waiver of debt tax implication in Malaysia

IRB tax me on ''write off on advance from director's account'' (waiver of debts)

Alamat #$@%^& 天理何在

Today, many companies are suffering from the after-effect of Covid-19, the ongoing MCO, EMCO, and RMCO have a tremendous impact on business. Some businessman decided to strike off their company. To smoothen the strike-off process, the company always clear off the accounts before application of strike off.

So, what is the tax implication if I waive off my directors’ account?

Let’s illustrate with a simple real case:

Scenario

ABC Sdn Bhd is going to strike off due to the company is unsustainable. The directors have injected money as a loan for the company’s operation over the years. But now, due to striking off, the company decided to waive of director’s account.

Struggles

Is the waiver of the director’s account taxable?

Solution:

Generally, yes. the waiver of debts is a taxable income to the company. Why?

Under Section 30(4) of ITA 1967, the waiver of debts is taxable if the debts have either: -

i) taken a tax deduction under Section 33 of the Act; or

ii) claimed a capital allowance under Section 42 and Schedule 3 of the Act.

Unless the taxpayer can prove that they did not claim any of the above two categories.

Sources:

Income Tax Act 1967 – Section 30(4)

http://www.agc.gov.my/agcportal/uploads/files/Publications/LOM/EN/Act%2053.pdf

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