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Practice Note No. 4/2020: Clarification on Determining the Gross Income from Business Sources of not more than RM50 million of a Company or LLP
The IRB has issued Practice Note (PN) No. 4/2020: Clarification on Determining the Gross Income from Business Sources of not more than RM50 million of a Company or Limited Liability Partnership (LLP), dated 21 December 2020. This new PN replaces PN No. 3/2020, which was issued on 18 May 2020 (see Tax Alert No. 9/2020).
The contents of the new PN are broadly similar to the earlier PN, with additional clarifications on the tax treatment for the two scenarios outlined below:
1. The company or LLP carrying on a business does not have gross business income but has current year business losses instead.
Where a company or LLP carries out business activities and incurs expenses in relation to the business, e.g. purchase of stock, payment of salaries, rental of premises, promotional expenses or any other allowable expenses under Section 33(1) of the ITA, but suffers losses as it has not received any gross business income during the year, the company or LLP is deemed to have gross income from a business source equivalent to NIL.
In this case, the company or LLP will be eligible for the preferential tax treatments as follows:
(i) The company is eligible for the tax treatment under Paragraph 2A, Part 1 of Schedule 1 and Paragraph 19A(3) of Schedule 3 of the ITA; or
(ii) The LLP is eligible for the tax treatment under Paragraph 2D, Part 1 of Schedule 1 of the ITA.
2. The company or LLP does not have gross business income but has current year business losses instead due to the temporary closure of its business operations.
A company or LLP that temporarily closes its business operations but still incurs expenses in relation to the business, e.g. payment of salaries, utilities, maintenance, rental of premises or any other allowable expenses under Section 33(1) of the ITA, is deemed to have gross income from a business source equivalent to NIL.
This company or LLP will also be eligible for the preferential tax treatments as outlined in Point 1 above.
Note:
In the earlier PN No. 3/2020, it was stated that in the case where a company or LLP does not have gross business income due to the temporary cessation of business operations, but derives other income such as rent and interest (which are not assessed as gains or profits from a business), the company or LLP will not be eligible for the preferential tax treatments