(TAX UPDATE) “Company Is Mine” Until IRB Reviews the Director Account

Introduction

“Mr Koh, that money I advance from my own pocket to the Sdn Bhd only. I always adjust back. Company is mine anyway.”

I hear this many times.

Recently, during a closing meeting, I raised one issue in our Tax Statement of Findings.

Director account.

Frequent advances from director.
Month after month.
In many times.
Balance not small.

But when you line up the movements over 12 months, the pattern starts talking and patterns are what IRB looks at.

Why This Is a Red Flag

IRB does not focus on one transaction.

They look at behaviour.
They look at commercial logic.
They apply common sense.

When advances are frequent and substantial, especially without clear documentation, questions will come:

Is this really short term?
Where is the repayment plan?
Any interest charged?
Why so many in-and-out movements?

And the uncomfortable question … If facts do not support the explanation, IRB may argue it as unrecorded sales based on conduct and surrounding evidence.

That is where things become serious.

The Turning Point in the Meeting

I asked one simple question:

“Why pump cash into company? Company is solvent. Cash flow strong.”

If the company is financially healthy, why so much movement?

No director will move money in and out repeatedly without clear terms.

So when a director does it, naturally it raises one question:

Is this financing… or is this something else?

After that, the discussion changed.

From “my company what” to common sense.

My Simple Advice to SME Directors

If you use director advances, keep it clean.

Treat the company as separate from yourself.
Write down why the advance is made and when it will be repaid.
Make sure repayment is real and traceable.
Avoid frequent in-and-out movements without commercial reason.
Review the director account regularly. Don’t wait until year end.

This is not about being technical. This is about protecting your own pocket when IRB comes knocking.

Because IRB do not accept “never mind lah”. IRB accept records. Consistency and common sense.

After 25 years in practice, I have seen this too many times. Small habits in director accounts can quietly grow into big tax problems.

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