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Capital allowances
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Capital Allowances
Industrial buildings (IB)
Types of industrial buildings
Determination of QBE
Computation of IBA and disposal of IB
Agriculture allowance
Implication of controlled transfer in a related party
transfer
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Factory (definition)
A building consisting of a mill, workshop, housing of
machinery/plant , the generating of power;
A building used incidental to the manufacturing business
(i.e. canteen for employees)
An adjacent building used for the storage of:
any raw material or fuel,
stores used in the manufacturing/processing,
storing of completed goods.
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QBE
1. Architects fees
2. The cost of preparing plans, etc in connection with obtaining approval from
the local authority.
3. The cost of clearing the old site including the demolition of any existing
building.
4. The cost of construction which includes labor, materials, haulage,
management supervision and overhead charges,
5. Incidental expenditure on work which may be separately contracted e.g.
drainage scheme, installation of utilities.
6. The cost of installing fittings e.g. wiring for electric supply, fans, airconditioning equipment
7. Legal charges, stamp duty etc connected with the building
*The cost of the land and legal fees relating to the acquisition of the land are not
qualify for IBA
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Constructed Building
1. Cost of construction of building
2. Subsequent capital expenditure on construction,
extension, alterations and renovation
3. Initial repairs (which enhance the value) of the building.
Example 1
Safhel Sdn Bhd carries on the business of manufacturing safety helmet. In March 2016, it
completed the construction of its own factory. Compute the QBE available to the company.
RM000
Land cost
580
11
10
80
Construction cost
1,510
Total cost
2,200
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Example 2
ICA Sdn Bhd a company manufacturing paint has been
carrying on business for several years. A building complex in
PJ, used partly as a factory and partly as an office, was
constructed by the company. The building was completed &
brought into use in September 2016. The company use 1/11th
total area of the building as an office. The company makes up
its account to 31.12 each year.
Does the expenditure qualifies for IBA?
11
L
E
14
P
L
E
RM85,000
RM260,000
RM345,000
1.
2.
3.
.
IA is given only once and annual allowance is given for each relevant
YA.
The set off of IBA is restricted to specific business source.
Any unabsorbed IBA can be carried forward to future years against the
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adjusted income from the same business source.
.
.
Disposal
IB is disposed on:
1. The sale, transfer or assignment of the relevant interest in the
building;
2. Where the relevant interest depends on the duration of a concession
- end of the concession;
3. Where the relevant interest is a leasehold interest reversion;
4. The demolition or destruction of the building; and
5. The building ceased to be used as an IB.
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Disposal Value
1. Where the building is sold, transferred or assigned: Its
market value at the date of sale, transfer or assignment; or
the net proceeds of sale, transfer or assignment; whichever
is greater
2. Where the building is destroyed/demolished: The disposal
value is the market value or the insurance compensation
moneys whichever is greater
3. If building has negative value [cost of demolition >value
recovered]: The net cost of demolition (cost amounts
received) may be added to the residual expenditure, thereby
increasing the balancing allowance.
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Agriculture Allowance
A person who incurs qualifying agriculture
expenditure (QAE) for the purpose of agriculture
business will be given agriculture allowance to set
off against the adjusted income from that agriculture
business to arrive at statutory income.
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Clearing
and preparation
of land
New
planting
Construction
of road, bridge or
drain on farm
Used in
business
Construction
of farm &
building
Living
or accommodation
for employee
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Definition
Agriculture
Cultivation of crops (vegetable produce)
Animal farming
Aquaculture
Inland fishing
Reafforestation of timber
Farm land used for the purpose of agriculture.
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The Rate Of AA
Capital expenditure incurred on:
Clearing
and
preparation of land
(50%)
New planting
(50%)
Construction
Of road or bridge
on farm
(50%)
Construction
of farm
and building
or
Living
accommodation
for employee
(20%)
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Example 4
Oily Sdn. Bhd., an oil palm co has incurred the following capital
expenditure for the FY 31.8.2016. Compute the AA for YA2016.
RM000
Land clearing
Seedlings & fertilizing
Construction of: Labor quarters
Office building
100
240
80
60
480
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Claim Of AA
The person must be the owner at the end of the basis
period
The QAE is in used at the end of the basis period
In the year of disposal, the QAE must be in use within
one month before the transfer
The claim is up to the date of transfer or sale allocated
on time basis
The transferee would claim the remaining part
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Clearing
&
preparation
of land
New
planting
Construction
of road or
bridge
on farm
Construction
of farm
& building
Construction
of pond,
drainage
system
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Non-entitlement Of AAP
Where the total area of the land utilized for the approved AAP
is below the hectarage stipulated by the Minister .
Where a person has made an election for a deduction in
respect of an AAP, not entitled to make election for the same
crop/product.
Co enjoying pioneer status/investment tax allowance under
the promotion of investment Act 1986
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Controlled Transfers
No balancing adjustments will be made where assets are
transferred between persons/companies under common
control.
In such cases, the actual consideration for the transfer of the
asset is disregarded and the disposer/acquirer is deemed to
have disposed of/acquired the asset at the tax written down
value.
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Forest Allowances
Given to persons who are in the business of extracting timber
in a forest & incurred qualifying expenditure
Effective YA 2015 Qualifying Forest Expenditure (QFE) is
narrowed to capital expenditure incurred by a person who has
a consession or a licence to extract timber
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Forest Allowances
QFE:
capital expenditure incurred on a road/building used for the
purpose of a business which consists wholly or partly of the
extraction of timber from the forest
A building provided for the welfare of or as lvinig
accommodation for employees employed in or in connection
with such extraction
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Forest Allowances
QFE
Building provided for welfare/living
accommodation
Rate
AA
20%
Other types, including road or AA
other buildings
10%
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