Public Ruling No. 5/2000 (Revised) Keeping Sufficient Records (Individuals & Partnerships)

An individual carrying on a business as a sole proprietorship or a partnership is required under the Income Tax Act 1967 to keep and retain in safe custody sufficient records to enable the income or loss from the business for the basis period for any year of assessment to be readily ascertained.

Records / Books of Accounts

For a small business, a cash book may be kept, recording all bank account entries, cash receipts and cash payments. For a business other than a small business, it may be necessary to keep other books of accounts including a sales ledger, a purchases ledger and a general ledger.

The following requirements should be complied with: 

A. The books of account should be written up at regular intervals.Appropriate entries for each transaction should be recorded as soon as possible (in any case not later than 60 days after the transaction). 

B. Supporting documents such as invoices, bank statements, pay-in slips, cheque butts, receipts for payments, payroll records and copies of receipts issued should be retained. 

C. Receipts issued should be serially numbered. Where the gross takings for a year exceeds RM 150,000 from the sale of goods or RM 100,000 from the performance of services, receipts issued must be serially numbered. 

D. A valuation of the stock in trade or work in progress should be made at the end of each accounting period and the appropriate records maintained.

1. Sufficiency of records 

Records in manual or electronic form should be sufficient to explain each transaction and to enable a true and fair profit & loss account and balance sheet to be prepared.

2. Records maintained in electronic form 

If computers are used to record the transactions, original source documents such as invoices and receipts should be retained in their original form. Where the original documents are in electronic form, the documents can be retained in such form. However, the records should be kept in an electronically readable form and in such manner as to enable the records to be readily accessible and convertible into writing.

3. Place for keeping records 

Records that relate to any business in Malaysia must be kept at the business premises of the sole proprietorship or the partnership in Malaysia. If records for business activities outside Malaysia are kept outside Malaysia, such records should be produced at the business premises in Malaysia, when requested by the Director General.

4. Period for keeping records 

A. Records are to be retained for at least 7 years from the end of the year to which any income from that business relates. 

Example: The accounts of a partnership are prepared for the year ending 30.06.2002 

The records of the partnership for the financial year ending 30.06.2002 should be retained until 31.12.2009 [7 years from the end of 2002 (the year to which the records relate)] . 

B. If the return for a year of assessment [Y/A] is not furnished within the time specified under the Act, the relevant records are to be retained for a period of 7 years from the end of the year in which the return is furnished. 

Example: The financial year of a partnership is the year ending 31.03.2001. The partnership furnishes its return for the Y/A 2001 on 23.05.2003. 

The records of the partnership for the financial year ending 31.03.2001 should be retained until 31.12.2010 [7 years from the end of 2003 (the year in which the return is furnished)].

C. Where there is an appeal against an assessment, the relevant records are to be retained until the appeal is finally determined.

5. Records to be kept in the national language or English 

Records and books of accounts should be written in the national language or the English language. If the records and books of accounts are written in a language other than the national language or English, a written translation is to be provided, at the expense of the sole proprietorship or the partnership, when requested by the Director General.

Examples of Records 

Some examples of the records to be kept are described below: 

1. Bank accounts 

All bank statements or savings books should be retained. It is good practice to maintain separate bank accounts for business and for personal use. If, for any reason, a separate account is not maintained for the business, a record should be kept to identify the transactions which are for business purposes.

2. Trading stock and work in progress 

At the end of the accounting period, a physical stock-take should be made to ascertain the quantity and the cost of the stock in hand or the cost of work in progress .

3. Private money used in the business 

A record should be made of any private money that was brought into the business.

4. Personal drawings 

Money taken out of the business for personal or family use should be recorded.

5. Non-trade debtors and creditors 

There should be separate records for non-trade debtors and creditors, i.e. persons owing money to the individual or to whom the individual owes money which is not related to the business. 

6. Contract and subcontract payments 

Details of contractors or subcontractors such as name, address, identity card number, amount and date of payment, and the nature of work done are needed to support the payments made. 

7. Partners' capital and current accounts 

Money brought into or taken out of the partnership business, the partners' share of profits, interest on capital, salaries and other benefits should be recorded.

Treatment of Certain Transactions

1. Small expenses without receipts 

For small expenses for which no receipts are obtained (e.g. taxi fares and parking fees), a record should be made as to the date incurred, the amount paid, and the purpose for which the expense is incurred.

2. Assets and liabilities used for both business and private purposes

A. Motor vehicle 

If a motor vehicle is used for both business and private purposes, a record of business and private mileage should be kept. This should be used to allocate the expenses incurred on the vehicle between the two purposes.

B. Shop premises 

If a part of a shop is used as private living quarters, a record of business and private expenses should be kept. If the expenses incurred on the premises can be easily identified as relating to private living quarters, then such records should be maintained. For certain expenses that may not be identifiable as relating to private use only (e.g. electricity and water), a fair estimation of private use should be noted when the expenses are recorded

C. Overdraft / Loan 

If an overdraft or loan is used for both business and private purposes, details of private use (including purchase of shares or non-business property and drawings for personal use) should be maintained.

The Consequences If Sufficient Records Are Not Kept

The individual carrying on business as a sole proprietorship or a partnership may be required by the DG, at the expense of that individual, to have his accounts audited by a professional accountant.

The chargeable income of the individual may be determined according to the best judgement of the DG and an assessment made accordingly. 

The individual may be prosecuted and, on conviction, may be liable to a fine of not less than RM 300 and not more than RM 10,000 or to imprisonment for a term not exceeding 12 months, or to both.

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Edited by: 浪子

Source: http://lampiran2.hasil.gov.my/pdf/pdfam/PR5_2000_Rev.pdf