Public Ruling No. 1/2001 C - MICPA

1 CPA Tax & Investment Review LAWThis Ruling applies in respect of ownership of plant and machin-ery for the purpose of claiming initial and annual allowancesunder paragraphs 10 & 15, Schedule 3 to the Income Tax Act,1967. It is effective from the year of assessment 2000 (currentyear basis) and subsequent years of APPLICATION OF THIS RULINGThis Ruling considers the ownership of plant and machinery andits effect on whether a person qualifies to claim capitalallowances in respect of that plant and machinery in determin-ing the statutory income from a business of THE TAX LAW APPLIES Deduction for capital allowancesIn computing the statutory income from a business, capitalallowances under Schedule 3 of the Income Tax Act 1967 [here-inafter referred to as capital allowances and the Act, respective-ly] are deductible from the adjusted income of that Conditions for capital To qualify for initial allowance in respect of plant ormachinery for a year of assessment, a person has to satis-fy all the following conditions:A he was carrying on a business during the basis period.

2 B he has incurred qualifying plant expenditure in respectof that asset during the basis period;C that asset was used for the purpose of the business;andD at the end of the basis period (or, if the asset was dis-posed of, at the time of disposal), he was the owner ofthe RRuulliinngg 11//22000011 OOwwnneerrsshhiipp ooff PPllaanntt aanndd MMaacchhiinneerryy ffoorr tthhee PPuurrppoossee ooffCCllaaiimmiinngg CCaappiittaall AAlllloowwaanncceessC271 IRB (Inland Revenue Board) guidelines and To qualify for annual allowance in respect of plant ormachinery for a year of assessment, a person has to satis-fy all the following conditions:A. he was carrying on a business during the basis period;B. he had incurred qualifying plant expenditure inrespect of that asset;C. that asset was used for the purpose of the business;andD.

3 At the end of the basis period, he was the owner of theasset and the asset was in of the Ownership of an asset refers to either legal or While it is normal for an asset to be owned and used bythe same person in a business of his, it is also possiblethat:A. the asset is registered in the name of one person (the legal owner) [see paragraph below] although thequalifying plant expenditure has been incurred byanother person (the beneficial owner) [see below]; orB. the asset is registered in the name of one person (thelegal owner) although the qualifying plant expenditurehas been incurred jointly by the legal owner andanother person; andC the asset is used for the purpose of the business of thelegal owner or the business of the beneficial owned by and used for the purpose of the business of thesame personA person who is both the beneficial and legal owner of an assetand uses that asset for the purpose of his business is entitled toclaim the capital allowances in respect of that :Encik Salleh purchases a van on and registers itin his own name.

4 He uses the van in his grocery business, forwhich accounts are prepared to 31 December every year. Asat , the van is still in Tax & Investment Review 200328A. he was carrying on a business during the basis period;B. he has incurred qualifying plant expenditure for thepurpose of his business;C. the asset was used for the purpose of his business dur-ing the basis period; andD at the end of the basis period, he was the owner of theasset and the asset was in use for the purpose of used for the purpose of the business of a person but reg-istered in the name of another Asset used for the purpose of the business of the benefi-cial owner but registered in the name of another personWhere a person has:A. incurred the qualifying plant expenditure on asset;andB. that asset is used for the purpose of a business of hisduring the basis period; andC.

5 The asset was still in use at the end of the basis period;that person (the beneficial owner) is entitled to claimboth the initial and annual allowances in respect ofthat asset, even though he is not the registered ownerof the :Encik Azmi purchases a lorry in basis year 2001 and registersit in the name of Encik lorry is used by Encik Azmiin carrying on his transportation business. In computing thestatutory income from the business of Encik Azmi for year ofassessment 2001, initial and annual allowances may beclaimed by him as he has fulfilled the prescribed Musa is not entitled to claim any of theallowances as he has not incurred the qualifying plant computing the statutory income from his grocery business for year ofassessment 2000, Encik Salleh qualifies for capital allowances on the vanas he has fulfilled the prescribed conditions [see paragraph above]:291 IRB (Inland Revenue Board) guidelines and Asset registered in the name of a person and used for thepurpose of the business of more than one beneficialowner Where:A.

6 More than one person has incurred qualifying plantexpenditure on an asset;B. that asset is used for the purpose of a business of eachof them during the basis period;C. the asset was still in use at the end of the basis period;andD. the asset is registered in the name of only one of thebeneficial owners or in the name of some other person;each of the beneficial owners of the asset is entitled toclaim the capital allowances in respect of that asset in theappropriate proportion as determined by his respectiveshare of the qualifying plant expenditure incurred. [Insuch a situation, a statement to the effect that more thanone person is claiming the capital allowances in respectof the same asset (together with details of the apportion-ment) must be made in their respective tax computa-tions.]

7 ]Note: The above does not apply to a similar situation which involvesa partnership, for which there are specific rules: see the Income Tax(Capital Allowances and Charges) Rules 1969 [ (A) 96/1969].Example:Brothers Ahmad and Ali, each operating his own restaurantbusiness, together purchase a van costing RM56,000 Ahmad pays RM30,000 and Ali pays RM26, van is registered in Ahmad s name. The van is used inboth Ahmad s and Ali s businesses in the basis period for theyear of assessment. The accounts of both businesses areclosed on 31 Tax & Investment Review 200330 Initial and annual allowance should be computed as follows:For year of assessment 2001, Ahmad can claim capitalallowances amounting to RM12,000 and Ali can claimRM10,400 in respect of the Asset registered in the name of, and used for the purposeof the business of, the legal owner but qualifying plantexpenditure incurred by another personWhere the qualifying plant expenditure in respect of anasset is incurred by a person (the beneficial owner) but itis registered and used for the purpose of the business ofanother person (the legal owner), neither the beneficialnor the legal owner is entitled to claim the capitalallowances since neither has fulfilled all the company qualifies for the capital allowances in respect of thelorry, since:A.

8 Although it has incurred capital expenditure, SyarikatX Bhd. did not incur it for the purpose of its business,nor did it use the asset for the purpose of its business;andB. although it used the asset for the purpose of its busi-ness, Syarikat Y Sdn. Bhd. has not incurred qualifyingplant :Syarikat X Bhd. purchases a lorry and registers it in the nameof its subsidiary company, Syarikat Y Sdn. Bhd. The lorry isused by Syarikat Y Sdn. Bhd. in carrying on its business. Year of assessment 2001 Ahmad AliQualifying expenditure30,0026,000 Initial allowance (20%)6,000 5,200 Annual allowance (20%) 6,000 12,000 5,200 10,400 Residual expenditure 18,000 15,600311 IRB (Inland Revenue Board) guidelines and INTERPRETATIONFor the purpose of this Asset means plant or machinery used for the purpose of thebusiness on which qualifying plant expenditure has Person includes a company, a co-operative, a club, an associa-tion, a Hindu joint family, a trust, an estate under administra-tion, a partnership and an Beneficial owner means the person who has actually incurredthe qualifying plant expenditure on, or who has paid for, theasset and is able to prove such a claim by documentary or otherevidence [example.]

9 Relevant entries made in the books ofaccount of a business, supported by documents such as invoic-es, vouchers and receipts]. Legal owner means the person in whose name the asset is reg-istered or otherwise recorded [examples: certificate of registra-tion for a motor vehicle; warranty certificate for a machine; etc.]. Tax computation means the working sheets, statements,schedules, calculations and other supporting documents form-ing the basis upon which an income tax return is made that arerequired to be submitted together with the return or maintainedby the person making the Qualifying plant expenditure means capital expenditureincurred on the provision, construction or purchase of plant ormachinery used for the purpose of a Any reference to owner may also be construed as a reference to owners where the context so permits or Where a person incurs capital expenditure under a hire purchaseagreement on the provision of plant or machinery for the pur-pose of a business of his, he is regarded as the owner of thatplant or An asset is disposed of if it is sold.

10 Discarded or destroyed or itceased to be used for the purposes of the of Issue: 18 January 2001 CPA Tax & Investment Review 200332 PPuubblliicc RRuulliinngg 22//22000011 CCoommppuuttaattiioonn ooff IInniittiiaall && AAnnnnuuaall AAlllloowwaanncceess iinn RReessppeecctt ooffPPllaanntt && LAWThis Ruling applies in respect of the computation of annualallowances for plant and machinery under paragraph 15,Schedule 3, Income Tax Act 1967 and the Income Tax (QualifyingPlant Annual Allowances) Rules 2000 [ (A) 52/2000]. ThisRuling is effective for year of assessment 2000 (current yearbasis) and subsequent years of APPLICATION OF THIS RULINGThis Ruling implications of the reclassifying of plant and machinery intothe 3 main categories under the Income Tax (Qualifying PlantAnnual Allowances) Rules 2000 [hereinafter referred to as thenew Rules] with effect from year of assessment 2000 (currentyear basis) [hereinafter referred to as Y/A 2000 (CY)].