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Relief for capital expenditure - Coggle Diagram
Relief for capital expenditure
2 forms of reliefs
Capital expenditure
Capital expenditure are capital in nature so they are not allowed to be deducted to arrive at the adjusted income so reliefs are given
IBA
Is also to reduce the adjusted income
Capital expenditure qualify for capital allowance
Plant and machinery used in the business
Machinery is not a problem but plant usually has problem
Definition of plant
Apparatus used
Exclude
Stock in trade
For setting up the operation of the business
Include
Chattels, fixed, movable, live or dead which he keeps for permanent employment in business
Expenditure that plays a functional role
Test that can be used to determine a plant
Apparatus test
Used for the purpose of carrying on the business, for functional role, then it is a plant
Premise test
Premises are not plant, as they are not goods or chattels
Setting test
If for setting up operation, then it is not plant
Functional test
Expenditure on plant and machinery that qualify for relief
Alteration of an existing building for the purpose of installing the machinery and plant
Preparing, cutting, tunnelling or levelling land for the purpose of installing that machinery or plant
The expenditure incurred cannot exceed 10% in aggregate of itself and any qualifying expenditure on machinery and plant
On ponds, animals pens, chicken houses, cages, building and other structural improvements on land, which are used for the purpose of poultry farms, animal farms, inland fishing industry or other agricultural or pastoral pursuits
Motor vehicles other than a motor vehicle licensed for commercial transportation of goods or passengers
Restricted to RM50,000
Restricted to RM100,000
Should be a new motor vehicle
The on the road price does not exceed RM150,000
On the road price is the price that you pay for new motor vehicle and include first year's road tax, registration fees and plate number
No initial allowance
The MV incurred on the plant and machinery on the day it is brought into use from non-business to business activities
From use for business outside Malaysia to business in Malaysia: The lower of MV or book value
If withholding tax has not been deducted and paid to DG, then the amount of the capital expenditure shall not include amounts paid to non-resident persons in relation to the installation of the plant and machinery
Basis period
Accounting period= Basis year of assessment of a business source of income = basis period for a year of assessment for qualifying plant expenditure
Conclusion: Basis period for a year of assessment for qualifying plant expenditure = accounting period of a company
Qualifying expenditure deemed incurred
Deemed incurred on the day where the machinery or plant is capable of being used for the purpose of the business
For the capital expenditure used for a business that about to commence, the relief shall be given when the business commences
Capital allowances
Initial allowance
20% allowance of that expenditure
Criteria
The person has incurred
The person is the owner of the asset
Can either be beneficial or legal owner
Beneficial owner is the one who has incurred the capital expenditure or has made payments and can prove such payments. Only the beneficial owner can claim for capital allowance as legal owner has not incurred the capital expenditure
Legal owner is the one whose name is registered for the asset
For assets used by the legal owner but capital expenditure incurred by the beneficial owner, no one gets to claim the capital allowance
The asset is used for the purpose of the person's business
Other criteria
The person has incurred in the basis period and has disposed the asset in the basis period
Prior to the disposal, the asset was used for the purpose of the business
Annual allowance
Criteria
The person is the owner of the asset
The asset was used for the purpose of their business
Rates
Office equipment, furniture and fittings
10%
Plant and machinery
14%
Heavy machinery, motor vehicles
20%
Accelerated capital allowance
ICT equipment and computer software packages, including installation cost
20% initial, 20% annual allowance
Assets with life span more than 2 years
They are to be dealt with on a replacement basis
The price is not regarded as being qualifying expenditure
No initial or annual allowance are allowed
The cost of replacing such assets shall be allowed as deductible expenditure under Section 33(1)(c) in determining the adjusted income
Any amount recovered from the disposal of that asset are treated as income
Small value assets
Assets with a life span of more than two years and a value not exceeding RM1300
100% capital allowance can be claimed
The capital allowance can be claimed up to RM13,000
SME
Would not be limited to RM13,000 for small value assets
What is an SME
50% of paid up capital in respect of ordinary shares is owned directly or indirectly by a related company
50% of paid up capital in respect of the related company is directly or indirectly owned by an SME
50% of the paid up capital of an SME and the related company is directly or indirectly owned by another company
Balancing allowance and balancing charge
Balancing charge
Disposal value> Residual expenditure
Shall not exceed the total allowance claimed on that asset
Balancing allowance
Residual expenditure > Disposal value
Can only be made if initial and annual allowance has been or will be claimed by that person
Disposal value is 0 when the used asset is given by way of gift to
Technical or vocational training institute established or maintained by the Government or statutory body
Technical or vocational training institute approved by the Minister
An approved research institute
Disposed when
Sold, damaged, destroyed, discarded, ceased to be used for the purpose of business
Cost of dismantling and removing assets as well as restoring the site
Balancing allowance shall be given subject to
The obligation to carry on those work is provided under any written law or agreement
Such asset is not allowed to be used by that person in another business or used in the business of another person
The residual expenditure plus cost of dismantling etc= total balancing allowance
Private use of asset
The person use the asset both as business and private purpose
Only the non-business purpose shall be given allowance
Total balancing charge cannot exceed total capital allowance
Asset acquired under hire purchase
Capital allowance is given for the capital portion of the instalment
Hirer shall be treated as owner of the asset acquired by way of a hire purchase agreement
Cost less initial and annual allowance (first year + second year+ etc)
Formula for disposal value
Qualifying expenditure can be lower than the cost of expenditure
Qualifying expenditure / Cost x Sales proceeds = Disposal value
Less: Residual expenditure = Balancing charge / allowance
Assets used in more than one business
The DG shall apportion capital allowance between the relevant businesses and this is normally done on a time/usage basis
Assets used by more than one owner
Can be claimed by both owners either legal or beneficial owner
Statement that the asset is used by more than one owner must be made and included in their respective computations
Temporary disuse
Capital allowance will continue to be given, provided that during the period of disuse, it is being maintained in readiness for being put back into use
Annual instead of notional allowance is given to any person in the period of temporary cessation. that is the business source still continue
Replacement part of asset
Deemed disposed
When the part is significant and it is being replaced or disposed and the new part is being depreciated separately