CAPITAL ALLOWANCE & CHARGES

1. CAPITAL ALLOWANCE & CHARGES • Introduction • Qualifying Criteria • Qualifying plant expenditure • Plant and Machinery • Installation of Plant & Machinery • Initial allowance • Annual allowance • Residual Expenditure • Hire purchase transaction salmah muhamed act 3152 -2006

2. CAPITAL ALLOWANCE & CHARGES….cont 10) Qualifying expenditure for MV 11) Basis period 12) Temporary disuse 13) Balancing allowance/charges 14) Meaning of disposal 15) Assets owned for less than 2 years 16) Dual purpose case 17)Used plant & machinery 18) Unutilised CA carry forward 19) Tax administration salmah muhamed act 3152 -2006

3. 1. Introduction • Capital expenditure on asset acquisition is not tax deductible • Sec 3 ITA allow tax relief in the form of capital allowance • Deductible against adjusted income • Restricted to business income only salmah muhamed act 3152 -2006

4. 2. Qualifying Criteria • a) person carry on business • b) incurred QE • c) used assets in business salmah muhamed act 3152 -2006

5. 3. Qualifying plant expenditure • a) exp incurred on the alteration of existing building • b) prepare site for the installation of P &M , but exp cannot exceed 10 % of the aggregate of itself • c) fishpond, animal pens, chicken houses, cages building, structural improvement (Exclude living accommodation for directors/s.holders salmah muhamed act 3152 -2006

6. 4. Plant and Machinery • Horses as plant • Books as plant • Floating restaurant not plant • Moveable partition as plant • Small items as plant • Human is not plant • Light fittings are not plant salmah muhamed act 3152 -2006

7. 5. Installation of Plant & Machinery • Cost of preparing, cutting, tunneling or levelling land is part of P &M if such exp do not exceed 10% of the aggregate of the cost of machinery & the cost of preparing the site • If expenditure incurred on the alteration of existing building, the full cost is treated as plant cost salmah muhamed act 3152 -2006

8. 6. Initial allowance • Eligibility of IA • Mining (60%), timber (60%) & construction business(30%) • Public transport companies/ natural gas refuelling(IA 40%, AA 20%) • Imported heavy machinery(IA,AA-10%) • Environment protecting equipment • Assets bought & sold in the same year salmah muhamed act 3152 -2006

9. 7. Annual Allowance • 1) Eligibility • 2) AA rates • Office equipment, furniture, fittings 10% • Plant & machinery (General) 14% • Heavy machinery, m/vehicle 20% • 3) Accelerated AA rate salmah muhamed act 3152 -2006

10. 8. Residual expenditure • Unutilised portion of QE after deducting • IA,AA , NA • Also known as Tax written down value salmah muhamed act 3152 -2006

11. 9. Hire Purchase Transaction • Person who incurs capital expenditure under HP agreement and used P&M for business is deemed the owner • IA & AA computed based on deposit paid and capital portion of installment payment • HP interest is allowed as a revenue expense salmah muhamed act 3152 -2006

12. 10. QPE for M/Vehicle • QPE for M/vehicle other than commercial vehicle is restricted to RM50,000 • W.e.f YA 2001 QPE for MV is RM100,000 if • a) total cost of MV do not exceed RM150,000 • b) new MV • c) purchased on or after 28/10/ 2000 • QPE remained RM50,000 if total cost exceed RM150,000 salmah muhamed act 3152 -2006

13. 11. Basis period • Before commencement of business CA is deferred until business commences • After commencement of business Expenditure incurred on the day the P&M is capable of being used for business • Change of basis period salmah muhamed act 3152 -2006

14. 12. Temporary Disuse • P&M is deemed used if a. P&M was used immediately before disuse b. during disuse period, P&M is maintained c. period of disuse is temporary AA continue to be claim salmah muhamed act 3152 -2006

15. Balancing allowance/charge • BC imposed is restricted to actual allowances claimed • Notional allowance is excluded from computation of balancing charge • BC/BA is computed even though no cash received salmah muhamed act 3152 -2006

16. 14. Meaning of Disposal • Where it is disposed of by sale, transfer or assignment a. market value at the disposal date or b. Net proceed of sale, transfer or assignment Whichever is greater will be taken as the disposal value • If sale proceed not recovered, the debt is treated as capital transaction salmah muhamed act 3152 -2006

17. 14. Meaning of Disposal • Where it is disposed of by sale, transfer or assignment a. market value at the disposal date or b. Net proceed of sale, transfer or assignment Whichever is greater will be taken as the disposal value salmah muhamed act 3152 -2006

18. 14. Meaning of Disposal…cont • If sale proceed not recovered, the debt is treated as capital transaction • Disposal by way of insurance compensation /recoveries • Disposal of motor vehicles • Disposal with other assets salmah muhamed act 3152 -2006

19. 15. Assets owned for less than 2 years (para 71) • All CA given would be clawed back as balancing charge unless commercially justified salmah muhamed act 3152 -2006

20. 16 Dual purpose case • The amount of allowances are determined by the DGIR salmah muhamed act 3152 -2006

21. 17. Used P & M • QPE is either market value or net book value • No initial allowance available salmah muhamed act 3152 -2006

22. 18. Unutilised CA(para 75) • Available for carry forward to the next year & subsequent YA s until fully set off against the same business source salmah muhamed act 3152 -2006

23. 19. Tax Administration • Claim for CA must be made for each YA upon the submission of return of income salmah muhamed act 3152 -2006