Public Ruling No. 5/2022 Taxation of Resident Individual Part II – Computation of Total Income and Chargeable Income in Malaysia (Latest Update 2023)
Public Ruling No. 5/2022 Taxation of Resident Individual Part II
Taxation of Resident Individual Part II – Computation of Total Income and Chargeable Income
This Public Ruling No. 5/2022 (“PR”) will supersede PR No. 5/2018 dated 13 September 2018. The content of the Public Ruling No. 5/2022 is broadly identical to the earlier PR No. 5/2018 which explains the computation of total income and chargeable income of a resident individual who derives income from a business, employment and other sources.
The contents of this PR have been amended and updated as follows:
Section 8.3 – Computation of adjusted income / loss from a business source
Section 34(f) of the ITA is expanded to include funding contributions for the maintenance of a building designated as a national heritage site by the Commissioner of Heritage under the National Heritage Act 2005.
Section 34(i) of the ITA states that the tax deduction has been increased from RM400,000 to RM700,000 for sponsorship of local arts, cultural or heritage activities.
Section 34(k) of the ITA allows a person resident in Malaysia (effective from YA 2021) to claim a deduction on expenses incurred in respect of research and development related to the business directly undertaken by him or on his behalf.
8.3.4 Special provisions of Sections 34A and 34B of the ITA
Effective from 1 January 2021 :-
Under Section 34A(1) of the ITA, double deduction on research and development (“R&D”) expenditure shall only be applicable to a person who is a resident in Malaysia in ascertaining his adjusted business income, provided the R&D expenditure has been approved by the Minister of Finance and that the R&D expenditure incurred for the basis period for a YA outside Malaysia does not exceed 30% of the total R&D expenditure incurred.
Section 34B(1) of the ITA, the double deduction for the expenditure incurred in ascertaining the adjusted income from a business in relation to contribution made in cash to an approved research institute, payment for the use of the services of an approved research institute or an approved research company or payment for the use of the services of a research and development company or a contract research and development company shall only be allowed to a person resident in Malaysia.
Section 44(5F) of the ITA states that effective from YA 2019, the carry-forward period for unabsorbed business losses is limited to ten (10) consecutive YA.
Section 39(1)(m) of the ITA restricts a person from claiming a deduction in respect of remuneration or similar payment made to a partner of a limited liability partnership where such remuneration or payment is not specified or provided in the limited liability partnership agreement made in accordance with Section 9 of the Limited Liability Partnerships Act 2012.
Section 39(1)(q) restricts a person resident in Malaysia from claiming a deduction in respect of payment made to any Labuan entity referred to in Section 2B(1)(a) of the Labuan Business Activity Tax Act 1990, unless otherwise allowed under the rules prescribed by the Minister of Finance.
Public Ruling No. 5/2022 further extended the clarification on the conditions of “living together”. A husband and a wife shall be deemed to be living together unless they are separated:
- By a court order;
- By a deed of separation;
- By a written agreement for separation; or
- In such circumstances that the separation is likely to be permanent.
Where in a YA, a wife / husband elects for a combined assessment, or a wife / husband has no total income, the amount expended in respect of the allowable expenses by the wife / husband who elects or the wife / husband with no total income is deemed to have been expended by the spouse who is being assessed. The expenses which have been updated under this PR are as follows:
- Fee for COVID-19 detection test under Section 46(h) of the ITA;
- Expenses incurred for the purchase of a personal computer, smartphone, or tablet under Section 46(t) of the ITA; and
- Expenses incurred for the purchase of sports equipment for any sports activity listed under the Sport Development Act 1997 (excluding motorized two-wheel bicycles), rental or entrance fee to any sports facilities and registration fee for any sports competition where the organizer is approved and licensed by the Commissioner of Sports under the Sport Development Act 1997 under Section 46(u) of the ITA.
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