Day: August 21, 2023

A clinic wanted to reduce some of their expenses on their tax return. But the taxman looked deeper into some of the expenses, including:

• training,
• repairs,
• maintenance and
• general expenses,

and didn’t seem to agree.

Instead, the clinic said these expenses were related to caring for patients and selling healthcare products and were, therefore, very important expenses for the business.

However, the clinic has not provided enough evidence to prove this, and no one has come forward to support the clinic’s argument.

Most importantly, there is no evidence to prove that these expenses are related to their business.

The expenses appeared to be more like the personal expenses of the Director of the company and had nothing to do with the business, not the day-to-day marketing costs of the business. As a result, the Income Tax Officer would not allow the clinic to take a tax deduction.

This case also involves another issue: whether the clinic director’s personal MLM income can be reported as clinic income.

The clinic argued that the Director’s MLM income should be reported together with the clinic’s income. However, the taxman argued that these were two different sources of income and should be reported separately.

In the end, the clinic failed to prove that they were right. They provided too little evidence to support their claim.

At a hearing before The Special Commissioners of Income Tax, the taxman’s view was accepted, and he won; the clinic was subject to a tax recovery and additional penalties.

This incident shows us that it is important to keep good records of your business activities and ensure that income and expenses are linked. A lot of evidence needs to be provided to justify a tax deduction.

有一家诊所，他们想要在报税时减少一些费用。但是税务员对一些费用进行了深入调查，包括:

• 培训;
• 修理;
• 维护; 和
• 一般费用，

似乎不太同意。

诊所却说这些费用和照顾病人、卖保健品有关，因此对业务来说是非常重要的开支。

然而，诊所却没有提供足够的证据来证明这一点，也没有人出来支持诊所的观点。

最重要的是，没有证据能够证明这些费用和他们的生意有关。

这些费用看起来，比较像是公司 Director 的个人开支，与生意毫无关系，不是业务的日常营销成本。因此，税务员 (Income Tax Officer) 不让诊所拿来扣税。

这个案例也涉及到另外一个问题，那就是关于诊所 Director 个人的多层次营销（MLM)收入，可不可以报为诊所的收入。

诊所认为应该把 Director 多层次营销（MLM) 的收入和诊所的收入一起申报。但税务员却认为这属于两种不同的收入来源，应该分开申报。

最后，诊所没有能够证明自己的观点是对的。他们提供的证据太少了，不能支持他们的说法。

在所得税特别委员（The Special Commissioners of Income Tax）听证会上，税务员的观点被接纳，因此赢了；诊所因而遭到追税以及追加罚款。

这件事告诉我们，要好好记录自己的生意活动，确保收入和费用都有明确的关联。要扣税，需要提供很多证据来证明。

Reference:

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Here is an analysis of the Khind-Mistral (Borneo) Sdn Bhd tax case:

Introductory Paragraph

This is an income tax case involving the deductibility of sales incentive trips provided by Khind-Mistral (Borneo) Sdn Bhd (“Company”) to its dealers who achieved sales targets.

The trips were claimed as deductible expenses under Section 33(1) of the Income Tax Act 1967 (“ITA”). The Inland Revenue Board (“IRB”) disallowed the deductions, treating the trips as non-deductible entertainment expenses under Section 39(1)(l) of the ITA.

Revenue Law

Section 33(1) ITA allows deductions for expenses wholly and exclusively incurred in producing gross business income.

Section 39(1)(l) disallows deductions for entertainment expenses, subject to certain exceptions.

Section 18 defines “entertainment” to include hospitality of any kind connected with business.

Background Facts

The Company is engaged in trading electrical products under the Khind brand name.

It appointed dealers to sell the products and introduced a sales incentive scheme in 1996 to reward dealers who achieved sales targets with trips to tourist destinations locally and abroad.

For the years of assessment 2000-2003, the Company claimed these trip expenses as deductible under Section 33(1), but IRB disallowed them as entertainment expenses under Section 39(1)(l).

The Dispute

The issues are whether the incentive trips fall under the definition of non-deductible “entertainment” expenses and, if not, whether they are allowable deductions under Section 33(1) as expenses wholly and exclusively incurred in producing business income.

Contention

The Company contends the trips are deductible under Section 33(1) as they were given only when sales targets were achieved, thus aimed at boosting sales and income.

IRB argues the trips are entertainment as they provided hospitality without dealers paying, hence barred under Section 39(1)(l).

Court’s Evaluation and Findings

The Court applied the law strictly as a tax statute, giving words their natural and ordinary meaning.

Following the “business promotion” rationale in Aspac Lubricants case, the Court found the trips’ sole purpose was boosting sales and income when targets were met.

This business promotion objective makes the trips deductible under Section 33(1), not entertainment under Section 39(1)(l).

The dealers had to earn the trips by meeting targets, providing consideration.

Conclusion

The Court allowed the Company’s appeal, finding the trips were not entertainment but expenses wholly incurred in producing income, hence deductible under Section 33(1). IRB’s appeal was dismissed.

Tax planning tips

• Document sales incentive programs clearly – Establish direct links between incentives and sales targets/production of income. This helps justify deductibility.
• Build a paper trail showing business purpose – Keep records on how incentives boost revenue, not just entertainment. Support with data on sales impact.
• Incentivise key staff and major clients – Targeted incentives for top performers most clearly tied to income production. Avoid wide distribution.
• No gifts for personal milestones – Gifts for staff/client weddings, birthdays etc, indicate entertainment, not business.
• Adhere to strict limits – Lavish trips/gifts for a few recipients convey entertainment. Modest, wide distribution is better.
• Apportion mixed-use items – Allocate a percentage of entertainment-linked deductions like annual dinners between sales promotion and staff entertainment.
• Review changes annually – Update processes to comply with tax law amendments affecting deductions.
• Disclose fully – Declare and explain all incentive expenses. Transparency rules out tax evasion perceptions.
• Seek tax advice – Consult experts to structure compliant incentive programs and optimise eligible deductions.

Disclaimer:

The articles, templates, and other materials on our website are provided only for your reference.

While we strive to ensure the information presented is current and accurate, we cannot promise the website or its content, including any related graphics. Consequently, any reliance on this information is entirely at your own risk.

If you intend to use the content of our videos and publications as a reference, we recommend that you take the following steps:

1. Verify that the information provided is current, accurate, and complete.
2. Seek additional professional opinions, as the scope and extent of each issue may be unique.

免责声明：

我们网站上的文章、模板和其他材料只供参考。

虽然我们努力确保所提供的信息是最新和准确的，但我们不能保证网站或其内容，包括任何相关图形的完整性、可靠性、适用性或可用性。因此，您需要承担使用这些信息所带来的风险。

如果你打算使用我们的视频和出版物的内容作为参考，我们建议你采取以下步骤：

1. 核实所提供的信息是最新的、准确的和完整的。
2. 寻求额外的专业意见，因为每个问题的范围和程度，可能是独特的。

Keep in touch with us so that you can receive timely updates

请与我们保持联系，以获得即时更新。

1. Website ✍️ https://www.ccs-co.com/ 2. Telegram ✍️ http://bit.ly/YourAuditor 3. Facebook ✍

• https://www.facebook.com/YourHRAdvisory/?ref=pages_you_manage
• https://www.facebook.com/YourAuditor/?ref=pages_you_manage

4. Blog ✍ https://lnkd.in/e-Pu8_G 5. Google ✍ https://lnkd.in/ehZE6mxy

6. LinkedIn ✍ https://www.linkedin.com/company/74734209/admin/

7. Threads ✍ https://www.threads.net/@ccs_your_auditor

8. 小红书 ID ✍ 2855859831