Tax Audit - Amount Due To Director vs. Due From Director

In corporate accounting in Malaysia, it’s essential to distinguish between “Amount Due to Director” and “Amount Due from Director” because each carries different accounting and tax implications.

When you record an “Amount Due to Director,” you are acknowledging a liability (credit side of Trial Balance, same as Revenue, also on credit side) on your company’s balance sheet. This relates to genuine obligations the company has toward a director, such as unpaid salaries, bonuses, or advances that have not yet been repaid. In this case, the company owes money to the director, and the transaction must be properly documented to show that the payment is a regular, legitimate expense. If not clearly identified, such liabilities might be scrutinised by LHDN (Malaysia Inland Revenue Board) to ensure they are not misclassified in an attempt to reduce taxable income or mask non-deductible expenses.

In contrast, an “Amount Due from Director” represents a receivable, meaning that the director owes money back to the company. This often arises when a director has received loans, advances, or other payments that have not been formally repaid. If these amounts are wrongly recorded or used as a clearing mechanism to hide other transactions, LHDN may view such misrepresentation as a potential way of disguising funds or illicit conduct. For example, credit balances that enter the director’s account should not simply be reclassified to avoid detection; proper procedures—like transferring unclaimed monies to the Registrar according to the Unclaimed Monies Act 1965—must be followed 

A recent real-life illustration of these issues occurred when a Malaysian company’s director’s account came under close scrutiny during a tax audit in early 2025. In that case, LHDN discovered that the company had incorrectly shifted credit balances into the director’s account instead of recording them as due from the director or transferring them as prescribed by law. The authorities determined that amounts mistakenly classified as “Amount Due to Director” were, in fact, credits that the director should have repaid—thus, they should have been recorded as “Amount Due from Director.” This misclassification ultimately resulted in those credits being brought to tax as income in the hands of the director, triggering additional tax liabilities and penalties 

[Tax Matters – Don’t misuse the director’s account - The Sun]

(https://thesun.my/business-news/tax-matters-don-t-misuse-the-director-s-account-KK9590491)

[Section 75A Directors, Do You Know Your Liabilities? - HHQ]

(https://hhq.com.my/posts/section-75a-directors-do-you-know-your-liabilities/).

This case underscores two core points. 

First, accurate financial reporting is vital not only from an accounting perspective, but also to comply with tax regulations and avoid aggressive scrutiny by LHDN. 

Second, mistakenly or deliberately conflating “Amount Due to Director” with “Due from Director” can lead to severe tax implications, as the misclassified amounts might be recharacterised by tax authorities and attributed to the personal income of the director 

Business owners, therefore, must ensure clarity and transparency when accounting for any transactions involving directors, maintaining proper documentation and segregation of amounts due to and due from directors so that each is treated correctly in compliance with both accounting standards and LHDN regulations.