1.

Derivation of Business Income

Business receipt are subject to income tax provided they are revenue in nature and derived
from Malaysia.
Conditions that must exist:
The existence of business
The business transaction is income in nature
Such business income is deemed derived from Malaysia
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2. 18. Derivation of Business Income Gross income from business which is not attributable to
operations of a business carried on outside Malaysia shall be deemed to derived from
Malaysia.
For business income is attributable to operations of the business carried on o/side Malaysia
if one of following factors exist:
 Contracts are concluded o/side Malaysia.
 Stocks are maintained o/side Malaysia from which orders are filled.
 Sales proceeds are received overseas
 Service are rendered outside Malaysia.

1. Commencement of Business
The determination of the date of commencement of a business is important because:
To determine the basis period in relation to year of assessment
To identify the expenditure incurred before the date of commencement
To identify capital expenditure incurred To allow capital allowance against the business
income in relation to the relevant year of assessment.
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2. 23. New Business or a Continuation of Business
The distinction is very important because it has an impact on the deduction of capital
allowance and allow ability of business losses in the computation of taxable income.
Conditions to be considered:
Customers
Management
Method of accounting

1. Charge to Income Tax  Sec. 3 of the Income Tax Act 1967:

“Income tax shall be charge for each year of assessment upon the income of any person
accruing in or derived from Malaysia or received in Malaysia from outside Malaysia..”
 Accrue: natural growth or increment; to arise or spring as a natural growth or result
 Derive: to draw; to fetch; to obtain; to come into something as its source
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2. 25. Capital vs Income
Business activities (income) have to be distinguished from investment transactions (capital)
Capital natures business receipt are not taxable (i.e. gain from disposal of fixed assets)
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1. Compensation for Loss of Income Compensation for loss of income from a source is a
revenue receipt and is taxable.
This receipt exhibit one or more of the following attributes:
The receipts must be filling a hole in profits.
The receipt must not be in respect of physical damage or disposal of capital assets.
The receipt must not relate to the restructuring of company.
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2. 33. Recovery of Trade Debt
The recovery of trading debt is taxable subject to key condition being satisfied.
The debt previously written off as being bad and were allowed as deductions in arriving at
the adjusted income from business. 10/28/2013 ATXB 213 MALAYSIA TAXATION I 33
3. 34. Waiver of Amounts Owing to Creditors
 The waiver of amounts owing to creditors (i.e. suppliers) is taxable.
 Example: Kamal, is an owner of a provision shop. As at 31-122012,he had an amount of
RM3,800 owing to one of his confectionary suppliers. In the middle of 2011, the supplier
agreed to waiver the amount owed to him on the basis of the long-term relationship between
him and Kamal. Kamal consequently debited the “supplier account” in his monthly accounts
and credited “the income statement account”. 10/28/2013 ATXB 213 MALAYSIA TAXATION
I 34
4. 35. Waiver of Amounts Owing to Creditors Issue: Advise Kamal whether the waiver of
RM3,800 is taxable. Discussion: The RM3,800 is gross business income because it is a
release of debt related to deductions (“purchases” account) which have been made, in
arriving at adjusted income. 10/28/2013 ATXB 213 MALAYSIA TAXATION I 35
5. 36. Taxation of Gains from Foreign Exchange Exposure
 A foreign exchange exposure arises when a business entity has transactions denominated
in currencies other than home country.
 Realized foreign exchange gains are taxable and losses on revenue account are
deductible.
 Unrealized forex gains or losses on revenue account are not admissible for tax purpose.
 Gains or losses on capital account are neither taxable nor deductible whether realized or
unrealized.
Adjusted and Statutory Income from Business
The format to compute the adjusted income and statutory income from business as follows
Add Less
Add Net profit/(net losses) xx
+) Any item/expenses not allowable for deduction xx
-) Items allowed for double deduction (xx)
-) Non business income / Non taxable income (xx)
Sec 4(c) : dividend, interest and discount
Sec 4(d): rent, royalty and premium
Adjusted income/loss xx
+) Balancing charges xx
-) Capital allowance/ balancing allowance (xx)
Statutory Income xxx