Is staff quarters’ upkeep, maids expenses tax deductible?

YPK v KPHDN (2014), High Court

Brief fact:

The appellant, a qualified accountant owned an oil palm plantation. The appellant claimed for deduction under section 33(1) of ITA 1967 for following expenses: staff quarters’ upkeep, sanitation maids’ expenses and labour quarters’ upkeep.

The appellant claimed that his son, who worked as a general manager in the appellant’s oil palm plantation was not paid any remuneration but was provided with perquisites in the form of staff quarters and two maids.

The appellant also claimed for capital expenditure incurred on modern gadgets and house furniture.

The Special Commissioner has disallowed the taxpayer’s claim. Hence, the taxpayer has appealed to the High Court. The High Court has further dismissed the appeal by the taxpayer.

Subject matter for deduction:

• Staff quarters’ upkeep, sanitation maids, and labour quarter upkeep
• Modern gadget - MP3 Player, Ipod Nano and house furniture  

Issue:

• Whether the claim for deduction of the staff quarters, maid expenses and purchases of gadgets and furniture qualified for deduction under section 33 (1) and Schedule 3 (Capital Allowance) of the Income Tax Act 1967.

Holding of judgment: appeal is dismissed

1. The SCIT had found as a fact the claim for deduction for the staff quarters and labour quarters upkeep was actually based on expenses incurred for the renovation and upkeep of the appellant’s own house at No. 88 Jalan Bukit Bendera, Kota Kinabalu. 
2. The SCIT found that the expenses of two maids were also not incurred for the production of income because they were engaged to work at the said premises  which was not only owned by the appellant but also where he and his wife lived. It was for the appellant personal used.
3. The onus of proving that an assessment against which an appeal is made is excessive or erroneous shall be on the taxpayer.
4. In the case of pure finding of fact, the court would not interfer unless it considers that the only reasonable conclusion on the evidence contradicts the determination of the Special Commissioners.
5. Even if the luxury home can be considered ’staff quarters’ for the general manager, the evidence of RW1 shows that the repairs to the house were more in the nature of renovation or renewal. Therefore, it cannot be considered maintenance expenditure
6. The said 'quarters' is five to six hours' drive away from the plantation in question.
7. In this case, the parent is also the employer who provided the said services of the maid in the first place. In conclusion, it is a guise to evade tax by claiming deductions for domestic expenses that cannot be avoided.
8. Under s 39(1), deductions from gross income for domestic or private expenses are disallowed.
9. For the claim of capital allowances in respect of the purchase of gadgets and furniture, the appellant failed to tender proof or even explain how these items were used in the production of income in the plantation business.  The same with the purchase of furniture where no evidence was tendered to show how it was used in the production of income.
10. Appellant’s defence of good faith can only be invoked if appellant is prosecuted under s.113(1) of ITA. The SCIT has discretion to impose the penalty under S.113(4) and the defence of good faith is not available to the appellant based on the facts.

Conclusion

The Court has made a correct finding, because the expenses are purely in the nature of private expenses and did not fulfill any of the requirement for business deduction under section 33 of the ITA 1967.