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Capital allowance Taxation

1.0 Introduction

This chapter deals with the tax treatments of capital expenditures incurred on assets which do not qualify for tax
deduction in arriving at the adjusted income from a business source.

The tax treatments of such capital expenditures are provided under Schedule 3 of the Act. It provides a mechanism
for the business person to claim tax relief on capital expenditures incurred to acquire assets used for the business by
way of capital allowances.

Capital allowances can only be claimed if the taxpayer has a business income taxable under S 4(a) of the Act.
Capital allowances are not applicable to the other sources of income [i.e. S 4(b) 4(f) income]. They are deducted
against the adjusted income of a business source in order to arrive at the statutory income.

The following illustrates the computation of statutory income from a business source:

S 4(a) Business Income: RM RM


Gross Income xx
LESS: Allowable expenses (xx)
Adjusted Income xx
ADD: Balancing Charge x
xx
LESS: Capital Allowances:
- Unabsorbed capital allowances b/f x
- Current year capital allowances x
Balancing allowance x
(xx)
Statutory Income xx

2.0 Criteria to Claim Capital Allowances

Capital allowances will only be made available if:


(i) The person is carrying on a business;
(ii) The person has incurred qualifying plant (or building) expenditure; and
(iii) Such assets are used in his business.

3.0 Qualifying Plant Expenditure (Para 2 Sch 3)

It is provided under Para 2 Sch 3 that:

Qualifying plant expenditure (QPE) is capital expenditure incurred on the provision of machinery or plant used for
the purposes of a business, including, among others:

(a) Expenditure incurred on the alteration of an existing building for the purpose of installing that machinery or
plant and other expenditure incurred incidentally to the installation thereof; and
Capital allowance Taxation

(b) Expenditure incurred on preparing, cutting, tunneling or leveling land in order to prepare a site for the
installation of that machinery or plant, but if the expenditure exceeds ten per cent of the aggregate of itself
and any other expenditure (being qualifying plant expenditure) incurred for the purposes of the business
this subparagraph shall not apply;

(c) Expenditure incurred on fish ponds, animal pens, chicken houses, cages, buildings (other than those used
wholly or partly for the living accommodation of a director, an individual having control of that business or
an individual who is a member of the management, administrative or clerical staff engaged in the business),
and other structural improvements on land which are used for the purposes of poultry farms, animal farms,
inland fishing industry or other agricultural or pastoral pursuits.

3.1 The 10% rule

Thus the following will be treated as qualifying plant expenditure:


(i) Cost of purchasing the plant or machinery [I]
(ii) Cost of alteration of an existing building to install the plant or machinery [ii]
(iii) Cost of preparing, cutting, tunneling or leveling land in order to prepare a site for the installation of the
plant and machinery [iii]; provided [iii] does not exceed 10% of [I + ii + iii].

Example 13.1

Ching-a-Chang Sdn Bhd has recently installed an ink-mixing machine in their new factory in Kampar. The cost of
the machine is RM 130,000 and Ching-a-Chang has altered their factory layout in order to accommodate the
machine. The alteration cost amounted to RM 20,000. A further sum of RM 15,000 was also incurred to level the
land to prepare the site for the installation of the machine.

RM
Machine cost [i] 130,000
Alteration cost [ii] 20,000
Cost of site preparation for installation [iii] 15,000
Aggregate cost 165,000

Since the cost of preparing the site for the installation (RM 15,000) is less than 10% of the aggregate cost (RM
15,000 / RM 165,000 = 9.1%), the cost of preparing that site will be treated as qualifying plant expenditure. Thus,
QPE = RM 130,000 + RM 20,000 + RM 15,000 = RM 165,000.

In the event the cost of preparing the site was RM 25,000, then this would exceed 10% of the aggregate cost and the
QPE in respect of the ink-mixing machine will be restricted to only the cost of machine plus the alteration cost. The
cost of preparation of the site will not be given any relief.
Thus, QPE = RM 130,000 + RM 20,000 = RM 150,000.

The term plant is not defined in the Act, but under case law, it includes whatever apparatus used by a
businessman for carrying on his business, not his stock-in-trade which he buys or makes for sale, but all goods and
chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business
Capital allowance Taxation

Example 13.2

Mahfuz is a registered solicitor with the Malaysian Bar Council. He recently started a legal practice, Sitirella &
Associates with his partner, Shahirah. He incurred the following expenditures in the YA 2008:
(a) RM 8,300 a for set of law reports and law textbooks;
(b) RM 480 for annual subscription fees of weekly law journals and magazines;
(c) RM 60 for the cost of binding law related articles.

Required:
State whether Mahfuz is entitled to claim deductions for the above expenses. Give reasons to your answer.

Answer
The purchases of law reports and law textbooks do not constitute revenue expenditures, thus they do not qualify for
tax deductions. However, as the reports and textbooks are used in the course of his profession as a solicitor, they can
be treated as qualifying capital expenditures and would thus be eligible for capital allowances.

The other two expenses, i.e. the subscription fees for periodicals and journals and the binding cost would be allowed
tax deductions in arriving at the adjusted income as they are revenue in nature.

4.0 Initial Allowance

Initial allowance is a one-off allowance which is claimable in the year the qualifying asset is purchased. The
general rate is 20%, computed on a straight line basis.

Capital allowance is computed only at the end of the basis period. A full years capital allowance will still be given
even where the qualifying asset is acquired midway through the basis period. The concept of time apportionment
does not apply to capital allowance.

Para 13(a) Sch 3 provides for the non-entitlement to initial allowance:

no (initial) allowance shall be made to a person for a year of assessment in relation to an asset and a business of his
if at the end of the basis period for that year he was not the owner of the asset or it was not in use for the purposes of
the business or, where the asset was disposed of by him in that period, he was not owner of the asset or it was not in
use, prior to its disposal, for the purposes of the business at some time in that period.

Thus, before initial allowance can be claimed, the following conditions must be satisfied:

(i) The person has incurred qualifying plant expenditure during the basis period;
(ii) The asset must be in use for the purposes of the business; and
(iii) The person must be the owner (legal or beneficial) of the asset at the end of the basis period; or where the
asset was disposed of by him during that basis period, that asset had been owned by him and had been in
use for his business purposes sometime prior to its disposal.

Thus, for qualifying assets which are bought and sold during the same basis period, initial allowance will still be
granted if the above conditions are fulfilled.
Capital allowance Taxation

Example 13.

On 28.2.2008,Pemetaan Visual Sdn Bhd (PV) purchased two photocopy machines,costing RM 4,000 each,which
were used in its photocopying business.PV prepares its accounts to 30 April annually.

Required :

State how the of cost machines should be treated for income tax purposes.

Answer

The cost of the machines would represents capital expenditures which are not tax deductible in arriving at PVs
adjusted income.However,the machines would be treated as qualifying assets for which capital allowances can be
claimed as PV has a business source of income,it had incurred qualifying plant expenditure and both machines are
used in its business

For YA 2008(basis period 1.5.2007- 30.4.2008) PV is eligible to claim an intial allowance of 20% RM 4,000 2
i.e.RM 1,600.The initial allowance computation is done on a straight-line basis and no time apportionment is
required although the machines were purchased towards the end of the basis period.

Assuming that one of the machines was sold on 15.4.2008,PV would stil be eligible to claim initial allowance on
that particular machine as prior to its disposal,the machine had been used in PVs business and PV had been the
owner of that machine.

4.1 Small Value Assets (Para 19A Sch 3)

The Act has allowed small value assets which satify the following criteria to be grated 1 100% initial allowance in
the year of purchase in order to simplify the computations of capital allowances :

(a) the value of each assets does not exceed RM 1,000;

(b) total capital allowances claimed on such small value assets shall not exceed RM 10,000 per YA;

(c) the person claiming it is the owner of such assets;

(d) such assets are in use in his business.

5.0 Annual Allowances

Annual allowance is claimable for every basis period for a YA,starting from the year of purchase,as long as the asset
is stil in use at the end of the basis period.There will be no entitlement to claim for annual allowance in the basis
period in which the asset was disposed.

The following conditions must be satisfied before annual allowance can be claimed:

(i) the person has incurred qualifying plant expenditure(not necessarily in the current basis period);

(ii) the asset must be in use for the purposes of the business;and

(iii) the person is the owner(legal or beneficial) of the asset at the end of the basis period.
Capital allowance Taxation

RATES OF CAPITAL ALLOWANCE

Catergories of Qualifying Assets Initial Allownace(IA) Annual Allowance (AA)


Rate(%) Rate (%)
Motor vechicles and heavy 20 20
machinery 20 14
Plant and machinery
Office equipment,furniture and 20 10
fittings
Computer equipment and sofware 20 40

NOTE :

In the tax computations,the total of initial and annual allowances of each qualifying asset will be deducted from the
businesss adjusted income for a particular basis period in arriving at the businesss statutory income for that basis
period.

Example 13.4

Jejari Bhd is involved in the business of pipe fabrication machine.It close its account to 31.8 every year.for the year
ended 31.8.2008,it has an adjusted income from its business of RM 789,000.The qualifying capital expenditure
incurred during the year ended 31.8.2008 are :

RM000

Purchase of pipe fabrication machine 250


Installation costs 20
Office furniture 55
Other office equipment 24

Required :

(a) Compute the capital allowances available to the company for YA 2008.

(b) Compute the statutory income of the company for YA 2008.

Answer

(a) Computation of Capital Allowances for YA 2008

Plant and Machinery Office Furniture Other Equipment

Qualifying Expenditure 270,000 55,000 24,000

Initial Allowance (20 %) (54,000) (11,000) (4,800)

Annual Allowance (14%/10%) (37,800) (5,500) (2,400)

Residual Expenditure 178,200 38,500 16,800


Capital allowance Taxation

Total CA available for YA 2008 : RM

Plant and machinery 91,800

Office furniture 16,500

Other office equipment 7,200

115,500

(b) Computation of Statutory Income for YA 2008 RM

Adjusted income 789,000

Less : Capital allowances (115,500)

Statutory income 673,500

6.0 Notional Allownaces

An asset which is temporarily disused in relation to a business of a person shall be deemed to be in use for the
purposes of the business if:

(a) it was in use for the purposes of the business immediately before becoming disused;

(b) during the period of diuse it is constantly maintained in readiness to be brought back into use;and

(c) the period of disuse is temporary.

In the basis period in which temporary disuse of the asset occurs and the above condition are satisfied,the normal
annual allownace will continue to be claimed on that asset as the asset is deemed to be in use.

However,where the asset is not used at the end of a particular basis period and the above conditions are not
fulfilled,then instead of the normal annual allowance.a notional allowance (NA) will be deducted at the same rate
as annual allowance.The NA,however,can only be deducted from the QPE of the asset for that basis year,in order to
reduce the residual expenditure of the disused asset.The NA cannot be deducted from the businesss adjusted income
for that particular basis year.

Thus,whilst the AA has the effect of reducing BOTH the assets residual expenditure as well as the business,s
adjusted income,the NA will only reduce the assets residual expenditure without reducing the businesss adjusted
income.
Capital allowance Taxation

7.0 Residual Expenditure

Residual expenditure,also known as tax written down value(TWDV),is basically the unutilized portion of the
qualifying plant expenditure.It is arrivied at by deducting :

(i) any initial allowances;


(ii) any annual allowances;and
(iii) any notional allowances

from the assets qualifying plant expenditure.


Once the residual expenditure has been reduced to nil no further allowances can be claimed in respect of that
particular asset.

8.0 Tax Treatment for Capital Allowance

Capital allowance will be deducted from the adjusted incone in arriving at the statutory income from a business
source.

The following are important points worth noting :

1. CA computed from the qualifying assets of a particular business source can only be used to set off the adjusted
income from the same business source.

2. The CA deducted should not exceed the aggregate of adjusted income plus balancing charge(if any) of the
particular business source.Any excess of unutilized CA for the basis period for a YA will be carried forward to future
YA(s)

3. The unutilised CA brought forward from previous YA(s) can only be set off against the adjusted income of the
same business source.

4. Where a particular business source has permanently ceased its operatins,should there be any unutilized CA
brought forward from previous YA (s),the unutilized CA will be permanently lost.It is legislated that CA from one
business source cannot be utilised to reduce the adjusted income from another business source.

9.0 Hire Purchase Transaction (Para 46 Sch 3)

Where a person incurs capital expenditure under a hire purchase agreement on the acquisition of any machinery or
plant for business purposes,he shall be deemed as the owner of the assets.He will then be entitled to claim capital
allowances on those asset.He will then be entitled to claim capital allowances on those assets.

Where a qualifying asset is acquired under the hire purchase scheme,it will involved the following types of
payments:

(a) deposit;

(b) monthly instalments comprising of:

(i) capital portion;

(ii) interest portion.


Capital allowance Taxation

Only the types of payments falling under (a) and (b)(I) above would qualify for capital allowances as they
represents capital payments.The interest portion of the instalments paid will not be included in the computation of
capital allowances as it represents interest expenses which will be deductible from the businesss gross income by
virtue of s33(I)(a)

The IA is computed on the deposit and each new instalments paid during the basis period whereas AA is computed
by reference to the accumulated amounts (i.e deposit + instalments) paid.

Example 13.5

Zin Bhd operates as a lincesed multi-level marketer.It closes its accounts to 30.4 each year.On 1.10.2007,Zin
acquired a sophisticated data processing machine,Jerung,on hire purchase.The terms are as follows:

RM

Cost of Jerung 245,000


Deposit paid on 1.10.2007 83,000
Hire purchase amount 180,000
Hire purchase interest included above 18,000
The terms of payment is 18 months (RM 10,000 each month).The first installment was paid on 1.11.2007
Required :

Compute the capital allowance for the YA 2008 in respect of the machine.

(Jerung is an IT equipment eligible for an accelerated annual allowance rate of 40%)

Answer

RM
Amount financed under hire purchase 180,000
Less : Hire purchase interest ( 18,000)
Capital portion 162,000

Payment terms 18 months


Capital payment permonth (RM 162,000/18) RM 9,000
Number of installments paid in YA 2008 6
YA 2008 : RM
Deposit paid 83,000
Capital portion of installments paid (RM 9,000 6) 54,000
Qualifying Plant Expenditure 137,000
Less :IA (20% RM 137,000) (27,400)
AA (40% RM 137,000) (54,800)
Residual Expenditure as at 30.04.2008 54,800
Capital allowance Taxation

10.0 Qualifying Expenditure for Motor Vechicles

The qualifying plant expenditure for passenger vehicles is restricted to a maximum of RM 50,000 for each
vehicle.This restriction is also applicable to passenger vehicles acquired under hire purchase.

However.if the following conditions can be fulfilled,the maximum qualifying plant expenditure for passenger
vehicles will be in increased to RM 100,000 per vehicle (instead of RM 50,000);

(a) the total cost of the motor vehicle does not exceed RM 150,000

(b) the motor vehicle has not been used prior to the purchase;and

(c) the motor vehicle is purchased on or after 28 October 2000.

The restriction on the qualifying plant expenditure does not apply to commercial vehicles such as vans,lorries,taxis
or buses which are used for business purposes.

11.0 Disposal of Qualifying Assets

11.1 What constitutes disposal (Para 61 Sch 3)

Any plant or machinery which is used for the purposes of a business and in respect of which qualifying expenditure
has been incurred is treated as being if it is sold,discarded or destroyed or if it ceases to be used for the purposes of
that business

11.2 Balancing Adjustments

When a qualifying assets for which capital allowances were previously claimed is disposal the disposal value of
that asset will need to be compared to its residual expenditure as at the beginning of the basis period in which
disposal takes place.This comparison will give rise to a balancing adjustment which can either be a balancing charge
or balancing allowance.

11.2.1 Balancing Charge

Disposal/SaleValue > Residual Expenditure = Balancing Charge

A balancing charge (BC) arises where DV > RE. Although it may appear as a profit on disposal .BC actually
represents the withdrawl of previously capital allowances claimed on that particular asset.

In the tax computation,any BC arising from disposals will have to be added to the adjusted income in the YA of
disposal

However,since BC is merely a withdrawl of capital allowances previously claimed on the asset,the amount of BC to
be added to the adjusted income would be restricted to the amount of allowances (IA + AA) previously claimed on
that particular asset.Notional allowance.if any would be excluded,as it was not previously deducted the adjusted
income in the year of temporary disuse.
Capital allowance Taxation

11.2.2 Balancing Allownace

Disposal/Sale Value < Residual Expenditure = Balancing Allowance

A balancing allowance (BA) arises where DV < RE

BA will be deducted from the adjusted income in the YA of disposal.Unlike a BC,no restriction applies in relation to
the amount deductible.

11.3 Disposal Value

Para 62(1) states that disposal value shall be taken to be an amount equal to its market value at the date of its
disposal.

11.3.1 Disposal by way of sale,transfer of assignment

In the case of disposal by way of sale,transfer or assignment,the disposal value would be the greater of:

(a) its market value at the date of the sale,transfer or assignment,as the case may be;or

(b) the net proceeds of the sale,transfer or assignment

11.3.2 Disposal by way of insurance compensation/recoveries

Where the asset is disposed of in such circumstances that insurance or compensation moneys are received ny that
person in respect of the asset,its disposal value shall be the greater of :

(a) its market value at date of its disposal;or

(b) the insurance proceeds received

Example 13.6

Matlamat Impian Bhd purchased a metal plating machine for RM 120,000 on 1.10.2004.The machine was put on a
period of temporary disuse in YA 2006 and it was brought back into use for business purpose on 1.5.2006.The
machine was disposed of on 28.4.2008 for RM 110,000.Matlamat Impian prepares its accounts to 30 April each year.

Required:

Computed the capital allowances for the metal plating machine and the balancing charge/allowance for all
the relevant YAs.

Answer
Capital allowance Taxation

YA RM
2005 Qualifying plant expenditure 120,000
Less: Initial Allowance (20%) (24,000)
Annual Allowance (14%) (16,800)
RE as at 30.4.2006 79,200

2006 Less : Notional Allowance (14%) (16800)


RE as at 30.4.2006 62,400

2007 Less : Annual Allowance (14%)%) (16800)


RE as at 30.4.2006 45,600

2008 Disposal Value 110,000


Balancing Charge 64,400

The balancing charge is however restricted to the total amount of capital allowances claimed,i.e.RM 57,600
(IA of RM 24,000 + accumulated AA of RM 16,800 2).Notional allowance is excluded in the computation of the
balancing charge restriction.

Thus.BC be added to the adjusted income for YA 2008 = RM 57,600.

11.3 Disposal of motor vehicles

In the case of passenger vehicles where the qualifying plant expenditure was restricted to either RM 50,000 or RM
100,000,when that vehicle is sold,the disposal value shall be deemed to be an amount which bears the same
proportion to the value as the restricted qualifying expenditure bears to the actual cost i.e :

Disposal value of passenger vehicle = Maximum QE Sale proceeds

Total cost of motor vehicle

Example 13.7

Princess Haliza Bhd( Haliza) closes its accounts to 31.3 every year.In November 2004,Haliza acquired a second
hand Proton Wira under a hire purchase scheme and traded in its old vehicle for RM 12,200.The cash price of the
Wira is RM 52,700.Under the scheme,Haliza is to pay monthly instalments of RM 2,550 for 18 months starting from
1.12.2004.The Wira was subsequently disposed of for RM 26,350 on 31.1.2008.

Required :

Calculate the capital allowances for the Proton Wira up to the YA in which it was disposed of,and the
balancing adjustments arising in disposal ,if any:

Answer
Capital allowance Taxation

RM
Cash price 52,700
Less : Trade in value (down payment) (12,200)
Hire purchase amount (capital portion) 40,500

The capital portion paid for each installment = RM 40,500 /18


= RM 2,250

Computation of the capital allowance for the Proton Wira:


Accumulated
QPE
RM RM
YA 2005:
Trade in value deposit 12,200
Instalments capital portion ( RM 2,250 4 months) 9,000
21,200 21,200
Qualifying plant expenditure
Less : Initial Allowance (20% RM 21,200) (4240)
Annual Allowance (20% RM 21,200) (4240)
Residual expenditure @ 31.3.2006 12,720
YA 2006:
Instalments capital portion ( RM 2,250 12) 27,000 27,000
39,720 48,200
Less : Initial Allowance (20% RM 27,000) (5,400)
Annual Allownace (20% RM 48,200) (9,640)
Residual expenditure @ 31.3.2006 24,680

YA 2007 :
Instalments capital portion ( RM 2,250 2 = RM 4,500)
(restricted to) 1,800 1,800
26,480 50,000
Less : Initial Allowance (20% RM 1,800) (360)
Annual Allownace (20% RM 50,000) (10,000)
Residual expenditure @ 31.3.2007 16,120

YA 2008 :
Disposal Value 50,000 RM 26,350 25,000
52,700
Balancing Charge 8,880

NOTES:
1. The QPE of the car is restricted to RM 50,000 as it was not w new car,although it cost < RM 150,000

11.4 Disposal of assets owned for less than 2 years (Para 71 Sch 3)
Capital allowance Taxation

If a qualifying asset is disposed of within two years from the acquisition date (referring to the actual number of
days),then any capital allowances previously granted to that particular asset will be withdrawn (or clawed back) by
way of a balancing charge in the basis period in which the disposal occurs.In this case,the actual disposal value will
be made as a balancing charge(equals to CA previously claimed) has already been effected.

However,this paragraph does not apply if there is commercial justification for such disposal,e.g asset was damaged
in a fire,technological to be unsuitable or was no longer required for the purposes of the business.Where Para 71 is
not involved by the IRB,then such disposal(although made within two years).will be treted as a normal disposal
where either a balancing charge or balancing allowance may arise.

Example 13.8

Defec Sdn Bhd makes up its accounts to 31.12 each year.In September 2008,it purchased a fax machine costing RM
3,500.The machine was later found to be faulty after 2 months of usage.It was disposed of on 30.11.2008 for RM
1,500.

Required :

Quantify and explain the tax effects of the purchase and disposal of the tax fax machine if :

(a) the IRB accepts the reason and does not invoke Para 71 Sch 3;

(b) the IRB invokes Para 71 Sch 3.

Answer

(a) Computation of CA for YA 2008 :

RM
Qualifying Expenditure 3,500
Less : IA (20%) (700)
AA (disposed) -
RE as at 30.11.2008 2,800
Disposal Value (1,500)
Balancing Allowance 1,300

Since IRB does not invoke Para71,there will be no withdrawal of the intial allowance given.Thus in YA 2008,Defec
would be able to make claims in repect of capital allowance of RM 700 and a balancing allowance of RM 1,300.

b) If the IRB invokes Para 71,the initial allowance granted of RM 700 would be withdrawn by way of a balancing
charge in the year of disposal.The disposal value of RM 1,500 will bedisregarded.Thus,for YA 2008,Defecs
adjusted income will be reduced by the capital allowance claim of RM 700,but at the same time,the adjusted income
will be increased by the balancing charge of RM 700.Hence,in essence it is as if the fax machine was never
purchased by Defec in the first place.

12.0 Determination of Qualifying Expenditure for Used Plant and Machinery


Capital allowance Taxation

Where,prior to using the plant and machinery for business purposes,the qualifying asset was used in the following
circumstances,the qualifying expenditure will be:

Para Circumstances Qualifying Expenditure


2A Plant or machinery used for a non business purposes Markets value of plant or
machinery
On the day it was brought into use
for business purposes.
2B(YA Plant or machinery was in use during a persond tax Market value or the net book
s exempt period and continues tobe used in the business value,whichever is the lower on the
1992- immediately after the rax exempt period day exemption ceases.
2005
2C Plant or machinery is brought into use for the purposes Market value or the net book
of a business is Malaysia where it was previously used value,whichever is the lower,on the
for a business outside Malaysia. day it was si brought into use in
Malaysia.

For all of the above circumstances no initial allowance is available.The taxpayer is only entitled to annual
allowances.

Example 13.9

TTS Bhd was incorporated on 1.5.2007.It commenced its printing business on 1.10.2007.It prepares its accounts to
30.9 every year.

For its business purposes,TTS has made the following purchases :

Date Expenditure Amount

RM
1.8.2007 Prinitng machine (on hire purchase):
Total cost 150,000
Down-payment paid on 01.8.2007 15,000
Total instalments paid from 01.10.2007(12 instalments) 155,250
Interst included above 20,250
1.11.2007 Motor Car(new Proton Perdana) 111,000
15.11.2007 Computer 8,200
2.2.2008 Bimding Machine:
Deposit 12,400
Full Payment 49,600

However,the bindind machine was found to be faulty and returned to its suppliers at 90% of its original total
cost.The Inland Revenue Board has accepted the reason for the disposal.

Required :

Computation the relevant allowances in repect of each of the qualifying assets for YA 2008.

Answer
Capital allowance Taxation

Computation of the Relevant Capital Allowances for YA 2008:

RM RM
Printing machine :
Down payment deemed incurred on 01.10.2007 15,000
Capital instalments(RM 155,250-RM 20,250) 135,000
Qualifying expenditure 150,000
Less : Initial allowance (20%) 30,000
Annual allowance(14%) 21,000 (51,000)
Residual expenditure as at 30.9.2008 99,000

Motor car :
Qualifying expenditure(restricted cost < RM 150,000) 100,000
Less : Initial allowance (20%) 20,000
Annual allowance (40%) 20,000 (40,000)
Residual expenditure as at 30.9.2008 60,000

Computer:
Qualifying expenditure 8,200
Less : Initial allowance (20%) 1,640
Annual allowances(40%) 3,280 (4,920)
Residual expenditure as at 30.9.2008 3,280
Binding machine :
Deposit 12,400
Full payment 49,600
Qualifying expenditure 62,000
Less : Initial allowances (20%) 12,400
Annual allowances (disposed) nil (12,400)
Residual expenditure 49,600
Disposal value (90% RM 62,000) (55,800)

Balancing Charge 6,200

Total 108,320

Capital allowance can only be claimed after the date of commencement.Any qualifying expenditure incurred prior to
that date shall be deemed incurred on the date of commencement.Although some of the assets had not been used for
the whole year in YA 2008,a full year,s capital allowance would be given.

Since the IRB accepted the reason for the disposal of the binding machine,it was treated as a normal disposal where
the residual expenditure prior to disposal was compared to the disposal value,giving rise to a balancing charge which
nust be added to the adjusred income for YA 2008.There would be no restriction on the balancing charge as the
capital allowance previously claimed on the machine of RM 12,400 was greater than the RM 6,200.If the reason for
the disposal of the binding machine was not accepted by the IRB.para 71 Sch 3 will apply and the RM 12,400 given
as initial allowance would be withdrawn by way of balancing charge.