SME Info: Understanding TAX (Part 2)



Gross Income Includes:


a) Cash receipts from the sale of goods or from services provided. b) All debts incurred from the sale of goods and services provided. c) Receipts in kind. d) Recovery of bad debts. e) Insurance compensation received for business loss. f) 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:


a) Allowable business expensesb) Allowable specific expensesc) 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:


a) Each business source has to be accounted separately, b) Scope of expenses refers to “outgoings and expenses” c) Expenses have to be “wholly and exclusively” d) Incurred in the production of gross income from business source

Example:


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.

a) Expenditure incurred in providing equipment for the disabled employee (OKU). b) Expenditure incurred in respect of publication in National Language. c) Donation to libraries. d) Expenditure incurred in providing services, public amenities and contribution to a charity or community project. e) Expenditure incurred in providing and maintenance of a child care center for the benefit of employees. f) Expenditure incurred in establishing and managing a musical or cultural group. g) 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 business income in place of depreciation expenses incurred in the purchase of business assets.

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

b) Conditions for claiming capital allowance are: • Operating a business • Purchase of business assets • Assets are being used in the business • Owner of the assets

c) Rates are determined according to the types of assets.

d) Types and rate of Capital Allowance are as follows:


--To Be Continued


(Credit to Understanding Tax - Tax Act 1967, SMEinfo)

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