What is the tax impact if you account your boss personal tax payment as company expenses?

What is the tax impact if you account your boss personal tax payment as company expenses?

Your boss ask to “expense” off his/her personal tax in the company account? What can you, as account personnel, do?

Interesting? No! I bet this happen very common in SME.

Today we shall discuss with you the tax consequence on your boss action by exploring two different scenario;

Scenario 1: Sole Proprietorship / partnership

Payment of CP500 is considered as private expenses. Thus, it is not tax deductible according to Section 39 (1)(a) of Income Tax Act 1967.

In sole proprietor’s / partnership’s business, any amount withdrawn from the business for domestic (non-business) usage is reflected as drawings.

Section 39. (1) (a) of Income Tax Act 1967: Subject to any express provision of this Act, in ascertaining the adjusted income of any person from any source for the basis period for a year of assessment no deduction from the gross income from that source for that period shall be allowed in respect of: (a) domestic or private expenses;

Scenario 2: Sdn Bhd

Tax deduction of this expenses is allowed if it is treated as perquisite and is part of the gross income to director report in EA Form [Public Ruling No.11/2016].

Otherwise, it will be treated as private expenses and not tax deductible according to Section 39 (1)(a) of Income Tax Act 1967.

Public Ruling No.11/2016 – Tax Borne by Employers Income tax is a personal monetary liability of an employee. The agreement by the employer to pay the income tax of the employee does not relieve the employee from tax liability on the amount of income tax borne by the employer. The full or partial amount of the employee’s income tax may be paid by the employer. When the income tax liability of an employee is paid by the employer, this benefit falls within the definition of perquisite and is part of the gross income from employment under paragraph 13(1)(a) of the ITA.

Conclusion

In general, it is not tax deductible except for when you account the payment of your boss tax as perquisite in a Sdn Bhd.

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taxKtp KtpJune 18, 2020tax, tax filing, covid 19

What is the tax impact if you account your boss personal tax payment as company expenses?