1 INLAND REVENUE BOARD OF MALAYSIA Translation from the original Bahasa MALAYSIA text. DATE OF PUBLICATION: 27 AUGUST 2015 QUALIFYING expenditure AND COMPUTATION OF CAPITAL ALLOWANCES PUBLIC RULING NO. 6/2015 INLAND REVENUE BOARD OF MALAYSIA QUALIFYING expenditure AND COMPUTATION OF CAPITAL ALLOWANCES Public Ruling No. 6/2015 Date Of Publication: 27 August 2015 Published by INLAND REVENUE BOARD of MALAYSIA First edition 2015 by INLAND REVENUE BOARD of MALAYSIA All rights reserved on this Public Ruling are owned by INLAND REVENUE BOARD of MALAYSIA .
2 One print or electronic copy may be made for personal use. Professional firms and associations are permitted to use the Public Ruling for training purposes only. Systemic or multiple reproduction, distribution to multiple location via electronic or other means, duplication of any material in this Public Ruling for a fee or commercial purposes, or modification of the content of the Public Ruling are prohibited. INLAND REVENUE BOARD OF MALAYSIA QUALIFYING expenditure AND COMPUTATION OF CAPITAL ALLOWANCES Public Ruling No. 6/2015 Date Of Publication: 27 August 2015 CONTENT Page 1. Objective 1 2. Relevant Provisions of the Law 1 3. Interpretation 1 4.
3 Application of the Law 2 5. QUALIFYING expenditure 2 6. Persons Eligible to Claim Capital Allowances 20 7. When QUALIFYING expenditure is Incurred 21 8. Asset with Expected Life Span of Less Than Two (2) Years 21 9. Summary of Changes 22 DIRECTOR GENERAL'S PUBLIC RULING Section 138A of the Income Tax Act 1967 (ITA) provides that the Director General is empowered to make a Public Ruling in relation to the application of any provisions of ITA. A Public Ruling is published as a guide for the public and officers of the INLAND REVENUE BOARD of MALAYSIA . It sets out the interpretation of the Director General in respect of the particular tax law and the policy as well as the procedure applicable to it. The Director General may withdraw this Public Ruling either wholly or in part, by notice of withdrawal or by publication of a new Public Ruling.
4 Director General of INLAND REVENUE , INLAND REVENUE BOARD of MALAYSIA . INLAND REVENUE BOARD OF MALAYSIA QUALIFYING expenditure AND COMPUTATION OF CAPITAL ALLOWANCES Public Ruling No. 6/2015 Date Of Publication: 27 August 2015 _____ Page 1 of 22 1. Objective The objective of this Public Ruling (PR) is to explain (a) tax treatment in relation to QUALIFYING expenditure on plant and machinery for the purpose of claiming capital allowances; and (b) computation of capital allowances for expenditure on plant and machinery. 2. Relevant Provisions of the Law This PR takes into account laws which are in force as at the date this PR is published. The provisions of the Income Tax Act 1967 (ITA) related to this PR are paragraphs 2, 2A, 2C, 2D, 10, 13A, 15, 46, 55(b), 67, 67C and 68 of Schedule 3.
5 3. Interpretation The words used in this PR have the following meanings: Asset means plant and machinery used for the purposes of a business and on which qualifiying expenditure has been incurred. Director General means the Director General of INLAND REVENUE and includes such other employees of the INLAND REVENUE BOARD of MALAYSIA who are duly authorized by him. Person includes a company, a body of persons, a limited liability partnership and a corporation sole. Residual expenditure means cost of asset less (a) initial allowances; and (b) annual allowances; or (c) notional allowance which is equal to the annual allowance if claimed or should have been claimed. QUALIFYING expenditure means capital expenditure incurred on the provision, construction or purchase of plant and machinery used for the purpose of a business other than assets that have an expected life span of less than two (2) years.
6 INLAND REVENUE BOARD OF MALAYSIA QUALIFYING expenditure AND COMPUTATION OF CAPITAL ALLOWANCES Public Ruling No. 6/2015 Date Of Publication: 27 August 2015 _____ Page 2 of 22 Agriculture means any form of cultivation of crops, animal farming, aquaculture, INLAND fishing and any other agricultural or pastoral pursuit. 4. Application of the Law Capital allowances are allowed to a person who incurred QUALIFYING expenditure (QE) on assets used for the purpose of his business and made a claim in writing in his Income Tax Return Form. The amount of QE incurred will be used in the computation of initial allowance (IA) and annual allowance (AA) under Schedule 3 of the ITA. 5. QUALIFYING expenditure Apart from the cost of plant or machinery being taken as QE, incidental expenditure incurred on the provision of the plant and machinery is also included as QE for capital allowance claims.
7 Incidental expenditure does not include REVENUE expenditure which is deductible under subsection 33(1) of the ITA. Incidental expenditure that qualifies are as follows: (a) expenditure incurred on the alteration of an existing building for the purposes of installing plant or machinery and other expenditure incurred incidentally to the installation thereof. Example 1 Meijun Sdn Bhd bought a new machine with a price of RM500,000. To prevent loud noise of the engine being heard on other floors, the existing building needed to be altered to install sound-proof walls. The alteration cost was RM150,000. The costs of the machine and the costs of the alteration are QE. (b) expenditure incurred on preparing, cutting, tunnelling or levelling land in order to prepare a site for the installation of the plant or machinery provided that the expenditure to provide a site does not exceed 10% of the aggregate cost of plant or machinery and the cost of preparing the site.
8 Example 2 An egg whisking machine costing RM150,000 was installed in a bread and cake factory. A site was prepared for the machine and the INLAND REVENUE BOARD OF MALAYSIA QUALIFYING expenditure AND COMPUTATION OF CAPITAL ALLOWANCES Public Ruling No. 6/2015 Date Of Publication: 27 August 2015 _____ Page 3 of 22 cost of preparing the site was RM10,000 in scenario 1 and RM20,000 in scenario 2. Scenario 1 RM Scenario 2 RM Cost of machine 150,000 150,000 Cost of preparing site 10,000 20,000 Aggregate cost 160,000 170,000 10% of the aggregate cost 16,000 17,000 Scenario 1 Cost of preparing the site amounting to RM10,000 does not exceed 10% of the aggregate cost (RM16,000). Therefore, RM10,000 is regarded as part of the cost of machine.
9 QE for capital allowance claim is RM160,000. Scenario 2 Cost of preparing the site amounting to RM20,000 exceeds 10% of the aggregate cost (RM17,000). Therefore, no capital allowance will be given on the cost of preparing the site totaling RM20,000. QE for capital allowance claim is RM150,000 only. (c) expenditure incurred on fish ponds, animal pens, chicken houses, cages, buildings and other structural improvements on land which are used for the purposes of poultry farms, animal farms, INLAND fishing industry and other agricultural or pastoral pursuits. This provision does not apply if the building is used as a living accommodation of a director, an individual having control of the business, an individual who is a member of the management, and administrative or clerical staff.
10 Example 3 A company carrying on an activity of INLAND fishing spent RM45,000 for the purchase of pumps for mixing fish medicines and water purification, and fish food processing machine. The cost of RM45,000 is QE. INLAND REVENUE BOARD OF MALAYSIA QUALIFYING expenditure AND COMPUTATION OF CAPITAL ALLOWANCES Public Ruling No. 6/2015 Date Of Publication: 27 August 2015 _____ Page 4 of 22 Vehicle (a) QE for a vehicle licensed for commercial transportation of goods or passengers is the cash price of the vehicle including basic accessories1 and registration fee which is required by the Road Transport Department (RTD), MALAYSIA . expenditure in respect of the vehicle which does not qualify for capital allowance claim are as follows: (i) road tax, insurance and hire purchase interest as these expenditures are recurring expenses that are allowable as expenditures under subsection 33 (1) of the ITA; and (ii) reserve price for vehicle registration number including number tendered and service fee as they are private expenses.