I am sure many of you will still remember the widespread allegation that doctors (from now on referred to as the doctor) who provide medical services (e.g., treatment, consultancy, surgical, etc.) in Private Hospitals were evading taxes many years ago, and LHDN conducted audits as a result.
It is not only permissible but common to set up a private limited company (Sdn Bhd, from now on referred to as "the Company") to carry on business.
However, when it comes to doctors, this raises a new dilemma as to whether the income in question is taxed in the doctor's personal name or in the name of the company he has set up.
The Inland Revenue Board of Malaysia (“IRBM”) has then communicated to the Malaysian Medical Association (“MMA”) via letter dated 28 June 2018 to notify them that effective from the year of assessment (“YA”) 2017, services rendered to the Private Hospitals regardless of the existence or nonexistence of a written agreement, the payment received by a Doctor will be subjected to tax as business income of an individual
The IRB has published on its website, dated 16 March 2022, technical guidelines regarding the tax treatment of doctors' income in Private Hospitals.
The Guidelines are in Bahasa Malaysia and are named "Garis Panduan Layanan Cukai Ke Atas Pendapatan Pengamal Perubatan (Doktor Pakar) Di Hospital Swasta Sama Ada Ditaksir Di Bawah Individu Atau Syarikat".
Income to be Assessed as a Business Income
The doctor will have two different sources of business income, each of which must be stated on the Income Tax Return Form as a separate business source to comply with Section 4(a) of the Income Tax Act 1967.
To be assessed in the name of the Doctor
Consultation fees and other payments received from Private Hospital, even if:
the Doctor sets up a company and enters into an agreement with a private hospital to provide specialist services to patients
the Doctor sets up a company with other doctors and enters into an agreement with a private hospital to provide specialist services to patients through the company.
Whether the contract entered into with a private hospital is in the name of the Doctor or the Company, the tax treatment is the same in both cases.
Income Tax Return: Form B
To be assessed in the name of the Company
If the company's primary activity is engaging in activities related to medical, such as selling medical products, pharmaceutical products, and health aids; or
If the doctor operates a clinic:
located in a private hospital where patients receive specialist care without being referred by the private hospital, and the doctor does not use any private hospital facilities to treat patients; or
not inside the private hospital, and the services provided to patients do not include any private hospital
Income Tax Return: Form C
Income to be Assessed as an Employment Income
Status of the Doctor:
As an Employee
The doctor who serves for the Private Hospital under a contract of service, whether full or part-time
As a shareholder and director
When a doctor is both a shareholder and a director of the Private Hospital, regardless of whether they are a Specialist Doctor there or not,
The salaries received for consultation services, surgery, or any treatment provided will be assessed as the employment income of the Doctor by Section 4(b) of the Act.
Income Tax Return: Form BE
Deductible Expenses
The Guidelines also explain and give examples of certain kinds of expenses that may be tax-deductible in arriving at the adjusted income, such as the following:
Professional indemnity insurance (PII)
Employer’s contribution to the Employees Provident Fund (EPF). The Guidelines also explain when a contribution would not be tax-deductible.
Fees incurred to attend Continuing Professional Development (CPD) seminars, workshops or conferences approved under CPD Review Committees
Rental pay to the private hospital for:
consultation rooms,
surgical instruments, or
operating rooms
Other allowable expenses under Section 33(1) of the Act
However, under section 39 of the ITA, certain expenses are prohibited as deductions, such as private expenses or expenses of a capital nature.
Is Travelling Expenses Tax Deductible?
In general, travelling expenses are not deductible expenses unless:
The travel is part of employment/official duties (required by your employer or necessitated by the circumstances of the business) and not because of your personal circumstances (where you live);
To expand on this, quite simply, getting to and from your regular place of work is not deductible, regardless of how far this may be.
Travel costs are a necessary consequence of the work or duties;
The employer demands the doctor undertakes the travel, or the doctor is required to travel for business purposes; and
The travel is undertaken during working/business hours.
Mfula vs the Federal Commissioner of Taxation
Dr Mfula was both a salaried employee and a locum doctor/surgical assistant, billing hospitals under his Australian business number (ABN).
Whilst working as a locum via the Global Medics agency in Wagga Wagga, Dr Mfula travelled by car from his home in Melbourne and flew to other sights in NSW. He sought to claim car travel and food/incidental costs in the tens of thousands, whilst the hospitals covered accommodation and flights.
Dr Mfula noted that no allowances were paid to him. Furthermore, he was not required to use his vehicle for work purposes, and he was required to pay for his meals.
Dr Mfula could not claim any travelling expenses except for work as a surgical assistant, for which he worked at multiple sites on the same day. All other car travel was deemed home to work and not ‘on work’ or at the direction of an employer.
Despite arguing that a meal allowance was rolled into his hourly rate, meal costs were also disallowed.
Overall, this is not fantastic news for mobile medical professionals. Your travel expenses, including those for your vehicle, lodging, and food, are not likely tax deductible unless you demonstrate that you satisfied specific requirements and kept detailed records.
Capital Allowance
A Doctor who incurs capital expenditures on assets or equipment used for business purposes is entitled to claim a capital allowance under Schedule 3 of the ITA 1967.
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