Adjusted income

Sec 33(1) of the ACT provides: "... the adjusted income of a person from a source for the basis period for a YA shall be an amount ascertained by deducting from the gross income of that person from that source for that period all outgoing and expenses wholly and exclusively incurred that period by that person in the production of gross income from that source ..."

Section 39 lists out expenses that are specifically prohibited.

Adjusted income = Gross Income - Allowable expense (permissible by S 33)

The allowabble expenses must have all the following attributes as stated in S 33 in order to rank for deduction.

a. outgoings or expenses

b. wholly and exclusively

c. incurred

d. in the production of gross income.

The list of prohibited expenses as provided in S 39(1) is as follows:

a. domestic or private expenses

b. disbursement or expenses that are of 'dual' purpose

c. capital withdrawn / sum employed as capital

d. contribution to an unapproved pension and provident scheme

e. qualifying mining, agriculture, forest, prospecting, and farm expenditure

f. interest and royalty expenses where applicable withholding tax are not deducted and paid

g. payment for the use of licence or permit to extract timber from a forest in Malaysia other than to Government or statutory bodies

h. contract payment to non-resident where applicable withholding tax are not deducted and paid

i.special classes of income paid to non-resident where withholding tax are not deducted and paid

j.lease rental for motor vehicles in excess of Rm 50,000 or RM 100,000 (in certain cases) per vehicle, computed on aggregate basis

k.a sum equal to 50% of the entertainment expenses

l.leave passage for employees within and outisde Malaysia

m.remuneration paid to partner of a limited liability partnership (LLP) where such remuneration is not specified in the LLP agreement.