(Tax Update) Investing in Kids' Future: Tax Incentives on Child Care and Kindergartens

(Tax Update) Investing in Kids' Future: Tax Incentives on Child Care and Kindergartens

Investing in child care and kindergartens isn't just good for kids; it's a smart choice for investors too. With more parents working, there's a growing need for quality places where children can learn and grow.

The government is stepping up, offering tax breaks to encourage investment in this important area. This means investing in child care and kindergartens can be financially rewarding and help shape the future of our children.

Let's dive into why putting your money into early education is a win-win for everyone involved.

Public Ruling 4/2016 Tax Incentive for Child Care Centre and Kindergarten Operators

Public Ruling No. 4/2016 by the Inland Revenue Board of Malaysia, we draft out a compelling case study highlighting the significant tax incentives and their impact on the financial performance and sustainability of child care centres and kindergartens.

This case study aims to provide potential investors with a comprehensive understanding of the financial benefits of investing in these operations, underscored by real-world examples and legislative support.

Tax Incentives Overview:

Registration Requirement

Must be registered with the relevant authority: Department of Social Welfare for child care centres or the State Education Department under the Ministry of Education for kindergartens.

Exemption of Statutory Income

The tax exemption applies to business statutory income for a period of five consecutive years.

For existing operators, the exemption commences from the Year of Assessment (YA) 2013.

For new operators, the exemption starts from the YA during which the first invoice is issued.

Industrial Building Allowance

Operators who incur qualifying building expenditure on construction or purchase of a building used in their operations can claim a 10% industrial building allowance annually for ten years.

This incentive is aimed at reducing operating costs and enhancing service quality.

Non-Applicability

The tax incentives do not apply to operators of private pre-schools whose activities are integrated with private primary schools.

Separate Business Sources

If an operator of a child care centre or kindergarten carries on another business, the income from that other business must be treated as a separate source of income, and separate accounts must be maintained.

Adjusted Losses

Adjusted losses incurred from the start of the business until the year before the exemption period, and during the exemption period, can be carried forward and deducted from the statutory income of the business in the post-exempt YAs until fully utilized.

Discontinuation

If the business ceases operation, any unutilized brought forward adjusted loss will be disregarded.

Real-Case Examples:

Situation

ABC is an established child care centre that has been operating since 2020.

For the year of assessment 2020, ABC reported an adjusted income of RM80,000.

Impact of Tax Incentives

Under the tax exemption incentive, ABCs' statutory income of RM80,000 is exempt from tax for five consecutive years, starting from the year of assessment 2020.

This exemption translates into direct tax savings, enhancing the centre's cash flow and providing additional funds that could be redirected towards improving facilities, staff training, or further expansion.

Benefit Analysis

The immediate financial benefit is the preservation of cash that would otherwise be paid as tax. Assuming a corporate tax rate of 15% (concessionary SME rate), the savings amount to approximately RM12,000 for that year alone.

Over the five-year exemption period, assuming steady income, the total tax savings could be significant, providing a substantial financial cushion that can be reinvested into the business.

Conclusion

The government's tax incentives for child care centre and kindergarten operators present a lucrative opportunity for potential investors. By reducing tax liabilities and aiding in the recovery of capital expenditures, these incentives enhance the financial attractiveness and sustainability of investments in the early childhood education sector.

Investors are encouraged to leverage these benefits to contribute to the development of quality child care and education facilities, supporting societal needs and generating substantial returns on investment.

Visit Us

  • Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

  • Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

#Thk

#KTP





taxKtp Ktptax incentive, Child care centre, kindergarten operator