Typical tax mistakes : Pre-operating expenses before the date of commencement.

Typical tax mistakes : Pre-operating expenses before the date of commencement.

Typical tax mistakes : Pre-operating expenses before the date of commencement.

Typical tax mistakes : Pre-operating expenses before the date of commencement.

Overview:

The expenses incurred between the date of incorporation and date of starting your business operation is known as “pre-commencement expenses”. What is the tax treatment of these expenses?

Key takeaways:

1. Determining the date of commencement

2. Tax treatment of pre-commencement expenses

Summary of learnings:

1. How to determine date of commencement (DOC)?

DOC of the business means the commencement of activities undertaken for the purpose of income producing.

Subject to the specific circumstances and facts of the case, DOC may be defined as following:

a) the purchase of raw materials in the case of manufacturing, or

b) the purchase of goods for resale in the case of retailing, or

c) the first planting of seedlings or buying of animal stocks in the case of agriculture.

2. Tax treatment of pre-commencement expenses

Generally, all expenses incurred before the DOC are not allowable as a deduction.

However, they are some exceptional rules which allow these pre-commencement expenses to be deductible, including:

a) Feasibilities studies and marketing research approved by Minister of Finance

b) Incorporation expenses (for Small and Medium Enterprise (SMEs))

c) Approved training expenditure

d) Business training expenses

e) Recruitment expenses

Things to take note:

  • Other revenue expenses, such as utilities, rental, advertisement or staff salary would not be tax deductible.

Source:

Refer Public Ruling 11/2013 - PRE-OPERATIONAL BUSINESS EXPENDITURE http://phl.hasil.gov.my/pdf/pdfam/PR_11_2013.pdf

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