Guides
Small-business expenses: what is deductible and what is not (YA 2026)
Updated: 8 November 2026 Independently fact-checked.
The basic principle: subsection 33(1) of Act 53
In Malaysia, business expenses allowed as deductions are determined by subsection 33(1) of the Income Tax Act 1967 (Act 53): expenses incurred wholly and exclusively for the production of business income during the accounting period are allowed as deductions — subject to the prohibitions in section 39. (Source: Act 53 — official consolidated HASiL text; HASiL — slides Tanggungjawab Percukaian Bagi Individu Perniagaan T2025.)
Section 39 prohibitions: what is NOT deductible
Section 39(1) of Act 53 prevents deductions for, among other things:
| Provision | Category |
|---|---|
| 39(1)(a) | Personal or domestic expenses |
| 39(1)(b) | Expenses not wholly and exclusively incurred for the production of income |
| 39(1)(c) | Capital expenditure |
| Others | Other categories stated in the Act |
(Source: Act 53 — section 39; HASiL — slides Tanggungjawab Percukaian Bagi Individu Perniagaan T2025.)
Examples of costs commonly deductible (small businesses)
The list below is a general guide based on HASiL's official educational materials — not an exclusive or definitive list:
- Rent of business premises
- Utilities (electricity, water) for business premises
- Supplies — stock and materials
- Travel for business purposes
- Software subscriptions used for the business
- Advertising and marketing
- Professional and accounting fees
- Employee salaries
- The business portion of mixed costs (e.g. phone/internet)
(Source: HASiL — slides Tanggungjawab Percukaian Bagi Individu Perniagaan T2025.)
Mixed costs: personal vs business
For costs that are mixed between personal and business use (e.g. phone bills, internet, vehicles), only the business portion can be claimed. Fully personal expenses (e.g. family meals, holidays, personal clothing) cannot be deducted — they are prohibited by section 39(1)(a). (Source: Act 53 — section 39(1)(a); HASiL — slides Tanggungjawab Percukaian Bagi Individu Perniagaan T2025.)
Records: keep them for 7 years
Traders must keep business records — financial statements, receipts, invoices, bank statements — for 7 years under section 119A of Act 53. This includes sales and purchase records, as well as supporting documents for the expenses claimed. Failure to keep business records may attract penalties under section 119A. (Source: HASiL — Individual FAQ, Q8–Q10; HASiL — Perniagaan Digital; Act 53 — section 119A.)
Simple example (concept)
Mei runs an online sales business. She rents a small room as a store, buys stock, pays for an invoicing software subscription, and uses her mobile phone for customer matters. Mei claims the rent, stock costs, software subscription, and the business portion of her phone bill — but not family meals or personal holidays, which fall into the personal/domestic category. She keeps all receipts and bank statements. (Illustrative example to show the concept — not specific tax advice.)
Frequently Asked Questions (FAQ)
Q. Can I deduct all business expenses? A. Only expenses incurred wholly and exclusively for producing business income (33(1)) and not prohibited by section 39 — e.g. personal/domestic, not wholly for the business, and capital. (Source: Act 53.)
Q. I use my personal phone for work — can I claim it? A. You can claim a portion — only the business portion. The personal portion cannot be deducted. Keep records of how you calculated the portion. (Source: Act 53 — section 39(1)(a).)
Q. How long do I need to keep records? A. 7 years (section 119A). This includes financial statements, receipts, invoices and bank statements. (Source: HASiL — Individual FAQ, Q8–Q10.)
Q. Is capital allowance the same as expenses? A. No — capital expenditure (e.g. buying machinery) is prohibited by section 39 as a direct deduction, and qualifies for capital allowance, which is handled separately. Capital allowance status as a separate issue: This item still awaits official confirmation from HASiL — check again with HASiL before deciding. — proposed for a separate article. (Source: Act 53 — section 39(1)(c).)
Q. I have just started a business and made a loss — do I need to report? A. Yes — individuals carrying on a business must register a TIN and report income even if the business makes a loss. Refer to HASiL for your reporting obligations. (Source: HASiL — Individual FAQ.)
Glossary
- Gross income — total sales/service revenue before any deductions.
- Net income — sales minus allowable expenses (the basis of tax computation).
- Relief vs business deduction — business deductions are deducted from gross business income in the financial statements; reliefs are deducted from an individual's chargeable income.
- Capital allowance — a deduction for capital expenditure (a separate issue from this article).
- TIN — Tax Identification Number.
- Akta 53 — the Income Tax Act 1967.
Official sources
All sources below were reviewed on 8 November 2026. Official HASiL pages and documents: