TOPIC 6: CAPITAL ALLOWANCES
At the end of this topic, students should be able to:
i. Understand and identify the qualifying plant expenditure for plant and machinery. ii. Compute initial allowance, annual allowance, notional allowance and accelerated capital allowance. iii. Determine the balancing charge or balancing allowance on disposal of assets.
* Capital expenditure is not tax deductible. So, depreciation or amortization is also not deductible as there is no outgoing. * However, a person can claim tax relief on capital expenditure in the form of capital allowance (CA). * CA is deductible against adjusted business income.
* Qualifying criteria:
1. The person is carrying on a business.
2. He incurred qualifying plant expenditure or qualifying building expenditure. 3. He used such assets in business.
Adjusted business income
+ Balancing charge
* Capital allowance:
Unabsorbed CA b/f
Current year CA
Statutory Business Income
* Deduction of (B) is restricted to (A). Any excess is carried forward to be set off against same business.
Qualifying Plant Expenditure (QPE)
* QPE is incurred on provision of machinery/ plant used in business. * It includes:
* Alteration of existing building for installation of plant and machinery. * Preparing, cutting, tunneling or leveling land to prepare a site for installation provided that the installation cost is less than 10% of the cost of plant + cost of installation. * Fish ponds, animal pens, chicken houses, structural improvements and building. Exclude: living accommodation for directors / individuals controlling the business / members of management, administration or clerical staff. 3.0
Plant and Machinery
* Refers to material or instrument that the employer must use for the purpose of carrying on his business and without which he could not carry it on at all. * Stock in trade?
* Books for professional e.g. lawyers and accountants?
* Test to apply:
1. It must not form part of premises/ place in which business is carried on. 2. Must be used in carrying on business.
3. Must not form stock in trade.
4. Must serve a particular usage or function
Initial Allowance (IA)
* One-off allowance given when a person first acquired qualifying P&M for business. * Computation is at the end of basis period.
* Acquisition at any time will be given full year CA (no time apportionment). * Unless otherwise stated, IA is 20% of QPE. **
* If an asset is acquired and disposed in the same year, IA is given provided he is the owner and such asset is used sometime before disposal. **
Mining & timber
Public transport company/ natural gas refueling
IA 40% & AA 20%
Imported heavy machinery
IA 10% & AA 10%
Environmental protecting equipment
IA 40% & AA 20%
Annual Allowance (AA)
* AA is given every year as long as the asset is in use.
* The rate varies according to industries and type of asset. * Office equipment, furniture & fittings, others
Plant and machinery (general)
Heavy machinery & motor vehicles
W.e.f. YA 2000:
(not applicable to QPE enjoying accelerated CA)
Capex on assets with expected life span of not more than 2 years is to be dealt with on replacement basis. No IA or AA is given, as the cost of purchase of such assets is not regarded as QE.
Accelerated Capital Allowance
ICT equipment (IA 20%, AA 80%)
YA 2009 - 2013
e.g. access control system, barcode equipment, banking system, cables and connectors. *
Not applicable if the resident person has been granted incentives under Promotion of Investment Act 1986 and reinvestment allowance. 2.
Security control and monitor equipment (IA 20%, AA 80%) *
W.e.f. 2009 –...
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