COMPUTATION OF INITIAL & ANNUAL ALLOWANCES IN RESPECT OF PLANT & MACHINERY
(Translation from the original Bahasa Malaysia text)
1.0 TAX LAWThis Ruling applies in respect of the computation of annual allowances for plant and machinery under
paragraph 15, Schedule 3, Income Tax Act 1967 and the Income Tax (Qualifying Plant
Annual Allowances) Rules 2000 [P.U.(A) 52/2000] . This Ruling is effective for year of assessment
2000 (current year basis) and subsequent years of assessment.
    2.1
 The implications of the reclassifying of plant and machinery into the 3 main categories under the Income Tax (Qualifying Plant Annual Allowances) Rules 2000 [hereinafter referred to as the new Rules ] with effect from year of assessment 2000 (current year basis) [hereinafter referred to as Y /A 2000 (CY) ]; and
3.0 HOW THE TAX LAW APPLIES
    3.1
 Classification of Assets

3.1.1
    3 main categoriesUnder the new Rules, assets that qualify for annual allowances under paragraph 15, Schedule 3 of the Income Tax Act [the Act] are classified into 3 main categories with effect from Y/A 2000 (CY). The main categories and the prescribed rates of AA for them are as follows:
        • Assets
 Rates
-
    For the year of assessment [Y/A ] in which qualifying plant expenditure [QE ] is incurred, IA at the rate of 20% of the QE (unless otherwise specified: see paragraph 3.1.3 ) is also to be allowed in addition to AA.

A.
    Income Tax (Qualifying Plant Allowances) (Scheduled Wastes) Rules 1995 [ P.U.(A)339/1995 ];

3.1.4
    Classifying or reclassifying an assetIn classifying or reclassifying an asset, the following should be noted:

A.
    “Motor vehicles” generally include all forms of transport which use motors to operate. [ Examples: motorcycle; aircraft; ship; motorized bicycle, etc.]

3.1.5
    Assets with life span not exceeding 2 years: replacement basisExpenditure on assets that have an expected life span of not more than 2 years (implements, utensils and articles) is to be dealt with on a replacement basis. This means that no IA or AA is to be allowed, as the cost of purchase of such assets is not regarded as QE. However, the cost of replacing such assets is to be allowed as deductible expenditure under section 33(1)(c) of the Act in determining the adjusted income of the business. Any amount recovered from the disposal of the replaced assets will be treated as income of the business.[ Examples : bedding & linen; crockery & glassware; cutlery & cooking utensils (other than stainless steel or silver); loose tools; accessories.]

    [ See also Example 1 in paragraph 3.3.1 below .]
    3.2
 Claims for initial and annual allowances

3.2.1
    Claims to be made in the return and in writing

A.
    Claims for IA and AA must be made in writing in the return for the Y/A . The details of the claim should be shown in a certified statement in the tax computation.

3.2.2
    Conditions to be satisfiedTo qualify for IA and/or AA for a Y/A in respect of an asset, the person making the claim must satisfy all the following conditions:

A.
    he was carrying on a business during the basis period;
-
    [ These conditions and other considerations in respect of the ownership
    of the asset are discussed in detail in Public Ruling No. 1/2001 .]
    3.3
 Computation of capital allowances for y/a 2000 (CY) & subsequent Y/A

3.3.1
    New assets The amount of AA is a percentage of the QE incurred on the asset, calculated according to the rates prescribed in the new Rules.Example 1
    A company (which has been in business for a number of years) purchases a refrigerator for RM5,000 on 12.04.2000 and uses it in its restaurant business. 200 pieces of dinner plates are purchased for RM2,000 on 15.07.2000 to replace some of the existing crockery that is chipped, cracked or discoloured (disposed of for RM200). The assets are included in the balance sheet of the business, for which accounts are prepared for the financial year ended 30.09.2000.

    For Y/A 2000 (CY), IA and AA can be claimed as follows :
        • Asset

QE

IA [20%]

AA

Total
-
    [Capital allowances cannot be claimed in respect of the dinner plates as the expenditure of RM2,000 is not regarded as QE; however, it can be deducted for tax purposes as cost of replacement of crockery. The RM200 received from the disposal of the replaced crockery is to be included as gross income. These adjustments should be made in the tax computation.] Example 2
    A businessman installs a telephone system (inclusive of a fax machine) in the office of his stationery retail business, incurring expenditure of RM4,000 on 30.06.2000. A secondhand van is later acquired in July 2000 for RM25,000. The assets are included in the balance sheet of the business in the accounts prepared for the year ended 31.12.2000.For Y/A 2000 (CY), IA and AA can be claimed as follows :
        • Asset

QE

IA [20%]

AA

Total

3.3.2
    Existing assets

A.
    Assets for which special Rules / special rates have been appliedFor assets acquired before the basis period for Y/A 2000 (CY) [i.e. in the basis period for Y/A 2000 (preceding year basis) and prior years of assessment] for which both IA and AA have been allowed according to the special rates under any of the special Rules mentioned in paragraph 3.1.3 above, the new Rules and the new rates are not to be applied, and the relevant special Rules and special rates must continue to be applied for Y/A 2000 (CY) and subsequent years of assessment until all the remaining balance of the QE [i.e., the residual expenditure or RE ] in respect of each asset has been completely absorbed.

Details of assets

Motor van

Office equipment

Furniture
-
    • The capital allowance computation should be as follows:
- Motor van Office equipment Furniture
-
    • Example 2
      A company has the following assets:
      • Details of assets
 Machinery Air conditioners Furniture
-
    • The capital allowance computation should be as follows:
- Machinery Air conditioners Furniture
-
    • * AA 25,200 restricted to the amount of RE Alternative 2:Old rates applied (all existing assets )A person can continue to apply the old rates for all existing assets for Y/A 2000 (CY)
      and subsequent years of assessment until all the RE in respect of each asset has been completely absorbed.

      Example 3

      If the company in Example 2 (paragraph 3.3.2.B above) had decided not to apply the new rates but to continue applying the old rates to all its existing assets to avoid complications, then the computation of capital allowances would have been:

      [Computation for Y/A 1994 to 2000 (preceding year basis): as per Example 2 above]
- Machinery Airconditioners Furniture
>-
    • Alternative 3 :New rates applied to some existing assets and old rates applied to othersA person can apply the new rates for some of his existing assets (for which the new rates are higher than the old rates) and continue to apply the old rates for the rest of his existing assets (for which the old rates are higher than the new rates) for Y/A 2000 (CY) and subsequent years of assessment.Example 4

      If the individual in Example 1 (paragraph 3.3.2.B above) had decided to apply the new rates in respect of some assets and to continue applying the old rates in respect of others so as to take advantage of the higher rates in both instances, then the computation of capital allowances would have been:

      [Computation for Y/A 1997 to 1999: as per Example 1 above]
-

Motor van

Office equipment

Furniture
-
    • * AA 2,640 restricted to the amount of RE
4.0 INTERPRETATIONFor the purpose of this Ruling:
    4.1
 “Asset” means plant or machinery used for the purpose of the business on which qualifying plant expenditure has been incurred.

4.4.1
    any initial allowance [IA] made for any Y/A;
    4.5
 “Tax computation” means the working sheets, statements, schedules, calculations and other supporting documents forming the basis upon which an income tax return is made that are required to be submitted together with the return or maintained by the person making the return.