interest in specified types of capital expenditure, investment in areas of high
unemployment or investment in specific industries which are important to nation
development”. Based on the statement above, list FIVE (5) investment incentives
enacted under the Promotion of Investment Act 1986. (5 Marks)
b) Khuzairi Sdn. Bhd. has been granted a pioneer status company. Company report the
following information for the year ended 31 December 2020.
RM
Adjusted income 300,000
Capital allowances 40,000
Current year adjusted loss from non-pioneer 9,000
business
Losses carried forward from pioneer business 7,000

Compute the chargeable income, income tax payable and amount credited to
exempt income account of Khuzairi Sdn. Bhd. for year of assessment 2020.
(15 Marks)
c) Explain THREE (3) criteria for the company to be entitled for Investment Tax
Allowance under the provision of the Promotion of Investment Act 1986. (6 Marks)
d) State FOUR (4) qualifying capital expenditures incurred in respect of agriculture that
qualify for Investment Tax Allowance. (4 Marks)
Tutorial 5-2
Good Printing Sdn. Bhd. propose to set up a manufacturing printing material in Jalan Baru,
Penang. The company plans to apply for either Pioneer Status or Investment Tax
Allowance. The projected figures for the first two years of operations are as follows:
2019 2020
Tax Rate 24% 24%
Statutory Income 500,000 4,500,000
Qualifying Capital
Expenditure :
- Building 25,000 -
- Plant and Machinery 700,000 1,700,000
Advise the company as to whether it should apply for Pioneer Status or Investment Tax
Allowance in respect of tax benefits of the project. Support your answer with appropriate
computations. (25 Marks)
152
Tutorial 5-3
1. Pioneer status is granted to all companies participating in a promoted activity or
producing a promoted product. List FIVE (5) gazette of the promoted products or
activities and state their Section under Promotion of Investments Act 1986. (5 Marks)
2. Sri Gedung Sdn. Bhd. (SME) submitted an application for incentives on 1st January
2015 and received approval for Investment Tax Allowance (of 60%) on 1st March
2015. The relevant information for year assessment 2020:
 Qualifying capital expenditure RM2,000,000

 Adjusted income from business is RM1,800,000
 Capital allowances is RM1,000,000
 Interest income RM20,000

i. calculate the tax payable of Sri Gedung Sdn. Bhd. for the relevant year assessment
2020.
ii. show the exemption income account for the relevant year assessment 2020.
(15 Marks)
Tutorial 5-4
1. What is Exempt Income Account? (5 Marks)
2. Classify FIVE (5) expenses incurred by resident companies for the purpose of seeking
opportunities for the export of products manufactured in Malaysia are eligible for a
double deduction against taxable.(5 Marks)
3. Syarikat Habeida Sdn. Bhd. is registered company in Malaysia on 1.3.2009. They are
manufactured 70% of the promoted product and approved as the pioneer company on
1.10.2016. The location of manufacturing factory is in Kelantan. The information
about pioneer business for the year 2020 as follow :
a) Adjusted Income is RM1,000,000

b) Capital Allowance is RM550,000
Compute the Tax Payable for the Syarikat Habeida Sdn. Bhd. in year of assessment
2020 and shows the balance in Exempt Income Account. (10 Marks)
153
Tutorial 5-5
Penaga Sdn. Bhd., a resident company is interested to set up factory in Bakar Arang,
Kedah. The company intends to manufacture promoted product which is eligible for the
tax incentives under the Promotion of Investment Act 1986.
The forecast financial information for this venture is as follows:
Year of Assessment Qualifying Capital Expenditure Statutory Income

RM’000 RM’000
2020 1,200,000 Nil (refer note i)
2021 4,000,000 Nil (refer note i)
2022 - 5,300,000
Notes:
i. The forecasted adjusted losses for the year of assessment 2020 and 2020 are
ii. Interest income of RM80,000 per annum from financial institutions in Malaysia are
to be receivable for the years of assessment 2020 until 2021.
iii. The company will contribute cash donation of RM30,000 to an approved institution
in the year assessment of 2021.
Required:
For the year of assessment 2020, 2020 and 2021, compute the chargeable income and the
amount to be credited to the exempt income account assuming that the company, Penaga
Sdn. Bhd. utilizes Investment Tax Allowance under Promotion of Investments Act 1986.
(25 Marks)
Tutorial 5-6
Wildan Firdausi Sdn.Bhd., a resident company located in Pulau Pinang, involves in
manufacturing promoted products which is eligible for investment incentives. The
summarised adjusted income/(losses) and capital expenditure for the relevant years are
as follows:
Year ending 30 June 2019 2020

RM RM
Adjusted income / (loss) 300,000 2,000,000
Balancing charge 30,000 -
Capital allowance for the year 370,000 300,000
Capital expenditure:
Buildings 2,220,000 -
Plant and machinery 260,000 1,600,000
Office equipment 340,000 240,000
Motor vehicles 560,000 -
154
Note:
There are unabsorbed business losses from the year of assessment 2017 amounted to
RM120,000.
Required:
i. Compute the chargeable income and the amount to be credited to the exempt
income account by Wildan Firdausi Sdn. Bhd. for both investment tax allowance
and pioneer status for all the relevant years of assessment. (20 Marks)
ii. Advise Wildan Firdausi Sdn Bhd whether to apply for investment tax allowances or
pioneer status incentives. (Give reasons to support your answers). (5 Marks)
Tutorial 5-7
1. SAMOZA Sdn. Bhd., a resident company located in Tanjung Malim, Perak,

manufactures and sells Product Alpha which is a promoted product. SAMOZA Sdn.
Bhd. is deciding whether to apply Pioneer Status or Investment Tax Allowance.
Below is the forecasted pertaining to Product Alpha:
Year of Capital Qualifying Capital Adjusted Income /

Assessment Allowance Expenditure Loss
(RM’000) (RM’000) (RM’000)
2018 400 1,000 (700)
2019 2,400 3,000 5,000
2020 800 NIL 10,300

a) compute the exempt income and total income under the Pioneer Status and
Investment Tax Allowance incentives. (15 Marks)
b) based on your calculation above, explain which incentive should SAMOZA Sdn.
Bhd. (5 Marks)
2. There are a number of incentives introduced by the Income Tax Act 1967. One of
them is Double Deduction for expenses which it allowed a deduction on certain
expenses in determining the adjusted income. Give FIVE (5) examples of
expenditure which allowed for Double Deduction incentive. (5 Marks)
155
Tutorial 5-8
Fiya Sdn. Bhd. submitted an application for incentives on 5.1.2018 and received approval
for investment tax allowance (of 60%) on 1.3.2018. The relevant information is as
follows:
y.e. 30.12.2019 y.e. 30.12.2020
RM RM
Qualifying capital expenditure 1,000,000 600,000
Adjusted income from business 900,000 1,500,000
Capital allowances 500,000 600,000
Interest income 10,000 50,000
Compute the total income of Fiya Sdn. Bhd. and state the amount to be credited to the
exempt income account for the relevant YAs. (25 Marks)
Tutorial 5.9
A. Ventech Sd. Bhd. is located in the state of Perlis was granted pioneer status on 1 st
January 2017. The company’s data for year ended 2018, 2019 and 2020 are as
follows:
2018 2019 2020

(RM’000) (RM’000) (RM’000)
Pioneer Business
Sales 8,000 16,000 20,000
Allowable Expenses 6,000 15,000 8,000
Capital Allowance 800 2,500 4,000
Non Pioneer Business

Business Income (loss) (40) 3,000 (4,850)
Capital Allowance 100 500 600
Gross Dividend 1,000 2,000 5,200
Approved Donation 50 100 200

Compute the tax payable and exempt income account for the years of assessment
2018 to 2020 for Ventech Sdn. Bhd.
156
B. Al-Insan Sdn. Bhd. located in the Muadzam state of Pahang set up in house research
and development activities and was granted investment tax allowance by the
Malaysian Industrial Development Authority (MIDA). The relevant information given
by Al-Insan Sdn. Bhd. as follows:
2019 2020
(RM’000) (RM’000)
Qualifying Capital Expenditure 50,000 15,000
Capital Allowance 13,000 18,000
Business Zakat 5,000 7,000
Rental Income 200 300

Compute the total income and amounted credited to exempt income account for the
year of assessment 2019 and 2020 for Al-Insan Sdn. Bhd.
(25 Marks)
Tutorial 5.10
Daisy Cocoa Sdn. Bhd. (SME’s) is located in Banting Selangor manufactures and sells
chocolate product which is a promoted product. Daisy Cocoa Sdn. Bhd. is deciding
whether to apply pioneer status or investment tax allowance. Below is the forecasted
information pertaining to the product for year of assessment 2020:
RM
Net profit 270,000
Capital expenditure 120,000
Capital allowance 38,400
Non allowable expenses 21,000
Donation to an approved 3,600
institution
a) Calculate tax payable of :
(i) Daisy Cocoa Sdn. Bhd. for year of assessment 2020, if it opted for the pioneer
status. (10 Marks)
(ii) Daisy Cocoa Sdn. Bhd. for year of assessment 2020 if it opted for the
investment tax allowance (start your calculation with statutory income) (5
Marks)
b) Based on your calculation above, propose which incentive should Daisy Cocoa Sdn. Bhd.
choose for the project. (5 Marks)
157
POST QUIZ 5 : INVESTMENT INCENTIVES
a) Tiga Sdn Bhd which is located in Sandakan, Sabah was granted investment tax
allowance for producing promoted product commencing from 1 January 2020 and
incurred capital expenditure of RM80,000. Net profit for year of assessment 2020 is
RM120,000, capital allowance is RM27,200 and non-allowable expenses of RM15,000.
i. Calculate tax payable for Tiga Sdn Bhd for year of assessment 2020 with
investment tax allowance incentive. (10 Marks)
ii. Calculate tax payable for Tiga Sdn Bhd of opted pioneer status. (Start your
calculation with statutory income). (5 Marks)
iii. Based on your calculation above, propose which incentive should Tiga Sdn Bhd.
choose for the project. (5 Marks)
b) Double deduction for promotion export is one of the investment incentives that may be
granted to any resident company in Malaysia. Propose TWO (2) double deductions for
promotion export for the company who wants to enjoy this incentive. (5 Marks)
158
6 CHAPTER 6 : TAX PLANNING & AVOIDANCES (CLO1, CLO2 & CLO3)
OBJECTIVES
 Tax planning and avoidance.
 Employment versus Self-employment.
 Remuneration packages, corporate structure and dividend flows, business
operations and restructuring of activities
 Tax planning for individual, sole proprietorship or business and company.
PRE-QUIZ 6 : TAX PLANNING & AVOIDANCE
(a) What are the tax planning and tax avoidance? (2 Marks)
(b) List FIVE (5) ways to make the tax planning for employment income. (5 Marks)
(c) As a result of an accident, Wahab is unable to work and is registered as a disabled

person. However, he received some compensation money and has been able to
invest it in producing income. Wahab and his wife (Mina) have been looking at their
tax situation for the year of assessment 2020. The details of their income and claims
are as follows :
Items Wahab Mina (RM)

(RM)
Business 100,000
Interest on bank saving account (gross) 12,000
Rental 18,000
Salary 60,000
Dividend (ASB Saving) 1,200
EPF Deducted from Salary (12,000) (5,500)
Life Insurance Premium Paid (1,200) (2,160)
Own medical expenses for a severe disease (5,000)
Donation paid to an approved institution (1,000)
Books and Journals (500)
Wahab and Mina have three children. The eldest is studying in local university. The
other two are under 18 years old, but one child is disabled.
You are required to compute :

i. the amount of tax saving either they choose joint assessment or separate
assessment for the year of assessment 2020. They are decided to claim 50 percent of
the child relief. (20 marks)
ii. refer to the situation above, advise Encik Wahab and Puan Mina, how to reduce their
income tax effectively. (10 Marks)
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6.1 INTRODUCTION
The objective of income tax planning is to eliminate, minimize or defer income tax
within the ambit of the law, i.e. the act. The aspect of tax planning involves a detailed
knowledge of not only the relevant legislation but also the practice of the IRB and case
law developments.
6.2 TAX PLANNING
Tax planning is a skillful exercise in creating and implementing strategies to avoid or

mitigate tax liabilities which would otherwise fall on a person. Tax planning revolves
around planning tax-effective remuneration packages and maximizing tax reliefs.
6.3 TAX AVOIDANCE
 Tax avoidance is the reduction of one’s tax liability by means which are in them,
legal.
 Tax avoidance is the legitimate arrangement of one’s financial affairs without
violating any tax laws to achieve a reduction of the incidence of taxation.
However, there exist some grey areas between tax evasion and tax avoidance.
 Tax planning or tax avoidance is the same which is the taxpayer reduce their tax
liability by legal activities.
6.4 TAX EVASION
 Tax evasion is involves the same result (reduce the tax liability) but by means
which result in the commission of an offence.
 Illegal activities by taxpayer to reduce the tax liability (tax payable). Examples
of tax evasion are understating income/sales, overstating purchases/expenses or
failing to submit tax returns.
 5 situations that could be perceived as ‘Evade’ as stated in Section 114,

Income Tax Act 1967:
i. Fraud– declaration of an untruth with an intention to deceive. For example,

keeping 2 sets of accounts with the motive of concealing income.
ii. Willful Default – default of some grave and serious kind amounting to an
omission or act of duty under the ITA. A taxpayer must be aware that he is
committing a breach of his duty and does so recklessly not caring whether
his act or omission is or not a breach of duty.
iii. Negligence – Negligence is less severe than fraud and willful default. A
taxpayer who was unaware that while making his income tax returns, he
omitted certain items of income is guilty of negligence and not fraud or
willful default. However, the tax consequence in Malaysia is the same. The
12-year limit does not apply [section 91(3)(b) of ITA]. This will be revised
to 7 years.
iv. Specific Omissions - A taxpayer may have specifically omitted certain
items such as rental income or dividends. Such an omission could also
constitute negligence, fraud or willful default.
160
v. Where the husband does not disclose his wife’s income, this could also
be construed as negligence or willful default, depending on the
circumstances. Where the husband had full knowledge of the wife’s income,
an omission or understatement of the wife’s income in return would
constitute fraud, willful default or negligence.
6.5 EMPLOYMENT VERSUS SELF-EMPLOYMENT
Employment Self-employment
Definition Employment is defined in Sec 2 of  Sec 2 of the Act defines ‘business’ to
the Act to mean: include profession, vocation and trade
a) Employment in which the and every manufacture, adventure or
relationship of master and concern in the nature of trade, but
servant subsists ; excludes employment.
b) Any appointment or office  The definition of business is, however,
whether public or not and not exhaustive, it may expand
whether or not that depending on the circumstances
relationship subsists, for around it. Taxpayer can have more than
which remuneration is one business sources within a year of
payable. assessment.
Income  Assessable under Section 4(b) :  Assessable under Section 4(a) : Business
Tax Act Employment Income Income
(ITA)  Employment income relates to
regulations an employee, a consideration
paid by an employer for the
service rendered.
 Sec 13(2)(a), the employment
income would be deemed
derived from Malaysia, if the
employment exercised in
Malaysia.
Tax Payer Individual Sole Traders (owner) and Partnership
Business (Partners)
Tax  Increase the exempted income  Plan to set up the business entity ; sole
Planning (including Sec. 13(1)(a) – Sec. traders and partnership or company
13(1)(e) such as benefit in kind  Do the allowable expenses ; business
for medical and dental etc. purposes
 Structured the salary and  Decrease or avoid in non-deductible
allowance ; accept non-taxable expenses (non-business purposes) such
allowance as for personal expenses, remuneration
 Maximize the personal relief for owner, fine and penalties, etc.
such as medical and  Plan the date for purchase of new fixed
education insurance RM3,000, assets and claimed the Capital
SSPN RM8,000 (w.e.f 2020) etc. Allowance.
 Personal Rebate – chargeable  Increase in the double deduction
income must be less than expenses such as hiring more disabled
RM35,000 to get RM400 rebate, workers etc.
rebate zakat (fully claimed).  Increase the income but into the non-
161
Employment Self-employment
 The flexible tax rate for taxable income
individual  Do the donations for approved
 Keep 7 year tax documents. institutions (keep the receipts)
 Maximize the personal relief such as
medical and education insurance
RM3,000, SSPN RM8,000 (w.e.f 2020),
Life Style (RM2,500), Life Insurance
(RM3,000) & EPF (RM4,000) etc.
 Personal Rebate – chargeable income
must be less than RM35,000 to get
RM400 rebate, rebate zakat (fully
claimed).
 The flexible tax rate for individual
 Keep up to 7 years all the tax
documents.
6.6 INTRODUCTION TO THE CORPORATE STRUCTURE AND DIVIDEND FLOWS
6.6.1 Meaning of Corporate Structure and Dividend Flows
Board members can be divided into three categories:
 Chairman – Technically the leader of the corporation, the chairman of the board
is responsible for running the board smoothly and effectively. His or her duties
typically include maintaining strong communication with the chief executive
officer and high-level executives, formulating the company's business strategy,
representing management and the board to the general public and shareholders,
and maintaining corporate integrity. A chairman is elected from the board of
directors.
 Inside Directors – These directors are responsible for approving high-level

budgets prepared by upper management, implementing and monitoring business
strategy, and approving core corporate initiatives and projects. Inside directors
are either shareholders or high-level management from within the company.
Inside directors help provide internal perspectives for other board members.
These individuals are also referred to as executive directors if they are part of the
company's management team.
 Outside Directors – While having the same responsibilities as the inside directors
in determining strategic direction and corporate policy, outside directors, are
different in that they are not directly part of the management team. The purpose
of having outside directors is to provide unbiased and impartial perspectives on
issues brought to the board.
162
Management Team
As the other tier of the company, the management team is directly responsible for the
day-to-day operations (and profitability) of the company.
 Chief Executive Officer (CEO) – As the top manager, the CEO is typically
responsible for the entire operations of the corporation and reports directly to
the chairman and board of directors. It is the CEO's responsibility to implement
board decisions and initiatives and to maintain the smooth operation of the firm,
with the assistance of senior management. Often, the CEO will also be designated
as the company's president and therefore also be one of the inside directors on
the board (if not the chairman).
 Chief Operations Officer (COO) – Responsible for the corporation's operations, the
COO looks after issues related to marketing, sales, production and personnel.
More hands-on than the CEO, the COO looks after day-to-day activities while
providing feedback to the CEO. The COO is often referred to as a senior vice
president.
 Chief Finance Officer (CFO) – Also reporting directly to the CEO, the CFO is
responsible for analyzing and reviewing financial data, reporting financial
performance, preparing budgets and monitoring expenditures and costs. The
CFO is required to present this information to the board of directors at regular
intervals and provide this information to shareholders and regulatory bodies
such as the Securities and Exchange Commission (SEC). Also usually referred to
as a senior vice president, the CFO routinely checks the corporation's financial
health and integrity.
6.6.2 Disposal of business operations and restructuring of activities
A significant modification made to the debt, operations or structure of a company. This

type of corporate action is usually made when there are significant problems in a
company, which are causing some form of financial harm and putting the overall
business in jeopardy. The hope is that through restructuring, a company can eliminate
financial harm and improve the business.
When a company is having trouble making payments on its debt, it will often
consolidate and adjust the terms of the debt in a debt restructuring. After a debt
restructuring, the payments on debt are more manageable for the company and the
likelihood of payment to bondholders increases. A company restructures its operations
or structure by cutting costs, such as payroll, or reducing its size through the sale of
assets. This is often seen as necessary when the current situation at a company is one
that may lead to its collapse.
163
6.7 TAX PLANNING FOR THE INDIVIDUAL, SOLE PROPRIETOR BUSINESS AND
COMPANY BUSINESS
6.7.1 Tax Planning for the Individual
In general, personal tax planning involves the following areas:
A) Resident status (resident can claim personal relief, personal rebate and flexible
tax rate)
B) Structured remunerations ; salary and allowance (refer the exempted
allowance)
C) Other incomes ; exempted income such as dividend (from all sources)
D) Do approved donations (7% from AI compare to donate)
E) Personal relief (maximize or fully expense in the personal relief)
F) Personal rebate (maximize in zakat and if CI less RM35,000 personal rebate for
taxpayer and spouse)
G) Monthly Tax Deduction – submit the tax return to clarify the actual tax payable.
H) Keep the tax documents for 7 years.
I) and others tax planning
A) Resident Status
Section 7 Criteria Notes

7 (1) (a) a) In Malaysia Physical presence is
b) At least 182 days required
c) Need not to be consecutive
7 (1) (b) Two scenarios :
a) i. Physical presence in January (need not to be 1.1)
ii. ≥ 182 consecutive days in previous year
iii. Permitted temporary absence forms part of ‘such ‘such period’ (short
period’ or ‘that period’. period)
b) i. Physical presence in January (need not to be
31.12) ‘that period’ (long
ii. ≥ 182 consecutive days in the following year period)
Permitted temporary absence forms part of ‘such
period’ or ‘that period’.
7 (1) (c) a) Physical presence in Malaysia ≥ 90 days in that year
b) 3 out of 4 immediately preceding years Need not to be a
c) Either : consecutive period(s).
i. Resident or Need not to be
ii. ≥ 90 days consecutive days
7 (1) (d) a) Physical presence in Malaysia < 90 days (0-89 Need not to be
days) in that year physically present in
b) 3 immediately preceding years is resident. that year.
c) The following year is resident
164
Example 6-1
Noah arrived in Malaysia on 1 July 2019 to take up one-year local employment with
Asiaplus Sdn. Bhd. His wife accompanied him but his three children (under age of 18)
remained behind in Australia to continue with their schooling. Details of his one-year
remuneration up to 30 June 2020 are:
RM
Salary 300,000
Benefits in Kind (say) 18,000
318,000
Noah has made no overseas trip during his period of employment but he has booked
flights for a social visit to Australia on 1 January 2020 with the intention of returning
on 20 January 2020.
a) Determine the resident status and tax payable by Noah for YA 2019 and 2020?
(10 Marks)
b) Advise Noah on any alternative [suggest a date of departure and return] that
could reduce his tax payable for YA 2020. (15 Marks)
1) Determine the resident status
Duration Days YA Resident Status

1.7.2019 – 184 days 2019 Resident Sec. 7(1) (a)
31.12.2019
1.1.2020 – Social visit (20 Not Temporary absence (more than 14
20.1.2020 days) days)
21.1.2020 – 161 days 2020 Non Resident
30.6.2020
2) Compute the incomes received
YA 2019 YA 2020
Resident Non-
Resident
Salary [300,000 x 6/12] 150,000 150,000
Benefit in Kind [18,000 x 6/12] 9,000 9,000
TOTAL INCOME 159,000 159,000
(-) Personal Relief
Tax Payer (9,000) -
Wife (4,000) -
Children (3 x 2,000) (6,000) -
165
3) Compute the tax payable
RM
YA 2019 1st 100,000 10,900
(resident) Next 40,000 x 24% 9,600
20,500
YA 2020 Sec. 4 (b) : Employment Income
(non-resident) 159,000 x 30% 47,700
4) Determine the resident status (if depart from 1.1.2020 and return on 14.1.2020)
Duration Days YA Resident Status

1.7.2019 –
184 days 2019 Resident Sec. 7(1) (a)
31.12.2019
1.1.2020 – Social visit (14
Temporary absence
14.1.2020 days)
15.1.2020 –
167 days 2020 Resident Sec. 7(1) (b)
30.6.2020
5) Compute the incomes received
YA 2019 YA 2020
Sec. 4(b) : Employment
Salary [300,000 x 6/12] 150,000 150,000
Benefit in Kind [18,000 x 6/12] 9,000 9,000
TOTAL INCOME 159,000 159,000
(-) Personal Relief
Tax Payer (9,000) (9,000)
Wife (4,000) (4,000)
Children (3 x 2,000) (6,000) (6,000)
6) Compute the tax payable

YA 2019 YA 2020
YA 2019/2020 1st 100,000 10,900 10,900
(resident) Next 40,000 x 24% 9,600 9,600
TOTAL TAX PAYABLE 20,500 20,500
Advised:
If he return on 14.1.2020, Noah can reduced his tax payable for YA 2020
amounted RM24,020 (tax savings RM47,700 – RM20,500 = RM27,200)*
166
B) Non-Resident Status (employed for 60 days in Malaysia)
An individual employee can only have 60 days exemption for two year of assessment if
there is a link period between year 1 and 2. In order to have an exemption period of 60
days for each year of assessment, an employee should break the link (between 31
December and 1 January of the following year). He should be outside Malaysia during 31
December and 1 January only. Paragraph 21, Sch. 6 of the Act allows a person’s
employment income to be exempted if all the following conditions are satisfied:
a) He is an individual
b) He exercised the employment in Malaysia for not more than 60 days or for not
more than 60 days spanning two years and
c) He was not a Malaysian resident.
Example 6-1
Dania Chen (a Hong Kong resident) exercised employment in Malaysia for the following
periods :
12.12.2019 – 31.12.2019 20 days Employment

1.1.2020 1 days Holiday in Malaysia
2.1.2020 – 20.2.2020 50 days Employment

The employment income for the 70 days will be taxed because the continuous period
overlaps the basis years for two consecutive YA. (Paragraph 21(b), Sch. 6).
Example 6-2
Using the same example as above, if Dania Chen spent the New Year holiday in
Singapore between 31.12.2019 and 1.1.2020 and was only back in Malaysia on
2.1.2020, then
Duration Days
12.12.2019 – 30.12.2019 19 days Employment
31.12.2019 - 1.1.2020 2 days Holiday in Singapore
2.1.2020 – 10.2.2020 40 days Employment
Solution for example 6-2 :
Individual – Dania Chen, Non-Resident – Hong Kong, Employment – 60 days, Duration –

31.12 & 1.1
YA 2019 19 days Exempted Para 21(a), Sch. 6
YA 2020 40 days Exempted Para 21(a), Sch. 6
167
C) Format to Compute the Tax Payable
Puan Dba : Computation of Chargeable Income for YA 2020

RM RM
Section 4 (a) : Business Income
Net Profit XX
(-) Other income : Dividend/Interest/Rental/Royalty (X)
(+) Non Allowable expenses/any item :
Personal Expenses X
Remuneration for owner [Salary/Allowance] XX
(-) Double Deduction : Disable worker’s salary (X)
ADJUSTED INCOME XX
(+) Balancing Charge X
(-) Balancing Allowance (X)
Capital Allowance (XX)
STATUTORY INCOME FROM BUSINESS XXX
Section 4 (b) : Employment Income
Sec 13 (1) (a) : Received in cash
Salary/Leave pay/Bonus/Gratuity/Fees/Commission/Entertainment Allowance/Travelling
Allowance/ Share option/Interest Subsidy/ Wages/Perquisites/Childcare Benefits
Allowance/Parking Fees Allowance (exempt)/Meal Allowance (exempt)
XX
Sec 13(1) (b) : Benefits in Kind
Car/Fuel/Driver (7,200)/Gardener (3,600)/Domestic Servant (4,800)/Furniture
(3,360/1,680/840), Service charges and other bills (e.g. water & electricity (paid)/ Mobile
Phone (Exempt)/Medical & Dental (Exempt)/Childcare Benefits (exemption up to RM2,400
per annum)/Leave Passage (less exemption)/Club Membership Fees/Utilities/Insurance
Premium, Parking Fees (exempt), Meal Coupon (exempt)
Sec 13(1) (c) : Living Accommodation

i) i. 30% x Section 13(1)(a)
@ Defined Value of living accommodation – lower or XX
ii) ii. Hotel : 3% x Section 13(1)(a) or
iii) iii. General Director : Defined Value of living accommodation
Sec 13(1) (d) : Withdrawal of money from unapproved fund

- Employer’s portion (employee’s portion is exempted) XX
- Interest/bonus – received from the unapproved fund XX
Sec 13 (1) (e) : Compensation for loss of employment (less XX

exemption)
GROSS INCOME FROM EMPLOYMENT XX
Less : Section 33 and Section 38 Expenses (allowable expenses)

Travelling/ Entertainment/ Rental/ Subscriptions to professional bodies (x)
STATUTORY INCOME FROM EMPLOYMENT XXX
Section 4(c) : Dividend (Imputation System or Single XXX
Tier)/Interest/Discount
Section 4(d) : Rental/Royalty (Less Exemption)/Premium XXX
168
Puan Dba : Computation of Chargeable Income for YA 2020
Section 4(e) : Pension/annuity/periodicals XXX
Section 4(f) : Other profits or gains XXX
Less :
Current Year Loss (x)
Donations to approved institutions (other institution - restricted to 7% of (x)
aggregate income)
TOTAL INCOME XXX
Less : Personal Relief
Tax Payer/Spouse/Supporting Equipment etc. [refer to page 146] (x)
CHARGEABLE INCOME XXX XXX
TAX PAYABLE [refer to page 144]
1st RMxxx XX
Next RMxx x % XX
XX
Less : Rebates [refer D & E] (XX)
TAX PAYABLE NET XXX
A) Types of Employment Income and Taxable Value
Types of Employment Taxable Value

Income
Cash remuneration; e.g. Total amount paid by employer. Certain
salary, bonus, allowances/perquisites are EXEMPTED from tax. Please refer
allowances/perquisites. to “Perquisites” below. (B)
Benefits-in-kind; e.g. Based on formula or prescribed value method. Certain
motorcar and petrol, driver, benefits are EXEMPTED from tax. Please refer to “Benefits-in-
gardener, etc. kind” below. (C)
Housing accommodation
(unfurnished) Lower of 30% of cash remuneration* or defined value of
 Employee or service accommodation.
director Defined value of accommodation
 Directors of controlled
companies
Hotel accommodation for 3% of cash remuneration*
employee or service
director
Withdrawal from Employer’s contribution
unapproved pension fund
Compensation for loss of Total amount paid by employer. Exemption is available under
employment specified conditions.
* Cash remuneration does not include equity-based income
169
B) Perquisites and Taxable Value
The IRB issued Public Ruling 2/2013 for the valuation of perquisites given to
employees. Below are some examples of perquisites :
Perquisites Taxable Value

Petrol card/petrol or Total amount paid by employer. EXEMPTION available up
travel allowances and to RM6,000 per annum if the allowances/perquisites are
toll rates for official duities.*
Childcare Total amount paid by employer. EXEMPTION available up
subsides/allowances to RM2,400 per annum.*
Parking Fully EXEMPTED *
fees/allowances
Meal Allowances Fully EXEMPTED *
Interest on load Loans totaling RM300,000 for housing/passenger motor
subsidies vehicles and education. *
Award Total amount paid by employer. EXEMPTION available up
to RM2,000 per annum for the following of award :
* long service (more than 10 years of employment with the
same
employer)
* past achievement
* service excellent, innovation or productivity award
* EXEMPTIONS are not extended to directors of controlled companies, sole proprietors
and partnerships.
C. Benefits-in-kind (BIK) and Taxable Value
The IRB has issued Public Ruling 3/2013 for the valuation of BIK provided to
employees. The values of BIK provided for an employee mat be determined by either of
the following methods :
 Formulate method or
 Prescribed value method
Under the formula method, annual value of BIK provided an employee is computed
using the following formula:
[Cost of the asset provided as a BIK/amenity] = Annual Value

Prescribed Life Span of the Asset (Years)
170
Benefits-in-kind (BIK) Prescribed Benefits-in-kind (BIK) Prescribed Life
Life Span of Span of the Asset
the Asset (Years)
(Years)
Motorcar 8 Entertainment and Recreation :
Furnishings :  Organ 10
 Air-conditioner 8
 Curtains & Carperts 5  Piano 20
 Furniture 15  Stereo set, TV, video 7
recorder, CD/DVD
player
 Refrigerator 10  Swimming pool 15
(detechable), sauna
 Sewing Machine 15  Miscellaneous 5
 Kitchen, utensils or 6
equipmet
Under the prescribed value method the following are some values of BIK prescribed in
the Ruling :
Benefits-in-kind (BIK) Value Per Year

Household furnishings, apparatus & appliances :
 Semi-furnished with furniture in the lounge, RM840
dining room and bedroom.
 Semi-furnished as above and with air- RM1,680
conditioners or carpets or curtains
 Fully furnished RM3,360
 Service charges and other bills (e.g. water, Charges and bills paid by
electricity) employer
Prescribed value of other benefits :
 Driver RM7,200 per driver
 Domestic Servants RM4,800 per servant
 Gardeners RM3,600 per gardener
 Corporate recreational club membership Membership subscriotion
paid by employer
The followung are some exemptions for certain BIK : *
Benefits-in-kind Exemption
Leave passages i. One (1) overseas leave passage up to a
maximum of RM3,000 for fares only; or
ii. Three (3) local leave passages including fares,
meals and accommodation.
Employers’ goods provided free Exemption is available up to RM1,000 per annum.
or at a discount Any benefit exceeding RM1,000 will be subject to tax.
Employers’ own services Fully exempted
provided full or at a discount
Maternity expenses & Fully exempted
171
Benefits-in-kind Exemption
traditional medicines
Telephone (including mobile Fully exempted, limited to one unit for each asset.
telephone), telephone bills,
pager, personal data assistant
(PDA) and broadband
subsciption
* EXEMPTIONS are not extended to directors of controlled companies, sole proprietors
and partnerships.
Standard rates for motorcar and fuel provided :
Cost of car (when new) Annual Prescribed Annual Prescribed benefit

(RM) benefit of motorcar (RM) of fuel* (RM)
Up to 50,000 1,200 600
50,001 – 75,000 2,400 900
75,001 – 100,000 3,600 1,200
100,001 – 150,000 5,000 1,500
150,001 – 200,000 7,000 1,800
200,001 – 250,000 9,000 2,100
250,001 – 350,000 15,000 2,400
350,001 – 500,000 21,250 2,700
500,001 and above 25,000 3,000
* Employee is given a choice to determine fuel benefit based on annual prescribed
rates or exemption available for petrol usage.
Exercise 6-1
Which is the following remuneration to be assessed under Sec. 13(1)(a) or Sec.

13(1)(b)?
Sec. Sec. Taxable

13(1)(a) 13(1)(b) or Non-
Taxable?
a) Car insurance premium, road tax, parking and
car maintenance charges on employees’ car
b) Credit card facilities :
i. Annual membership fees, private purchases of
employees
ii. Used exclusively for performing employees’
duties
c) Electricity, water and telephone bills :
i. Under the employees’ name
ii. Under the employers’ name
d) Gardener, driver, domestic servant, guard :
i. Employed by employer
ii. Employed by employee or reimbursement to the
employee
172
Sec. Sec. Taxable
13(1)(a) 13(1)(b) or Non-
Taxable?
e) Goods provided to employees free/discount
price :
i. House, car (market price – the amount paid by
employee)
ii. Consumables/kinds
f) The petrol card or petrol allowance or travelling
allowance and toll card for official duties up to
RM6,000 a year.
g) Telephone and mobile phone, telephone bills,
pager, personal data assistant (PDA) and internet
subscription.
h) Membership in recreation clubs :
iii. Individual membership (annual + entrance +
term fees)
iv. Corporate membership (annual fees)
B) Income Tax Rate (resident individual/business)
CHARGEABLE INCOME YA 2018 to YA2019 YA 2020

Rate (%) RM Rate (%) RM
0 - 5,000 0 0
First 5,000 0 0
Next 15,000 1 150 1 150
On 20,000 150 150
Next 15,000 3 450 3 450
On 35,000 600 600
Next 15,000 8 1,200 8 1,200
On 50,000 1,800 1,800
Next 20,000 14 2,800 14 2,800
On 70,000 4,600 4,600
Next 30,000 21 6,300 21 6,300
On 100,000 10,900 10,900
Next 150,000 24 36,000 24 36,000
On 250,000 46,900 46,900
Next 150,000 24.5 36,750 24.5 36,750
On 250,000 46,900 46,900
Next 150,000 24.5 36,750 24.5 36,750
On 400,000 83,650 83,650
Next 200,000 25 50,000 25 50,000
On 600,000 133,650 133,650
Next 400,000 26 104,000 26 104,000
On 1,000,000 237,650 237650
Exceeding/Next 1,000,000 28 …. 28 280,000
On 2,000,000 517,650
Exceeding 2,000,000 30 …..
173
C) Tax Rate for Non-Resident (Individual/Business)
i. Non-resident under Malaysia tax law, who are stay less 182 days in Malaysia in
a year regardless of citizen or nationality.
ii. It will be not taxable if :
 Employed in Malaysia for less than 60 days

 Employed on board a Malaysian ship
 Age 55 years old and receiving pension from Malaysia employment
 Receiving interest from banks
 Receiving tax exempt dividends
iii. If taxable, the non-resident are required to fill M Form.
Types of Incomes (earned or received from Malaysia) YA 2016 - YA

2019 2020
Business, employment income, discounts, rents, premiums,
pensions, annuities, other periodical payments and other 28% 30%
gains or profits (includes payments received for part-
time/occasional broadcasting, lecturing, writing etc.)
Dividends (single tier) exemption
Public Entertainer’s professional income 15%
Interest 15%
Royalty 10%
Special classes of income :
 Rental of moveable property
 Technical or management services fees (only
services rendered in Malaysia are liable to tax. 10%
However, from 17.1.2017 to 5.9.2017, services
rendered in and outside Malaysia are liable to tax.
Income other than the above
D) Personal Tax Relief – YA2019 and 2020 (source : www.hasil.org)
No. Individual Relief Types YA YA

2019 2020
(RM) (RM)
1. Individual and dependent relatives 9,000 9,000
Disabled Person (further deduction)- Taxpayer (additional) 6,000 6,000
2. Husband/wife/payment of alimony for former wife 3,500 4,000
Disabled husband/wife (additional) 3,500 3,500
3. Each unmarried child and under the age of 18 years old 2,000 2,000
Each unmarried child of 18 years and above who is receiving 2,000 2,000
full-time education ("A-Level", certificate, matriculation or
preparatory courses).
Each unmarried child of 18 years and above that:
i. receiving further education in Malaysia in respect of an
174
2019 2020
(RM) (RM)
award of diploma or higher (excluding matriculation/
preparatory courses). 8,000 8,000
ii. receiving further education outside Malaysia in respect
of an award of degree or its equivalent (including Master
or Doctorate).
iii. the instruction and educational establishment shall be
approved by the relevant government authority.
Disabled Child 6,000 6,000
Additional exemption of RM8,000 disable child age 18 years
old and above, not married and pursuing diplomas or above
qualification in Malaysia @ bachelor degree or above outside 8,000 8,000
Malaysia in program and in Higher Education Institute that is (add) (add)
accredited by related Government authorities
4. Purchase of breastfeeding equipment for own use for a child 1,000 1,000
aged 2 years and below (deduction allowed once in every 2
years of assessment)
5. Child care fees to a registered child care Centre/kindergarten 1,000 3,000
for a child aged 6 years and below
6. Life insurance and EPF INCLUDING not through salary
deduction
i. Pensionable public servant category
 Life insurance premium
ii. OTHER than pensionable public servant category 3,000 3,000
 Life insurance premium (Restricted to RM3,000)
 Contribution to EPF / approved scheme 4,000 4,000
(Restricted to RM4,000)
7. Education and medical insurance (INCLUDING not through 3,000 3,000
salary deduction)
8. Education fees (self) (restricted to)
i. Other than a degree at masters or doctorate level -
Course of study in law, accounting, Islamic financing, 7,000 7,000
technical, vocational, industrial, scientific or technology
ii. Degree at masters or doctorate level - Any course of
study
9. Medical treatment, special needs and care expenses for
parents (medical condition certified by medical practitioner)
OR 5,000 5,000
Parent (restricted for only one mother) RM1,500
Parent (restricted for only one father) RM1,500
10. Supporting equipment for the disabled taxpayer, spouse, 6,000 6,000
children or parent (max)
11. Medical expenses for taxpayer, spouse and children on 6,000 6,000
serious diseases [include RM500 for medical examination
expenses (max)]
Medical expenses for fertility treatment for taxpayer or (500) (500)
175
2019 2020
(RM) (RM)
spouse
Complete medical examination for self, spouse, child
(restricted)
12. Lifestyle; expenses for the use/benefits of self, spouse or 2,500 2,500
child in respect of :
i. purchase of reading materials (books, journals,
magazines, printed daily newspapers and other
similar publications excluding banned publications),
ii. purchase of personal computer, smartphone or tablet
(not for business use)
iii. Purchase of sports equipment (for sports activities as
defined under the Sports Development Act 1997), and
gymnasium membership fee
iv. Payment of monthly bill for internet subscription
(under own name)
Lifestyle; Purchase of personal computer, smartphone or - 2,500
tablet for self, spouse or child and not for business use
(additional deduction)
(Purchase on 1st June 2020 to 31st Dec 2020)
13. Net deposit in Skim Simpanan Pendidikan Nasional (SSPN) 8,000 8,000
(Total deposit in YA MINUS total withdrawal in YA)
14. Deferred Annuity and Private Retirement Scheme (PRS) 3,000 3,000
(with effect from year assessment 2012 until year assessment
2021)
15. Contribution to the Social Security Organization (SOCSO) 250 250
16. Domestic travel expenses (Accommodation expenses at - 1,000
premises registered with the Ministry of Tourism, Arts and
Culture Malaysia and entrance fees to tourists’ attractions
incurred on or after 1st March 2020)
E) Rebates – YA 2019
Income Tax Rebates For Resident Individual With Chargeable Income Less Than
RM35,000
No. Tax Rebate YA 2009 onwards

(RM)
1. Separate Assessment -
Wife 400
Husband 400
2. Combined Assessment -
Wife 400
Husband 400
Total 800
176
3. Assessment where husband or wife does not has
any total income 400
Wife 400
Husband
F) Income tax rebate for Zakat, Fitrah or any other Islamic religious dues
Full rebate in respect of zakat, fitrah or any other Islamic religious dues paid by tax
resident individuals and evidenced by a receipt.
Note : Where the amount of rebate exceeds the income tax charged, the excess shall not
refunded or be available as a credit to set off the liability for any subsequent year of
assessment.
6.7.2 Tax Planning for Sole Proprietor Business
A) Business Income
The act divides classes of income into 6 categories, as defined in Section 4 of the
Act. These are:
a) Gains or profits from a business, for whatever period of time carried on;
b) Gains or profits from employment;
c) Dividends, interest or discounts;
d) Rents, royalties or premiums;
e) Pensions, annuities or other periodical payments not falling under any of the
above;
f) Gains or profits not falling under any of the above
B) Commencement of Business
Commencement date of a business is important for income taxation because:
a) Pre-commencement revenue expense is not deductible. It is permanent loss.

b) Qualifying Capital Expenditure which is eligible for capital allowance would
be given in the first basis period from the date of commencement.
c) It would affect the selection of the year-end. The first YA that is subject to
income taxation would vary depending on whether a calendar or non-calendar
year-end is chosen. This applies to companies, trust bodies and co-operative
societies.
The tax implications for consideration when commencing business are :
a) Basic Period – The business operator is advised to close his accounts for a
12 month period running from the commencement date in order to avoid
any tax adjustment of the basis period due to overlapping profits. The Act
has been amended to ensure that the adjusted income from the overlapping
period will not be taxed twice. Sole proprietor or partnership has to close its
account to 31 December every year.
177
b) Expenses – Revenue expenses that are wholly and exclusively incurred ‘in
the production of income’ will be tax deductible against the gross income. It
is means the business source must exist and have commenced before such
expenses are incurred. Any expenses incurred prior to commencement will
be not tax deductible. These expenses are mere preparatory in nature in
order to commence business.
c) Current year loss – the current year loss can be deducted from aggregate
income (of both business and non-business income sources) and any excess
amount can be carried forward indefinitely to future years but the set offs is
now restricted to business statutory income and no other sources of income.
Upon commencement of business, the revenue expenses will be deductible

and recorded as a current year loss in the event that there is no income
generated. The availability of the current year business loss means that the
operator will have a lower income tax payable in the current year or future
years (if losses are carried forward).
d) Disposal of assets – the disposal of an asset before the commencement of a

business source is treated as a capital transaction. The gain would be a
capital gain while loss is a capital loss.
C) Pre-commencement business expenses
Pre-commencement business expenditures are not deductible as they are

incurred preparatory to produce income. Such expenses are not incurred ‘in the
production of income’ as required under Section 33 of ITA 1967. The following
pre-commencement expenses are however deductible:
a) Training expenses – incurred by a company in respect of potential

employees prior to commencement of business is deductible at the time of
commencement. Qualifying training expenses means expenditure incurred :
i. On the training of potential employees to impact basic skills to enable the
company to commence its business.
ii. Within the period of one-year period to the commencement of business
iii. Being the kind allowable under Section 33 of the Act.
Companies qualifying for a deduction shall not include:

i. A company receiving training grants from the government;
ii. Small and medium companies (SME’s) claiming double deduction of
training expense under the Income Tax (deduction for Approved
Training) Rules 1992.
b) Incorporation expenses – not deductible as these serve to create a

business structure for the carrying on of a business. Example : Cost of
registration of business (ROB).
c) Number of business sources – a business operator may have more than

one business source. The tax implication factor on capital allowances. Capital
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allowances on business one cannot be utilized against adjusted income of
business two or vise versa. If the asset being used in both businesses, the
capital allowance will be divided among the businesses in accordance to a
reasonable basis such as usage, gross income or agreed ratio as accepted by
the tax authorities.
D) Business Deduction (for Business Income)
Revenue expense : Capital Expenditure : Not deductible

Deductible
i. Business Process i. Initial expenditure in setting up an income earning
asset.
ii. Working expenses ii. Connected with business structure
iii. Circulating capital iii. Acquisition of income earning asset/profit making
apparatus
iv. Recurring iv. Improvement to an asset intangible or tangible
v. Fixed capital
vi. Once and for all
E) Termination of Business
i. Disposal of Plant & Machinery – balancing charge (will increase the tax
payable) or balancing allowance (will reduce the tax payable)
ii. Disposal of land/shophouse – any disposal for more than 5 years (w.e.f YA
2015) will be exempt from RPGT (partnership or sole traders).
iii. Disposal of trading stock – it will be liable to the income tax at the market
price of such stock.
iv. Disposal of trade debtors – used at book value or below it. The loss on
disposing of trade debtors below book value is a capital loss.
v. Tax implication of unabsorbed losses – can be brought forward to other
business sources
Format of Computation Tax Payable for Sole Business
Puan Dba : Tax Payable for YA 2020

RM RM
Section 4 (a) : Business Income
Net Profit xx
(-) Other income : Dividend/Interest/Rental/Royalty (x)
(+) Non Allowable expenses/any item :
Personal Expenses x
Remuneration for owner etc xx
(-) Double Deduction : Disable worker’s salary etc. (x)
ADJUSTED INCOME xx
(+) Balancing Charge x
(-) Balancing Allowance (x)
Capital Allowance (xx)
STATUTORY INCOME FROM BUSINESS XXX
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6.7.3 Tax Planning for Company
a) Residential Status - A company is a resident in Malaysia if at any time during that

basis year the management and control of its business is in Malaysia.
b) The Benefits of SMEs in Malaysia (paid-up capital less than RM2.5 million):
i. Lower corporate tax for SMEs – (1st 600,000 = 17%, next 24%)
ii. Tax incentives for SMEs
 Malaysia offers a wide range of tax incentives, ranging from tax
exemptions to allowances to tax deductions. Allowances can
generally even be carried forward until fully utilized.
 Costs that are incurred on the development of an e-commerce website
for business are given an annual deduction of 20% for 5 years.
 Enterprises in certain service sectors, if wholly owned by Malaysians,
carry out a scheme of merger or acquisition approved by the Small and
Medium Enterprise Corporation Malaysia will receive a flat tax rate of
20% on all income. This flat tax rate will be in effect for 5 years from
the date of completion of the merger. These enterprises will also receive
certain stamp duty exceptions.
c) Incorporated Expenses - not deductible as these serve to create a business

structure for the carrying on of a business. However, a company having an
authorized capital of not exceeding RM2.5 million (SME’s Company) can claim
the following incorporation expenses against its business income at the time the
business commences:
i) The cost of preparing and printing the memorandum of association, the
articles of association and the prospectus and of circulating and advertising
the prospectus,
ii) The cost of registering the company and the statutory documents, together
with fees and stamp duties payable thereon,
iii) The cost of drawing up the preliminary contracts and stamp duties payable
thereon,
iv) The cost of printing debentures and stamp duty (if any) payable thereon and
of share certificates and letters of allotment
v) The cost of the seal of the company, and
vi) Underwriting commission
d) Exempted Incomes (Dividend/Interest/Royalty) [Decrease Tax Payable]
e) Non-Allowable and Allowable Expenses ; Entertainment Expenses – an

entertainment expenses that are wholly and exclusively incurred in the
production of gross income under subsection 33(1) of the ITA is allowed a
deduction of 50% only unless that expense falls within any of it qualifies for a
deduction of 100%.
180
Principles in determining the allowable entertainment expenses;
i. Determine whether the expense falls within the definition of

entertainment as provided under Section 18 of the ITA 1967. No deduction
is allowed as entertainment expense if the expenditure does not fall within
the definition of entertainment.
ii. If the expense falls within the definition of entertainment provided under
Section 18 of the ITA 1967, determine whether the expense is wholly and
exclusively incurred in the production of gross income under subsection
33(1) of the ITA 1967. If the expense is not wholly allowed a deduction. The
test under subsection 33(1) of the ITA 1967 is also applicable to
entertainment expense as it is applicable to other expenses.
iii. If the entertainment expense is allowable under subsection 33(1) of the ITA
1967, determine whether that expense is included in any of the categories of
entertainment expense specified under provisos (i) to (viii) to paragraph
39(1) (I) of the ITA 1967. If the expense is included in any of those provisos,
a deduction of 100% against gross income is allowed. The remaining
entertainment expense which does not fall within the mentioned provisos is
allowed a 50% deduction against gross income.
f) Double Deduction (expenses) [decrease tax payable] ; expenses incurred in

obtaining recognized quality systems, standards and halal certification,
expenditure incurred by companies on the training program, childcare
allowances given to employees, expenses for GST related training of employees
in accounting and ICT and expenditure incurred in participating in career fairs
abroad that are endorsed by TalentCorp.
g) Other investment incentives – pioneer status, Investment Tax Allowance etc.

h) Capital Allowance (purchased fixed asset) [decrease tax payable] – refer to
Chapter 3; 20%, 14%, 10%, 100%, 40%
i) Industrial Building Allowance – refer to Chapter 2; IBA Rate 10% and 3%
j) Real Property Gain Tax – refer to Chapter 4; Rates from 30% to 5%.
k) Disposal of fixed assets – refer to Chapter 3; Balancing Allowance [decreased
tax payable] or Balancing Charge [increased tax payable]
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A) How to compute the tax payable for the company

Net Profit before taxation/(Loss) xx
(-) Non Business Income (must state in Income Statement):
- Dividend x
- Rental x
- Royalty x
- Real Property Gains x
- Profit on Sales of Fixed Asset x
- Others Income x (xx)
GROSS INCOME FROM BUSINESS xx
(+) Non Allowable Expenses/Any Items:
 Expenses that are not incurred x
 Capital Expenditure x
 Expenses related to investment income x
 Section 39 prohibited expenses x
 Donation (include approved and not approved x
institutions)
 Religious Fees – Business Zakat x
 Traffic illegal (employer or employees) x
 Secretary Fees x
 Taxation Fees x
 Compound/Fine x
 Loss on disposal of the assets x xx
xx
(-) Double Deductions:
 Insurance Premium – export or import trading using local x
insurance agency
 Remuneration of disabled workers x
 R&D (refer double deduction notes) x (xx)
ADJUSTED INCOME FROM BUSINESS XXX
Unabsorbed Capital Allowance (previous year - YA 2019 and (x)
below)
Capital Allowance (current year – YA 2020) (x)
Industrial Building Allowance (IBA) (x) (x)
STATUTORY INCOME FROM BUSINESS xxx
(-) Business Loss b/f @ unabsorbed (the same business) (xx)
XXX
(+) Statutory income from others :
- Interest and Discount -
ex/non-
- Rental, Royalty and Premium x
- Others income (excluded dividend) x xx
- Gain on disposal (transferred as a BC/BA) nil
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- Dividend ex
(-) Current Business Loss (x)
(-) Donation for approved institution under Sec 44(6)
- State government (full donation’s amount) x
- Public Library (restricted to RM20,000) x
- Other institutions (restricted to 10% of aggregate income) x
Zakat
- Business Zakat (restricted to 2.5% of aggregate income) @ x (xx)
zakat paid (lower)
CHARGEABLE INCOME (CI) XXX
TAX PAYABLE
** C. If paid-up capital > RM2.5 million
TAX PAYABLE CI x 24% xxx
or
D. If paid-up capital ≤ RM2.5 million (SME’s Company)

Tax payable : First RM600,000 @ CI x 17% xxx
Subsequent CI [(CI-RM600,000) x 24%] xxx
TAX PAYABLE XXX
B) Income Tax Rate for Resident Company
YA 2009 – YA YA YA YA
2015 2016 2017 - 2019 2020
2018
General Company 25% 24% 24% 24% 24%
SME’s Co 1st RM500,000/ 20% 19% 18% 17% 17%

: RM600,000 (YA 2020)
Next 25% 24% 24% 24% 24%
C) Income Tax Rate for Non-Resident Company (YA 2020)

Liable to Malaysian tax when it carries on a business through a permanent
establishment in Malaysia and assessable on income accruing in or derived from
Malaysia.
Types of income (Effective from 1/1/2007) Rate (%)

Business 25
Rental 25
Dividend (Franked) 25
Dividend (Single tier)* 0
Entertainer’s professional income 15
Interest 15
Royalty 10
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Types of income (Effective from 1/1/2007) Rate (%)
Special classes of Income:
 Rental of movable property 10
 Fees for technical or management services performed in Malaysia 10
 Payment for services rendered in Malaysia in connection with use 10
of property or installation or operation of any plant, machinery or
other apparatus purchased from a non-resident person
Real Estate Investment Trust (REIT)
 Other than a resident company 10
 Non-resident company 25
 Foreign investment institution 10
*With the introduction of the single tier dividend system effective 1.1.2008, all
dividends are tax free in the hands of the shareholders. However, companies with
section 108 credit under the old imputation system are given a transitional period until
31.12.2013 to frank normal dividends so as to enable them to exhaust their section 108
credit.
D) Income Exempt From Tax (Company and Individual)
 Compensation for loss of employment and payments for restrictive covenants.

- Full exemption if due to ill health; or
- RM10,000 for every completed year of service with the same employer or
companies in the same group.
 Death gratuities or sums received as consolidated compensation for death or
injuries.
 Dividends paid credited or distributed by co-operative societies to their
members.
 Fees or honorarium (not part of official duties) for validating, moderating or
accrediting franchised educational programmes in higher educational
institutions.
 Foreign income of any person (other than a resident company carrying on the
business of banking, insurance or sea or air transport) arising from sources
outside Malaysia and remitted into Malaysia.
 Grant or subsidy received from the Federal or State Government.
 50% of housing and Labuan Territory allowance received by a Malaysian
citizen from an employment in Labuan entity (YA 2011 to YA 2020).
 Income of any person from the provision of qualifying professional services
rendered in Labuan to a Labuan entity is exempt to the extent of 65% of the
statutory income (YA 2011 to YA 2020).
 Income (other than dividends, lending fees, interest earned on collateral and
rebates) arising from a loan of securities listed on Bursa Malaysia and the return
of the same or equivalent securities and the corresponding exchange of
collateral, in respect of securities borrowing and lending transaction under a
Securities Borrowing and Lending Agreement.
 Income from employment on board a ship (defined) used in a business operated
by a resident owner of a ship registered under the Merchant Shipping Ordinance
1952.
184
 Income from director’s fees received by a non-Malaysian citizen director of a
Labuan entity (YA 2011 to YA 2020).
 50% of gross income of a non-Malaysian citizen from exercising of an
employment in a managerial capacity with a Labuan entity in Labuan, co-located
office or marketing office (YA 2011 to YA 2020).
 Interest paid/credited to non-resident companies; except within the same group
in respect of:
- Government securities; or
- Sukuk or debentures*, approved or athorised by, or lodged with Securities
Commission.
 Interest or bonus, gains or profits received by a resident individual fom
deposits placed in licensed institutions.
 Interest or discount paid/credited to any individual, nit trust and listed closed-
end fund in respect of :
- Bonds or securities issued or guaranteed by the Government
- Debentures or sukuk *, approved or athorised by, or lodged with Securities
Commission; or
- Bon Simpanan Malaysia issued by the Central Bank of Malaysia.
 Interest paid or credited to any individual in respect of Merdeka bonds issued
by the Central Bank of Malaysia.
 Interest paid or credited to any person in respect of any savings certificate
issued by the Government.
 Interest paid or credited to any person (except within the same group or a
licensed bank, licensed islamic bank and prescribed development financial
institution) in respect sukuk originating from Malaysia*, issued in any currency
other than Ringgit and approved or authorised by or lodged with the Securities
Commission or approved by the Labuan Financial Services Authority (Labuan
FSA).
 Green SRI sukuk grant issued in line with the Securities Commission’s
guidelines (applications received from 1.1.2018 to 31.12.2020).
 Pensions which is derived from an employment exercised in Malaysia where the
recipient has reached the age of 55 or the compulsary retirement or retire due to
ill health.
 Prequisites (in cash or in kind) for long service (more than 10 years of
employment with the same employer), past achievement or service excellence,
innovation or productivity award up to an amount or value of RM2,000 per year
of assessment.
 Profits earned by individual investors from investments made between
1.4.2016 to 31.3.2019 trough an Investment Account Platform is EXEMPTED
from tax for 3 consecutive years.
 Retirement gratuities are FULLY EXEMPTED :
- Where the retirement is due to ill health or
- Upon reaching compulsory retirement age pursuant to an employment
contract or collective agreement at the age of 50 but before 55 *
(*employment has lasted 10 years with the same employer or with
companies in the same grooup)
185
 Retirement gratuity or termination payment other than gratuities which are
FULLY EXEMPTED up to an amount not exceeding RM1,000 per completed year
of service.
 Royalties received by an individual resident in Malaysia in respect of :
Amount Exempted per YA RM

Publication of or the use of the right to use any artistic work 10,000
Recording dics or tapes 10,000
Publication of or the use of the right to use any literary work of any 20,000
original painting.
Any musical composition 20,000
 Royalties received by non-resident franchisors from registered private

higher eductional institutions for approved franchised educational programmes.
 Statutory income derived from member’ subscription fees received by trade
associations.
 50% income tax exemption on rental income not exceeding RM2,000 per month
for each residential home, received by Malaysian resident individuals with a
maximum period of 3 consecutive YAs (wef YA 2012 to YA 2020)
*other than convertible loan stocks.
Tax Planning – how taxpayers are planning their tax payable.
Tax Avoidance – minimize the tax payable legally ; declare the taxable income,
maximize in personal reliefs, and etc.
Tax Evasion – minimize the tax payable illegally such understated the income,
overstated in expenses, not registered the business entity, not return the tax form in the
allowed period, not keep tax documents for seven years and not paid the tax.
Tax Planning for individual (employment) :

1) Estimate the tax payable
2) Be resident in Malaysia can claim personal reliefs and rebate.
3) Maximize of tax deductions (personal reliefs) ; insurance, SSPN, lifestyle, and etc.
4) Restructure remuneration package :
 Housing Accommodation (unfurnished)
- employee or service director – Lower of 30% of cash remuneration * or
defined value of accommodation
- directors of controlled companies – Defined value of accommodation
 Petrol card/petrol or travel allowances and toll rates; Total amount paid
by the employer. Exemption up to RM6,000 per annum if the
allowances/perquisites are for official duties**
 Childcare subsidies /allowances; Total amount paid by employer.
Exemption up to RM2,400 per annum**
 Parking fees/allowances; Fully exempted**
 Meal allowances; Fully exempted**
 Interest on loan subsidies; Loans totalling RM300,000 for
housing/passenger motor vehicles and education**
** Exemptions are not extended to directors of controlled companies, sole
proprietors and partnerships.
186
5) Chargeable Income less than RM35,000 per year entitle for rebate (self RM400,
wife/husband RM400)
6) Pay zakat and keep the receipts. (can claim full from tax payable)
7) Fill the tax form or e-filing on time. Declare accurately.
Tax Planning for Sole Traders/Partnership :

1) Register the business entity; either sole trader/partnership or company
2) Keep all the transaction documents ; receipts, invoices and bank statements.
3) Prepare the account accurately.
4) Know the non-taxable and taxable income
5) Increase in allowable expenses and avoid non-allowable expenses.
6) Donate to approved institutions [7% or full]
7) Do double deduction
8) Planning the right time to purchase and dispose the assets. Claim capital
allowance on fixed assets
9) Maximize personal relief, tax rebate, rebate for zakat.
10) Fill the tax form or e-filing on time. Declare accurately.
Tax Planning for Company :

1) Set up the paid-up capital ; SME or Corporate (tax rate 17% and 24% YA2020)
2) Keep all the transaction documents ; receipts, invoices and bank statements.
3) Prepare the account accurately.
4) Know the non-taxable and taxable income
5) Increase in allowable expenses and avoid non-allowable expenses.
6) Donate to approved institutions [10% or full]
7) Do double deduction
8) Planning the right time to purchase and dispose the assets. Claim capital
allowance on fixed assets
9) Fill the tax form or e-filing on time. Declare accurately
**any tax planning reduce tax legally will accepted**
187
TUTORIAL 6
Tutorial 6-1
“Every taxpayer has their right to minimize their taxes legally under Income Tax Act 1967.
The good taxpayer will plan the strategies in making the payment of their taxes with
conscientious.”
a) What are the purposes for a taxpayer to do tax planning? (5 Marks)

b) What does it mean with tax evasion and its impacts besides law and state FIVE (5)
situation that could be perceived as “evade” as stated in Section 114 Income Tax Act
1967? (10 Marks)
c) State FOUR (4) ways on how a new company can plan to minimize their tax liability
under Income Tax Act 1967. (10 Marks)
Tutorial 6-2
Al Fattah Sdn. Bhd. is a trading company incorporated in January 2020 with a paid-up
capital of RM3 million. The company commenced business on 1.3.2020. Its first
accounts were made up to 31 December 2020 and thereafter to 31 December. At the
close of its first accounts, the company computed its adjusted income for tax
purposes at RM33,000 including the following expenditure which was incurred prior
to 31.12.2020.
The preparation and printing of the Memorandum and Articles of RM3,800

Association
The drawing up of the preliminary contracts and stamp duties thereon RM4,100
The seal of the company RM900
The training of 3 contracted employees to impart basic skills to enable the RM7,100
company to commence its business
The company did not receive any training grants from the Government and it did not
qualify for the double deduction of any training expenses. The capital allowances for the
first year of assessment are RM2,100.

a) Determine the basis period of the company for the first year of assessment.
b) Compute the first tax estimate of the company and state when it should be
submitted to the IRB.
c) Advise the company on the payment of its estimated tax in terms of the amounts due
and their timing.
(25 Marks)
188
Tutorial 6-3
a) Briefly explain 2 ways how to reduce the tax liability legally by sole traders.
(4 Marks)
b) Briefly explain 3 ways how to reduce the tax liability legally for the company.
(6 Marks)
Mr. Hambali is a resident and married with five children and still schooling. He has
been offered 2 packages in his job which details shown below. Help Mr. Hambali to
choose which package is more tax efficient. Justify your choice. (Show the
calculation). (15 Marks)
Package A Package B
1. Salary per month RM7,000 Salary per month RM 5,500 and dental
benefit RM150 per month
2. Housing Allowance per month RM800 House provided RM 20,000 per year
3. Entertainment allowance per month Travelling fee in Malaysia provided
RM500 RM2,800
4. Dental fee paid by company RM120 Food and cloth allowance provide by
company RM350 per month
Tutorial 6-4
Encik Elman, a professional engineer has been working with Antar Solid Sdn. Bhd. since
1.7.2011 until he was retrenched on 31.12.2020. He was paid compensation for loss of
employment. He was married on 1.4.2018. His wife, Puan Elisa operates a handicraft
business which reported the following results for the year ended 31.12.2020.
Puan Elisa’s Business Income

RM RM
Sales 316,000
(-) Expenditures :
Purchases 106,000
Shop Rental 24,000
Salaries, EPF ect 36,000
Medical expenses on her parents 12,000
Cash donation to an approved organisation 5,000
Depreciation 6,000 (189,000)
Net Profit 127,000
Notes : Capital Allowance for YA 2020 4,000

Unabsorbed losses b/f from YA 2019 22,000
Encik Elman legally adopted a disabled child, aged 21 on 1.7.2020 and incurred an
amount of RM7,500 in providing him with basic supporting equipment. The child is
currently studying in University of Malaya, Malaysia. The details of Encik Elman’s
remuneration from Antar Solid Sdn. Bhd. for the year ended 31.12.2020 are as follows :
189
Encik Elman’s Remuneration RM
Salary 120,000
Bonus 24,000
Compensation for loss of employment 79,000
Unfurnished Accommodation (annual rental paid by employer) 48,000
Annual leave passage 2,500
Medical Benefits 4,000
Other information is as follows :
Encik Puan
Elman Elisa
Dividend (from ASB) 5,175 4,500
Interest from Fixed Deposit 500 1,200
Life Insurance 2,700 2,200
Medical and education Insurance 3,500 -
Maintenance expenses on a handicapped child 8,000 -
Employees Provident Fund (EPF) contribution 15,840 -

a) Assuming that Puan Elisa elects for separate assessment, compute the tax payable by
Encik Elman and Puan Elisa for the year of assessment 2020. (15 Marks)
b) Compute the tax savings if they choose either separate or joint assessment.
(10 Marks)
Tutorial 6-5
a) What are the TWO (2) purposes for a taxpayer to do tax planning? (2 marks)
b) How to do tax planning for SME’s Company? (3 Marks)
c) Briefly explain FIVE (5) ways how to reduce the tax liability legally for the
company? (5 Marks)
d) Below is the personal tax relief for the year assessment 2020. Fill in the blank with
the accurate answers.
(10 marks)
No. Individual Relief Types Amount

(RM)
1 Employee’s contribution to Social Security Organization
(SOCSO)
2 Spouse
3 Normal Child n study at UiTM (degree)
4 Education Fees (Individual)
5 Medical expenses for serious diseases
6 Net saving in SSPN's scheme
7 Parental care relief
8 Disabled Child and study at Polytechnic
9 Medical Expenses for critical disease
10 Disabled Tax Payer
190
Tutorial 6-6
Double U Sdn. Bhd. (DUSB) is an established profitable manufacturing company. They
need your advice either to choose the Pioneer Status (PS) or Investment Tax Allowance
(ITA) because they are handling promoted project named in-house research. The paid
capital for ESB is RM1 million.
The particulars of the DUSB account for the year ended 31.7.2020 as below:
Double U Sdn. Bhd.

Statement of the Comprehensive Income for the year ended 31.12.2020
RM RM
Sales 2,450,000
Less : Cost of Goods Sold (1,570,000
)
Less : Operational Expenses
Administration Cost 250,000
Marketing Cost 100,000
Financial Cost 50,000 (300,000)
NETT PROFIT 670,000
Other Information :
a) Non-Allowable Expenses RM5,000.
b) Capital Allowance RM25,000.
c) IBA Allowance RM38,000.
d) Qualifying Expenditure for the promoted project RM70,000.

Compute the tax liability for both incentives and compare either PS or ITA is better for
DUSB for the year of assessment 2020. State the amount of tax savings. (25 Marks)
Tutorial 6-7
Dba and Jija are planning to set up their business in fashion. The business location in
Village Design, Penang. To set up business, they have to register their business entity.
Before they register, they need your help regarding tax planning. They also plan to do
online business to market and sell their products.
You are required to advise about :

a) What is the type of business entity they should register?
b) What is the benefits that can be incurred from that business entity?
c) Suggest 5 ways for them to do their tax planning.
(25 Marks)
191
Tutorial 6-8
a) Sayyid has just finished his study at University Science Malaysia at the age of 23
years old. In seeking a job, he has attended several interviews and finally, he has
been offered a remuneration package from two (2) established companies. The
offers are as follows:
Income (Annual) Company A Company B

Gross Salary RM30,000 RM24,000
Bonus 2 months’ salary 2 months’ salary
Entertainment Allowance RM4,000 RM2,000
EPF Contribution 12% 13%
Benefit in kind : Driver Servant
Dental Dental
Food and drinks Gardener
Sayyid intends to select a remuneration package with a low amount of tax payable.

i) Prepare the calculation of tax payable income for Sayyid if he chooses job offered
from Company A (6 Marks)
ii) Prepare the calculation of tax payable income for Sayyid if he chooses job offered
from Company B (6 Marks)
iii) Advice Sayyid which package suits his intention and indicate the amount saved.
(3 Marks)
b) Salim Basyir, a Malaysia resident and a well-known successful Chief Executive

Officer of his company, Samudera Jaya. Salim Basyir has planned to expand
Samudera Jaya by either to acquire another profitable company operates in
Australia or a local company with a high record of unabsorbed capital allowances
and unabsorbed losses.

(i) Identify THREE (3) ways that can be taken by Salim Basyir in tax planning that
could help him to reduce his company’s tax payable. (6 Marks)
(ii) Explain Salim Basyir’s benefit for each of his business expansion plan.
(4 Marks)
Tutorial 6-9
Puan Khalida, 52 years old currently is working as an account executive at Syarikat Jaya
Holding with the following detail of her remuneration for year assessment 2020.
Salary RM36,000
Entertainment allowance RM 3,000
Meal allowance RM 1,500
She is a single mother with two children that are furthering their degree at local
universities. She was thinking to quit from her job and involve in frozen food business.
192
From this business, she estimate to generate revenue and expenses for a year which
shows as follow :
Sales RM100,000
Allowable expenses RM 50,000
Capital allowance RM 10,000

(a) Calculate the chargeable income under employment income of Puan Khalida for
year of assessment 2020. (7 Marks)
(b) Estimate chargeable income for Puan Khalida if she ventures in the frozen food
business and quit from her current job. (8 Marks)
(c) Analyze your answer in (a) and (b) then advise Puan Khalida whether she should
quit or not from her current job and venture with her intended business by
considering her tax payable compared to extra money she might earn by doing so.
(10 Marks)
POST QUIZ 6 : TAX PLANNING & AVOIDANCE
(a) Define the term of tax planning. (4 Marks)
(b) Differentiate between tax evasion and tax avoidance. (4 Marks)
(c) Mr. Fawwaz is a bachelor and staying in Muar, Johor since 2006. He has a 14-
year-old brother who is currently studying in form two and a father who is
handicapped. Mr. Fawwaz total employment income is RM52,000. He also manages
his craft business at Perda, Penang and earning sales of RM41,400 for the year 2020.
He contributed RM7,400 to Employees Provident Fund (EPF) and paid RM1,360
premium on his life insurance policies. Mr. Fawwaz incurred medical expenses for
his father amounting RM1,750. He also purchased a wheelchair for his father costing
RM4,900. During a book fair, he bought books and magazines amounting RM500.

i) Compute the amount of chargeable income for Mr. Fawwaz for the year of
ii) Advice FOUR (4) suggestions to Mr. Fawwaz on how he can reduce his tax payable
amount by using the personal relief, subject to a maximum amount. (8 Marks)
iii) State FOUR (4) types of activities that can be liable to the tax evasion cases.
(4 Marks)
193
CONFIDENTIAL
COMMERCE DEPARTMENT
FINAL EXAMINATION
SESSION DEC 2020
DPA 5033 : MALAYSIAN TAXATION 2
Types of Item By
Subjective : 4 Questions Polytechnic Malaysia
SET 1
QUESTIONS
194
INSTRUCTION :
This section consists of FOUR (4) structured questions. Answer ALL questions.
QUESTION 1
(c) State FIVE (5) types of partners in a partnership. [5 Marks]
(d) Amalin, Athifah dan Arisha formed a partnership known as Triple A Enterprise on
1.10.2016. Presented below is the Statement of Comprehensive Income for the year
ended 31st December 2020. The partnership agreement consists of the following
information :
Salary per Profit (Loss) Capital Interest on

Partners month Sharing Contribution Capital
(RM) Ratio (RM) (%)
Arisha 2,500 contribution 25,000 5
On 1st July 2020, Arisha decided to leave the partnership and withdrew all her
accumulated capital and profits. Ameena was invited to join the partnership and
contributed a sum of money as capital. The partnership agreement has been changed
as follows :
Salary per Profit (Loss) Capital Interest on

Partners month Sharing Contribution Capital
(RM) Ratio (RM) (%)
Ameena 2,000 contribution 20,000 6
195
The partnership accounts continue to be closed on 31st December each year.
Triple Enterprise
Notes RM RM
Sales 549,560
Less Cost of Goods Sold :
Opening Stock 35,644
Less : Closing Stocks (36,550) (324,544)
Less Operating Expenses
Salary 1 110,000
Utilities 2 18,240
Repair & Maintenance 3 10,320
Donations 5,000
Transportation 4 6,550
Advertising 3,200
Miscellaneous 2,340
Depreciation 15,000
Interest on Capital 3,300 (173,950)
51,066
Add Other Income
Rental 21,000
NET PROFIT 72,066
1. Salary consists of salary paid to each partner and salary of employees. The
partnership hired one (1) disable worker who is paid RM1,000 per month.
2. The utility bills are inclusive of the bill for Amalin and Athifah’s house
amounted to RM750 and RM335 respectively.
3. Repair and maintenance include repair expenses for Arisha’s car of RM2,100.
4. Included in the transportation expenses were the cost of purchasing flight ticket
for Ameena for personal purposes amounted RM1,500.
You are required :

i. Compute the divisible income of the partnership for the year of assessment
2020. [10 Marks]
ii. Calculate the adjusted income of each partner for the year of assessment 2020.
[10 Marks]
196
QUESTION 2
(a) Identify whether the following items are ‘Allowable’ or ‘Non Allowable’ expenses
for company tax purposes.
i. Provision for bad debts of Ali Enterprise after the owner has passed away.
ii. Provision for maintenance of company vehicles.
iii. Hampers with company’s logo for customers during festive season.
iv. Legal fees paid for acquisition of new building.
v. Printing cost of company’s annual reports.
[5 marks]
(b) Berangan Industries Sdn. Bhd was incorporated in Malaysia 27th October 2011 with
authorized share capital of RM3,000,000. It commenced its business of food
manufacturing on 1st January 2012 with paid up capital of RM1,500,000. The
company’s financial statement is as follows :
Berangan Industries Sdn. Bhd.

Note RM RM
Sales 1,080,020
Less : Cost of sales (526,690)
Add : Other income
Dividend income 1 13,000
Interest income 2 2,300 15,300
568,630
Less : Expenses
Professional fees 3 8,500
Depreciation 20,500
Marketing and promotions 4 9,500
Rental of premises 24,000
Staff annual dinner 3,800
Staff cost 5 389,800
Sundry expenses 6 22,710
Travelling expenses 7 15,280 (494,090)
PROFIT BEFORE TAX 74,540

1. Dividend income include :
RM
 Dividend from Malaysia resident company (net) 10,000
 Dividend from Malaysia co-operative society 3,000
2. Interest income include :

RM
 Fixed deposit interest from Malaya Banking Bank 2,000
 Interest charged on trade debtors for late payment 300
197
3. Professional fees include :
RM
 Auditing fee 3,000
 Secretarial fee 5,500
4. Marketing and promotions include :

RM
 Cost of promotional samples of products 3,500
 Professional fee paid for promoting company’s brand in
Middle East 6,000
5. Staff costs include :

RM
 Remuneration of a disabled employee 12,000
 Contribution to EPF at the rate of 20% for the general 120,000
manager whose remuneration for the year 2019
6. Sundry expenses include :

RM
 Entrance fee paid to Saujana Golf Club 3,000
 Cash donation to approved organization 5,000
7. Travelling expenses include overseas leave passage for directors costing

RM6,000.
Capital Allowance is totaled at RM26,000 for the year of assessment 2020 and
Chargeable Income for year of assessment 2019 was RM25,000.
You are required :

Calculate tax payable for Berangan Industries Sdn. Bhd. For the year of assessment
2020.
[15 Marks]
(c) Distinguish the expenditure below whether its “Capital Expenditure” or “Revenue
Expenditure”.
i. Entrance fee for golf club.
ii. Registration of company’s trade mark.
iii. Cash contribution for customer’s family day.
iv. Secretarial fee paid for increased share capital.
v. Payment made for company’s logo.
[5 Marks]
(d) Niaga Jaya Sdn.Bhd. manufactures a product which has potential in the Middle East.
Propose FIVE (5) actions that company qualify to claim for double deduction
expenses.
[5 Marks]
198
QUESTION 3
(a) Cepat Cepat Print Sdn Bhd. involved in manufacturing National and Strategic
Importance product located in Perai Industrial Area. The company plans to apply for
either Pioneer Status or Investment Tax Allowance. The projected figures for the two
years of operations are as follows :
Year of Assessment
2019 2020
RM RM
Tax rate 24% 24%
Statutory Income NIL RM500,000
Qualifying Capital Expenditure :
- Building 25,000 10,000
- Plant and Machinery 30,000 50,000

Compute the income tax payable for Cepat Cepat Print Sdn Bhd under the Pioneer
Status and Investment Tax Allowance. [15 marks]
(b) Compare TWO (2) differences between Pioneer Status and Investment Tax
Allowance. [5 marks]
QUESTION 4
Marcos arrived in Malaysia on 1st July 2019 to take a one-year local employment with
Medina Sdn. Bhd. He was accompanied by his wife but his three children (under age of 18)
remained in Spain to continue with their schooling. Details of his one-year remuneration up
to 30 June 2020 are :
Salary RM300,000
Benefits in Kind (say) RM 18,000
RM 318,000
Marcos has made no oversea trip during his period of employment but he booked a return
flights for a social visit to Spain on 1 January 2020 with the intention of returning on 20
January 2020.

(a) Calculate tax payable by Marcos for the year of assessment 2019 and 2020.
[15 marks]
(b) Determine the suggested date of departure and returned that could reduce tax payable of
Marcos for year of assessment 2020.
[10 marks]
199
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YEAR OF ASSESSMENT 2020

SESSION DECEMBER 2020

STUDENT’S NAME/TEL. NO. :

COURSE : MALAYSIAN TAXATION II

COURSE LEARNING OUTCOME (CLO)

Upon completion of this course the students should be able to :

ASSESSMENT SPECIFICATION TABLE (AST)

i | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih

SUMMARY OF MALAYSIAN TAXATION II

1.0 PARTNERSHIP TAXATION (09:03)

2.0 INDUSTRIAL BUILDING ALLOWANCE & OTHERS (09:03)

3.0 COMPANY TAXATION (09:03)

4.0 REAL PROPERTY GAIN TAX (06:02)

5.0 INVESTMENT INCENTIVES (06:02)

6.0 TAX PLANNING (06:02)

ii | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih

COURSE LEARNING OUTCOME (CLO)....................................................................................................... i

SUMMARY OF MALAYSIAN TAXATION II ............................................................................................... ii

TABLE OF CONTENTS ................................................................................................................................... iii

REFERENCES .................................................................................................................................................... iii

CHAPTER 1 : PARTNERSHIP TAXATION (CLO1 & CLO2)........................................................ 1

PRE-QUIZ 1.1 : PARTNERSHIP .................................................................................................................... 1

CHAPTER 2 : INDUSTRIAL BUILDING ALLOWANCE & OTHERS (CLO1 & CLO2)............ 33

2.2.2 Calculation The QBE On Constructed Building............................................................. 41

CHAPTER 3 : COMPANY TAXATION (CLO1 & CLO2) ............................................................... 64

3.9 STATUTORY DEDUCTION (allowable expenses) ................................................................. 81

CHAPTER 5 : INVESTMENT INCENTIVES (CLO1, CLO 2 & CLO 3) ..................................... 136

5.5 REINVESTMENT ALLOWANCE (RA) ....................................................................................... 148

EXAMPLE OF FINAL EXAMINATION QUESTIONS ................................................................. 194

vi | Adiebah Ahmad, Azizah Abdul Razak & Noorul ‘Ashikin Md Salih

2020 Budget Commentary and Tax Information. MIA. MICPA.CTIM

2020 Budget Commentary and Tax Information. http://accaglobal.com

CCM Website : www.ssm.com.my/Limited Liability Partnership

PWC Website (Budget 2020)

Income Tax Act 1967.

Real Property Gains Tax Act 1976.

Collections of question of the final examination from Polytechnic Malaysia

IRBM Website : www.hasil.org.my/Ketetapan Umum

Laporan Belanjawan Tahunan Maklumat Cukai, MATA

Slide show by Puan Saniza Said from Saniza & Co.

MIA Past Year Questions Examination

PRE-QUIZ 1.1 : PARTNERSHIP

a) What is a partnership? (5 Marks)

b) Describe the conventional partnership and Limited Liability Partnership. (4 Marks)

d) List down and describes THREE (3) types of partners. (6 marks)

Table 1.1 : Difference between Conventional Partnership and Limited Liability

No. Description Conventional Partnership Limited Liability Partnership

A partnership is usually formed by at least 2 persons but not exceeding 20 persons

a) an association of some kind between the person (min 2, max 20 or no maximum

A partnership is usually indicated with the existence of a Deed of Partnership. A Deed of

a) Profit/Loss Sharing ratio (partner’s entitled share of the profits or loss)

1.4 TYPES OF PARTNERS

No. Description Full Salaried Sleeping Limited Corporate

PRE-QUIZ 1.2 : PARTNERSHIP

1) How to allocate capital allowance, balancing charge or balancing allowance? (5 Marks)

Terms of the agreement Sally Gee Katty

You are required to :

1.5.1 Computation the Provisional Adjusted Income and Divisible Income

COMPUTATION OF ADJUSTED INCOME & DIVISIBLE INCOME FOR PARTNERS