Sole Proprietorship Income

Year Assessment (YA)

Income is assessed on a current year basis. The YA is the year coinciding with the calendar year, for example, the YA 2021 is the year ending 31 December 2021.

All income of Sole Proprietorship is assessed on a calendar year basis. For example, Accounting year end 31 December 2021 (YA 2021).

Sources of Business Income

- Retail business

- Direct selling

- Hawkers

- Agricultural business

- Online business (e-Commerce)

- Writers

- Acting, singing or product ambassador

- Clinic, legal firm or any other professional services

- Commission

Responsibilities

- To register as taxpayer (if eligible) made through e-daftar at www.hasil.org.my

- Engage chartered accountants or licensed tax agents in preparing business accounts (if required)

- Declare any sales / purchases, expenses and balance sheet, inclusive of any deductions and rebates

- Form B needs to be filled by individual who is resident in Malaysia and own a business

- Complete and submit Form e-B (Sole Proprietor) via e-Filing

- ITRF should be submitted even if the accounts shows losses

- Business account's statement, supporting documents, other income statement and receipts need not to be submitted during the form submission

- The deadline for submission of Form B and payment of tax payable (if any) is 30 June every year

- To comply with the Notice of Instalment Payment (CP500)

- Please bear in mind to always keep all business records, accounts, supporting documents for deductions, reliefs and rebate for a period of 7 years for LHDNM's audit purpose

- Business records include profit and loss account, statement of financial position (balance sheet), sales records, purchase records, stock receipts, bills and bank statements

- Inform in writing if the business ends or change of partner

Tax Computation

Tax computation starts from your business income statement that has been prepared in accordance with Malaysia Accounting Standard.

In deriving chargeable income, Section 5 of the Act sets up the scope of chargeable income, beginning with the determination of basis period, ascertainment of gross income, adjusted income, statutory income, aggregate income, total income till chargeable income.

Gross Income includes:

1. Cash receipts from the sale of goods or from services provided

2. All debts incurred from the sale of goods and services provided

3. Receipts in kind

4. Recovery of bad debts

5. Insurance compensation received for business loss

6. Withdrawal of business stock or stock that was taken for personal use

Adjusted Income from Business Source is Derived from Gross Income after Deduction of Business Expenses such as:

1. Allowable business expenses

2. Allowable specific expenses

3. Double deduction expenses allowable under Income Tax Act 1967

Business Expense has to Fulfill all the following Conditions in order to Secure a Deduction from the Gross Income of a Business Source:

1. Each business source has to be accounted separately

2. Scope of expenses refers to “outgoings and expenses”

3. Expenses have to be “wholly and exclusively” incurred in the production of gross income from business source

Business Expenses

Allowable

Expenses incurred in the production of business income

Example:

- Payment for wages or salaries

- Employee's EPF / SOCSO payment

- Business insurance (burglary / fire)

- Rental of business premises

- Interest on business loan

- Expenses for repair of premises and vehicles used for business purpose

Non-Allowable

Domestic and private / [personal] expenses

Example:

- Personal electricity & water supply bill, children's education fees and depreciation

- Accommodation benefit

- Payment of telephone bills

Purchase of personal assets

Example:

- Personal car

- House

- Furniture

Initial Expenses

Example:

- Expenditure on registration of business venture

- Advertisement expenses

The allowable and non-allowable expenses may vary and be different over period of time.

Special Deduction (Specific Expenses)

Section 34(6) has been specifically legislated to allow certain specific expenses an income deduction notwithstanding such expenses do not satisfy the allowable business expenses criteria. These expenses are encouraged by the Government as they can achieve some national objectives or bring social benefits to the public.

1. Expenditure incurred in providing equipment for the disabled employee (OKU)

2. Expenditure incurred in respect of publication in National Language

3. Donation to libraries

4. Expenditure incurred in providing services, public amenities and contribution to a charity or community project

5. Expenditure incurred in providing and maintenance of a child care center for the benefit of employees

6. Expenditure incurred in establishing and managing a musical or cultural group

7. Expenditure incurred in sponsoring any art or cultural event

Double Deduction

Certain expenses are given double deduction incentives for each relevant year of assessment.

Capital Allowance

Given as deduction from adjusted business income in place of depreciation expenses incurred in the purchase of business assets.

Examples of assets used in a business are motor vehicles, machines, office equipment, furniture and computers.

Conditions for claiming capital allowance are:

• Operating a business

• Purchase of business assets

• Assets are being used in the business

• Owner of the assets

Rates are determined according to the types of assets.

Types and rate of Capital Allowance are as follows:

Type of Allowance Type of Assets Rate

Initial Allowance All types of assets 20%

Annual Allowance Motor vehicles and heavy machinery 20%

Plant and machinery 14%

Office equipment, furniture and fittings 10%

Computer 40%

Approved Donation

An approved donation is stipulated under Section 44(6) of the Income Tax Act 1967. The gift of money made to the Government, State Government, local authority or an approved institution or organization shall be given a deduction in arriving at total income.

The amount of cash donation to approved institution or organization is to be limited to 10% of the company’s aggregate income for that year.

Example of Tax Computation Format:

INCOME TAX COMPUTATION RM

____________________________________________________________

Net profit for the year end 50,240

Less Non-business income (-) 14,400

Add Non-allowable deduction (+) 30,000

Less Special deduction (-) 3,600

Less Double deduction (-) 2,400

____________________________________________________________

Adjusted business income or business loss 59,840

Less Capital allowance (-) 32,600

____________________________________________________________

Statutory income or business income 27,240

Add Statutory income from other business (+) 10,540

____________________________________________________________

Aggregate statutory income from business 37,780

Add Other non-business income (+) 20,000

____________________________________________________________

Aggregate income 57,780

Less Approved donation (-) 500

____________________________________________________________

TOTAL INCOME OR CHARGEABLE INCOME 57,280

____________________________________________________________

Tax Rate For Sole Proprietorship

The tax rate for sole proprietorship will follow the tax rate of an individual. Business chargeable income is his or her individual income.

As an individual, sole proprietor is entitled to the reliefs.

The total relief available are then set off against the total income / chargeable income from the business to arrive at chargeable income which is taxable according to the tax rates.

Instalment Payment by Individual (CP500)

- 6 instalment payments issued by LHDNM

- Payment beginning March

- Each instalment must be paid within 30 days

- Apply for revision before 30 June using Form CP502

If you would like to know more, please contact Bestar.