TAC One Stop Advisory PLT

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At TAC One Stop Advisory PLT, we are committed to helping businesses, entrepreneurs, SMEs and professionals manage their tax and compliance matters with confidence.

With over 25 years of professional experience, we provide practical and personalised solutions in:

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TAC One Stop Advisory PLT
Tax | Advisory | Compliance

⚖️ Important Tax Court Case Every SME Director & Shareholder Should Be Aware Of

A recent Court of Appeal case involving Lam Kam Wing and LHDN provides an important lesson for company directors, shareholders, and SMEs regarding employee allowance exemptions and tax compliance.

The case focused on whether a Managing Director with shareholding in a company could still enjoy tax exemptions on benefits such as:
✔️ Meal allowances
✔️ Petrol allowances
✔️ Parking allowances
✔️ Telephone allowances

𝐂𝐚𝐬𝐞 𝐁𝐚𝐜𝐤𝐠𝐫𝐨𝐮𝐧𝐝
The taxpayer was the Managing Director of Tasmanco Consultancy Services Sdn Bhd and owned 30% shares in the company.

Following an audit by LHDN for YA 2011 to YA 2013, it was discovered that several allowances received by the taxpayer were excluded from taxable income on the basis that they were treated as tax exempt under the Income Tax (Exemption) Order 2009.

However, LHDN argued that the taxpayer had “control” over the company due to his management position and shareholding, making him ineligible for the exemption under Paragraph 3(a)(i) of the Exemption Order.

Additional tax assessments together with penalties under Section 113(2) of the Income Tax Act 1967 were subsequently raised.

𝐂𝐨𝐮𝐫𝐭 𝐨𝐟 𝐀𝐩𝐩𝐞𝐚𝐥 𝐃𝐞𝐜𝐢𝐬𝐢𝐨𝐧
The Court agreed with LHDN that the taxpayer exercised sufficient “control” over the company as he was both:
• The Managing Director
• The largest shareholder at the material time

As a result, the allowances did not qualify for tax exemption and the additional tax assessments were upheld.

However, the Court removed the penalties imposed by LHDN after finding no evidence of intentional tax evasion or deliberate deception.

The Court recognised that this was a genuine difference in interpretation of the law rather than an attempt to defraud the tax authorities.

𝐊𝐞𝐲 𝐓𝐚𝐤𝐞𝐚𝐰𝐚𝐲𝐬 𝐟𝐨𝐫 𝐁𝐮𝐬𝐢𝐧𝐞𝐬𝐬𝐞𝐬
✅ Directors and shareholders should carefully assess whether employee tax exemptions genuinely apply to them.
✅ Ownership and management overlap may affect eligibility for certain tax exemptions.
✅ Incorrect interpretation of exemption rules can still lead to additional tax exposure.
✅ Penalties may n