Tax filing for sole proprietorship 02

SOLE proprietors should take advantage of allowable business expenses and deductions on bad debts to reduce their taxable income.

Business expenses: Revenue expenses incurred directly in the production of business income are tax deductible against the gross income of said business and are commonly known as business expenses.

The general rule of thumb is that business expenses must be recurring in nature, permissible under the Act, have been incurred, reasonable and acceptable to a particular industry, and are not related to the acquisition of capital assets or expenses.

Other deductible expenses available for tax deductions include accounting fees, legal fees for recovery of trade debts, rental for premises, sales advertisement, entertainment expenses for trade debtors, and cash stolen from the cash register by cashiers.

Non-deductible expenses would include items like prepayment of insurance expenses for fire and theft; costs of renovation or construction for premises; fines imposed for traffic offences or custom offences; penalties on income taxes; donations to political parties, church or religious body; legal fees for bank loans or acquisition of premises; and legal fees for defense in suits for violation of trade regulations.

Mixed overhead expenses: Sole proprietors often have limited resources to acquire assets for exclusive business use. Therefore, personal assets such as motor vehicles, mobile phones, home offices and computers are mutually used for business and private or domestic purposes.

In such cases, a sole proprietor in a business has to segregate expenses incurred, differentiating between business expenses and private expenses. Items such as petrol, repair and maintenance on vehicles, telephone charges, Internet charges, house interest expense and utilities have to be apportioned into business and private expenses.

In practice, sole proprietors first need to segregate out the private expenses.

A reasonable and reflective basis has to be developed by analysing the actual expenses and usage for several months.

Once a basis is ascertained, the ratio will be applied on such expenses from year to year. The common basis from a practical viewpoint will be 1/3, 1/4 or 1/5 for private use, depending on the business industry and personal conditions.

Since the taxpayer is fully responsible for the tax computation in a self-assessment system, penalties on an incorrect return would be imposed if the taxpayer intentionally and purportedly claims private and domestic expenses as business expenses. This could amount to:

·100% of the tax undercharged

·a fine of RM1,000 to RM10,000.

Entertainment expenses: These are incurred primarily to maintain existing sales revenue or to increase sales.

Although entertainment expenses are generally 50% deductible, the following entertainment expenses are, however, fully tax deductible as specifically allowed by the Act:

·Staff amenities such as the provision of food and beverages in the office, annual staff dinners, company trips, and family days.

·Promotional gifts at trade fairs, trade or industrial exhibitions held outside Malaysia and for the promotion of exports from Malaysia.

·Promotional samples of the business’ products.

·Provision of entertainment for cultural or sporting events; open to public; wholly to promote business.

·Provision of promotional gifts; within Malaysia; consisting of articles incorporating a conspicuous advertisement or business logo.

·Provision of entertainment which is related wholly to sales arising from the business.

Public Ruling 3/2004 clarifies entertainment related wholly to sales as entertainment which is directly related to sales provided to customers, dealers and distributors but excluding suppliers (trade creditors).

Bad debts: Specific provisions for bad debts are tax deductible, provided they arise from credit sales (trade debts) and there are commercial reasons for such provisions. Bad debts arising from sales of fixed assets to other debtors are not tax deductible.

Bad debts written off on trade debts are tax deductible in situations where trade debtors are bankrupt, dead, have absconded or liquidated.

At the year ending Dec 31 and interim periods at March 31, June 30 and Sept 30, 2008, sole proprietors must analyse their trade debtors aging report to ensure immediate action can be taken on defaulted trade debtors and make continuing provision of specific provision for bad debts.

As the sale is assessed to tax on an accrual basis, the specific provision for bad debts can reduce business adjusted income. The particulars of the trade debtors must be recorded in detail and the reasons for the provision and the non-supplying of stock to them are to be compiled for tax audit purposes.

Specific deductions: The following expenses are tax deductible against gross business income even although they may be capital expenditure and only remotely connected with the business:

·Equipment like wheel chairs to assist disabled employees to work in business premises.

·Cash donations or in kind to public, college or school libraries up to RM100,000 in a year.

·Expenses incurred to maintain a child care centre for employees.

·Sponsorship of art/cultural or heritage activities approved by the Culture, Arts and Heritage Ministry up to a ceiling of RM500,000 for local, RM200,000 for foreign and RM500,000 for combined local and foreign activities.

Double deductions: The following expenses enjoy additional deductions in arriving at adjusted income:

·Remuneration paid to disabled employees.

·Insurance premiums paid to a Malaysian insurance company on importing and exporting cargo or raw materials.

Details: Business expenses and bad debts

Tax filing for sole proprietorship 01

ACCORDING to the Companies Commission of Malaysia, the majority of the 810,150 registered companies in Malaysia are owned by sole proprietors or business enterprises.

These entrepreneurs are probably paying too much in taxes, since professional tax advice would be too costly for sole proprietors with a typical annual turnover of RM300,000 to RM500,000.

Here is how you can optimise taxes and avoid penalties by implementing permitted accounting standards, segregating trading stock from items for personal use and applying stock write-down and obsolescence policies.

·Sales/Revenue: Revenue is recognised once trading goods are sold to customers. In practice, the issuance of sales invoices are demarcation points for sales to be recorded in the accounts. For service industries, revenue is recognised at the point when services are rendered and completed.

Sales revenue at all times must be recorded at market price, which is the arm’s length or actual sales price between the trader and his customer.

·Sales recorded on accrual basis: Accounting standards in Malaysia require revenue to be recorded on an accrual basis. This means sales must be recorded notwithstanding whether it takes place on credit or cash terms; whether cash is received or not is irrelevant.

·Cash accounting: This is not a permitted accounting standard in Malaysia. Under the cash accounting basis, revenue is recognised solely based on cash received and there is no reference to the sale of goods or completion of services.

Sole proprietors computing income tax on this basis are considered as submitting an incorrect return and will be liable to a tax penalty of 100% and/or a fine up to RM10,000.

·Deemed sales for use of own stocks: Traders who wish to use their trading items (stocks) for donation, personal use or as gifts must record these items at market value, since Section 24(2) of the Act deems these as sales revenue. These transactions are treated as sales and the “profit” which was never earned is subject to income tax.

To avoid this situation, the sole proprietor has to request that the supplier invoice him separately on his personal account for the item that he intends to give away or keep for his own use. Do not bill the item to the business enterprise.

·Cost of sales: Trading stocks are assets to the sole proprietor and reflected in the balance sheet. The cost of trading stock is only allowed as a deduction against sales revenue when the stock is sold.

Excess unsold stock is an asset and not deductible. Sales quantity and the cost of sales must be identical.

The sole proprietor should develop a stock write-down policy to evaluate the quantity or quality of unsold stocks as the Act allows tax deductions for stock written down or stock write-offs due to obsolescence.

The stock policy has to be applied consistently for at least three years. Tax authorities may review such a stock policy during the tax audit.

The write-offs of the stocks or write down in the value of trading stock must reflect actual market conditions. Sole proprietors must record the details of such stocks and provide the specific reason why certain stocks are written off or written down as part of the documentary evidence for tax audit inspection.

Details: Revenue recognition and cost of sales

Slow recovery for global economy?

A NEW survey by the Association of Chartered Certified Accountants (ACCA) shows that finance professionals are forecasting a slow recovery in the world economy.

The professional body says in a statement that the Global Economic Conditions Survey among 805 of its members in 80 countries reveals a slow and credit-constrained recovery that can threaten the world’s leading economies with stagnation.

It suggests that “confidence has been lost in the sectors and countries that were once the engines of world economic growth, and that the resulting decrease in demand and supplier credit may be causing much more damage than the banking sector’s new-found aversion to risk.”

According to the survey, the contraction in world trade has affected professionals in Asia-Pacific badly, especially in China. It has also resulted in a loss of confidence among professionals in the region for their Western counterparts.

“Despite this, accountants in emerging markets and the developing world are expecting the global economy to bounce back sooner – with African countries such as Botswana, Zambia, Ghana and Kenya having the most optimistic respondents,” the ACCA says.

The research also shows that hopes of an early recovery are underpinned by trust in governments’ responses to the crisis, with businesses having to play a part too.

Source: ACCA global economic conditions survey findings revealed

2009 BrandZ™ Top 100 Ranking

明略行Millward Brown Optimor于日前发布了第四年度的BrandZ全球品牌100强排名，其结果显示即使在目前比较恶劣的经济形势下，各大品牌仍有效地捍卫了它们原有的品牌价值。

BrandZ全球品牌100强排名以美元来衡量品牌价值，它通过结合两方面的数据来进行品牌价值评估：包括企业财务数据及BrandZ对消费者和企业用户的研究数据(BrandZ是当今世界最大的品牌资产研究数据库)。

前100强的品牌价值总值已达到了1.95兆美元(略微上涨了1.7个百分点)。其中，谷歌名列第一，价值1000亿美元;微软排名第二，价值762亿美元;可口可乐首次位列第三，价值676亿美元。

“在目前的经济环境下，很多企业的价值会有所下降，而此时，品牌会变得尤为重要，因为品牌能帮助公司在艰难时期坚持下去。”Millward Brown Optimor的首席执行官 Joanna Seddon这样说，“那些在艰难时期会继续坚持对品牌进行投资的企业，在经济状况好转时，会比那些现在削减品牌投入的企业拥有更强的优势。”

今年共有15个新的品牌进入排名。帮宝适在新晋者中名列最高，排名31，任天堂(排名32名)和VISA(排名36名)紧接其后。从今年的排名中可以看出这样一些趋势：

价值 — 那些以“物有所值”所著称的品牌表现优秀，这意味着质量与价格一样重要，例如：沃尔玛(+19%)、阿尔迪(+49%)和欧尚(+48%)。H&M(+8%)现成为了服装的第一品牌。

小腐败 — 人们即使在荷包紧张的情况下，仍不免偶尔奖励一下自己。比如麦当劳(+34%)、万宝路(+33%)以及百威(+23%)这样的品牌都表现不错。

居家 — 能在家里体验或享受的品牌显示了强劲的增长。这包括了在家购物(在线购物)：亚马逊(+85%)和eBay(+16%);能在家制作的咖啡：奈斯派索优 Nespresso(+27%)和雀巢Nescafe(+23%);以及游戏： 任天堂首次进入排名就跃居第32名。

无线 —通过iPhone和黑莓，在移动设备上使用互联网越来越流行，刺激了数据服务的需求，从而带动了移动运营服务这一产业的整体巨幅增长。沃达丰今年首次进入前十(+45%)。

明略行全球首席执行官Eileen Campbell就此排名发表评论说：“成为世界上最具价值的品牌之一是一项了不起的成就，我们祝贺所有榜上有名的品牌。在一个营销支出正遭受前所未有的严格审查的时刻，这个排名让营销者们能够证明品牌为企业所创造的价值”。


来源: 2009 BrandZ™ Top 100 Ranking

High time to refinance your loan?

WITH lending rates at historical low levels, the obvious question to ask is – should one refinance their home loans? The answer is simple – if there are net savings to be enjoyed by refinancing the existing loan, then yes. If the impact is neutral, then there’s little point going through all that hassle.

Two years ago, banks were charging home buyers base lending rate (BLR) “plus” interest rates for their housing loans.

Today, the BLR for mortgages has fallen to a “minus” level. In addition, then, the average BLR was about 6.75% which was later adjusted to about 5.55% currently.

The fall in lending rates followed the unprecedented cut in overnight policy rate (OPR) by Bank Negara Malaysia since November last year by 150 basis points to 2% as it stands now.

Over the week, the central bank paused on its rate cut, leaving the OPR unchanged.

This has led some economists to predict that there will be no more OPR cuts for the rest of 2009 and 2010 which may give borrowers a reason to lock in their interest rates for housing loans at current low levels.

If the economy stabilises by next year, analysts expect interest rates to rise. But the views are mixed as there are also analysts who feel that if the situation worsens, Bank Negara could further cut the OPR.

Dr Choong Kwai Fatt, tax consultant and associate professor at the Faculty of Business and Accountancy, Universiti Malaya, opines that now may be a good time to refinance home loans.

“For refinancing, we recommend customers to change to Flexi loan, which allows them to make additional repayment and draw balance at any time with convenience of automated teller machine cards and cheque books. In addition, any amount in the current account is used to reduce the outstanding loan amount, hence there are interest savings,” he says.

Typically, banks’ lock in period is about five years; customers who switch banks before this period ends will have to fork out a penalty fee which comprises 3% of total loan amount or loan outstanding or a minimum penalty of RM5,000-RM10,000.

The fees however vary from bank to bank. There are other costs involved in switching lenders as well such as search fees, inspection fees, stamp duty and loan legal fees (usually costs less than 3% of total loan).

It is important to note that all rates and terms and conditions are negotiable, and hence, vary on a case by case basis.

Details: High time to refinance your loan?