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Interest Expense & Interest Restriction

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by

Aloyah Laa

on 26 October 2014

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Transcript of Interest Expense & Interest Restriction

Interest Expense & Interest Restriction
(Public Ruling No. 2/2011)

Interest Restriction (S. 33(2))
Total Investment / Loans > Total Borrowings = WHOLE interest exp. DISALLOWED
Interest Expense (S. 33(1)(a))
Bank
Non-Application of S. 33(2)
Interest expense on borrowed money charged
< RM 10K for companies
< RM 6K for individual and others
Company
Loan
Interest
Loan used for..
1. as working capital
2. give loan to staff
3. loan to directors
4. other debtor
5. fixed deposit
Allowable
used for production of income
buy assets for production of income
Non-Allowable
used to construct building/plant before commencement of biz.
due to interest expense not part of the construction of building/plant
Partially Allowed
borrowed money NOT WHOLLY & EXCLUSIVELY for business purposes
e.g ; investment in land properties, share, securities and loan (including interest-free loan
Total Investment / Loans < Total Borrowings = PARTIAL interest exp. DISALLOWED
Formula :
Cost of investment + Loan financed by interest bearing borrowed money
Outstanding balance of interest bearing borrowed money at MONTH or YEAR END
X
Average Interest payable, MONTHLY or YEARLY
Computation based on.......
YEAR-END balance
If total of investments + loans < RM 500K
MONTHLY balance
If total investment + loans > RM 500K, OR
There is no investment/loan at financial year end, due to investment been sold / transferred / repay during the year.
Applicable to interest expenses that > RM 10K but becomes < RM 10K after offsetting against income from investment / loan.
Refinancing Loan
Loan #2 taken to finance Loan #1
If Loan #1 used for BUSINESS PURPOSE, interest incurred on Loan #2 will be ALLOWABLE
If Loan #1 used for BUSINESS & NON-BUSINESS PURPOSE, interest restriction will apply
Deferred Payment Credit
Buy now, pay later
If Credit Facility is used, the price-to-be-paid (deferred payment) is > Cash Price
Difference between Deferred Payment & Cash Price is DEFERRED INTEREST
Interest Exp Attributable to Dividend Income Received by a Company
Company may declare single-tier exempt dividend to its shareholders who WILL NOT BE TAXED on Dividend Income
however, the company which have balance in S. 108 account is ALLOWED to continued Frank Dividends from that account during 1.1.2008 until 31.12.2013 OR when S. 108 balance is NIL (whichever is earlier)
Full transcript