Working from home: what you can and cannot claim

The distinction that decides everything

Malaysian income tax draws a hard line between employment income and business income, and the treatment of expenses sits on opposite sides of it.

Employees are taxed on employment income under Section 13. Deductions against it are narrow: essentially the personal reliefs on the return, lifestyle, medical, education and the rest. Section 39(1)(a) of the Act bars any deduction for domestic or private expenses, and the running costs of your home are treated as exactly that. There is no home-office relief in the return. An employee who works from home three days a week and pays more for electricity and internet cannot deduct that difference. The reliefs are the only route, and there is no home office relief.

Self-employed taxpayers, freelancers, sole proprietors, anyone with business income under Section 4(a), are taxed on profit. Expenses wholly and exclusively incurred in producing that income are deductible under Section 33, and a home office used for the business qualifies, apportioned.

So the same electricity bill is deductible for the freelancer and not for the employee at the next desk.

What apportionment means in practice

A self-employed person cannot deduct the whole household electricity bill because the whole household is not the business. The deductible share is the business proportion, and the proportion needs a basis.

Two bases are commonly used:

Floor area. If the room used as an office is 12 square metres in a 90 square metre apartment, the business share is 13%. That percentage applies to rent, utilities, and building-related costs.

Time and use. Where a space is shared, a dining table used as a desk during working hours, a time-based apportionment can be argued, but it is weaker and more likely to be questioned.

Whichever basis is used, it should be documented once and applied consistently. A reviewer needs to be able to follow the arithmetic.

What a self-employed person can typically apportion

• Rent or, for an owned home, the interest element of the mortgage, apportioned to the business share. Principal repayments are never deductible.
• Electricity, water and internet, apportioned.
• Equipment bought for the business, through capital allowances rather than a one-off deduction. Computers and other ICT equipment currently attract a 40% initial allowance and 20% annual allowance, written off over three years; office furniture and fixtures 20% initial and 10% annual. Items costing RM2,000 or less each can be written off in full in the year of purchase, up to RM20,000 a year for an individual.
• Repairs to the office space, apportioned.
• Business phone line or the business share of a mobile plan.

Get estimated numbers by running the iMoney income tax calculator.

What cannot be claimed by anyone

• Costs that would exist regardless: the full rent, the full electricity bill.
• Capital costs treated as revenue: buying a laptop and deducting the whole price in year one.
• Personal items given a business label: the coffee machine, the second monitor used for streaming.
• Anything without a receipt or a basis for the percentage.

The records that hold up

For a self-employed claim: the utility bills, the rental agreement or mortgage statement, the floor plan or measurement that supports the percentage, and receipts for equipment. Seven years. The single most common failure is not a wrong claim but an undocumented percentage, a number that was reasonable but cannot be reconstructed.

The question employees always ask

Can an employee who is also self-employed claim the home office? Yes, against the business income, on Form B, apportioned to the business use, and only that share. The employment income remains untouched. This is the position many platform earners with a day job are in, and it is the reason to file as Form B rather than treating the side income as “other”.

For more information related to tax, visit iMoney’s tax articles in our Learning Center.