Company Expenses Without Invoices or Official Receipts

It is common for a company in Malaysia to pay expenses without having the suppliers' invoices or official receipts i.e. commission, sub contractor wages (they do not own a company), part timers as sales promoter or book keepers and etc.

In view of the self assessment regime implemented in Malaysia, is there any potential tax audit risk and penalty in relation to those payments without suppliers' invoices or official receipts?

Under the self assessment system, the Inland Revenue Board (IRB) would require the taxpayers to provide supporting documents to support the expenses incurred by the company. Thus, for those payments without suppliers' invoices or official receipts, the taxpayers need to prepare its own documents and documentation to ensure that those expenses are tax deductible under S33 of the Income Tax Act 1967.

Taxpayers are requested to prepare a payment voucher which details the payee name, IC no, address, nature of payments and also in relation to which business project if it is sub contractors. In addition, the original payment vouchers must be signed by the payee and it is advisable to photocopy the payee IC for reference.

If the company pay the payee using cheque, it is highly recommended that they photocopy the cheque (Account Payee Only) as the supporting documents. We have encounter cases in which IRB requested for a copy of the cheque to substantiate an expenses. As a results, the taxpayers need to liaise with bankers in order to obtain a copy of the cheque which was archive for many years. In conclusion, it is a time wasting and irritating process.

I understand that the administrative work recommended maybe time consuming but considering the tax penalty the IRB may impose, it is worthwhile to maintain proper documentation and documents in order to be tax audit savvy.

Income Tax Filing Deadline 30 June 2009

This coming Tuesday, 30 June 2009 is the tax filing deadline for Malaysian taxpayers. Taxpayers with business source or having businesses are required to submit the income tax form i.e. Borang P (Partnership) or Borang B (Sole-proprietor or partner of a partnership) to the Inland Revenue Board by 30 June 2009.

In addition, under the self assessment system, taxpayers are required to pay the taxes before the deadline. Payments can be made at Public Bank Berhad or CIMB Bank Berhad by filling in the bank in slip.

Petty Cash Management in Malaysia

I noted that it is common for Malaysian businessman to have misconcept on the petty cash management. Normally, the company does not maintain a petty cash float for the company, instead the money collected from cash sales are used to pay for daily office or factory expenses. If the cash sales collection is in excess of the daily cash payment, the company will deposit to the company's current accounts. I would comment that this is not a good practice to manage the petty cash in this manner.

The petty cash is used for payment of daily minor office or factory expenses and the fund or petty cash money should not be collected from cash sales, it should be withdraw from the company's current accounts (Cash out). Upon the full utilisation of petty cash money, the shortfall should be withdraw from the current accounts and top up to the petty cash float decided by the management.

For example, if the petty cash float is RM1,000 and existing petty cash balance is RM400 then the accounts staff should cash out RM600 as reimbursement of petty cash so that the petty cash float is maintained at RM1,000.

The company should fix a petty cash float or in layman term, the float is the maximum amount of cash the company should keep to pay for daily minor expenses. The float depends on the payment pattern and also the quantum of payment. Please take note that fixing a float for the company petty cash would enable the company to insure the cash loss risk from the insurance company, as this is the maximum exposure for cash loss.

The frequency of reimbursement of petty cash normally should be around 2 -3 weeks so that it reduces the administrative work of cash out from the current accounts.

All the cash sales money should be deposit to the company's current accounts intact so that it is easier for tracing and tracking and also minimise the tax audit risk.

With this petty cash management practice, it is clear and easier for the taxpayers to proof to the Inland Revenue Board on the cash sales collection which is fully recognised by the company.

MEDICAL EXPENSES FOR PARENTS INCOME TAX RELIEF

Medical Expenses for Parents [Section 46(1)(c) of Income Tax Act, 1967]

Malaysian taxpayers must aware that medical fee paid for parents' medical treatment is tax deductible. With this tax deduction, the taxpayers will enjoy lower taxable income and consequently lower income tax payments.

However, the medical fee paid must be incurred for the parents and in the official receipts it is advisable stating the patient's name and also payee's name. In this case, the patient will be the parents and payee must be the taxpayers.

The maximum tax relief for parent's medical fee is RM5,000 per annum and the official receipts must be issued by a medical practitioner or doctor registered with the Malaysia Medical Council. Besides that, the official receipts must be retained for proofing if requested by the Inland Revenue Board (IRB).

Taxpayers may refer to the Public Ruling 2/2005 Computation of Income Tax Payable By A Resident Individual under Paragraph 6.1.2 for further information.

With this clarification, it is clear that the costs of health products/health supplements incurred on parents does not fall within the ambit of medical expenses within the meaning of Section 46(1)(c) of the Income Tax Act 1967 and therefore are not eligible for personal relief to the individual.

Tax Audit Framework

Tax Audit Framework (Ammendment 2009)[1]

Public Ruling 2/2009 Construction Contracts

PR0209

Public Ruling 1/2009 Property Development

PR0109