ABFT2033 TAXATION II

Part 3: Qualifying Plant Expenditure (QPE)

(1) Qualifying plant expenditure (QPE) 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 years. It includes, among others: [Para
2(1), Schedule 3]
 (i) Purchase price (include other expenses related to purchase such as carriage
inwards, legal fees etc.)
 (ii) Incidental expenses incurred on installations (e.g. labour charges for installation)
 (iii) Expenditure incurred on the alteration of an existing building for the purpose of
installing that machinery or plant and other
 (iv) Expenditure incurred on preparing, cutting, tunneling or leveling land in order to
prepare a site for the installation of that machinery or plant provided the expenditure
does not exceed 10% of the aggregate of itself and any other expenditure (being QPE)
incurred for the purposes of the business [The 10% Rule]

The 10% Rule:

RM
The cost of plant and machinery and any other expenditure (being QPE) P
[i + ii + iii]
Cost of prepare, cut, tunnel and levelling land (in order to prepare a site for L
the installation of that plant and machinery) [iv]
Total Cost E

Conclusion:
 If L ≤ 10% of E, then QPE is E
 If L > 10% of E, then QPE is P

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Example 4

ABC Sdn, Bhd. (year ending 31 December) incurred the following expenses on 1/6/2018 for
the purchase of plant and machinery for its business:

(a) (b)
RM RM
Cost of plant and machinery [P] 50,000 50,000
Cost of preparing site [L] 4,000 6,000
Total cost [E] 54,000 56,000

Required:

Identify and explain the amount of qualifying plant expenditure.

Answer

(a) Plant and machinery

RM
Cost 54,000
RM
Cost of plant and machinery 50,000
Cost of preparing site 4,000
Qualifying Plant Expenditure 54,000

10% rule will be used since the cost of plant and machinery (RM50,000) is higher than cost of
preparing site (RM4,000). Since the cost of preparing site (RM4,000) does not exceed 10% of
the total cost (RM54,000), all the cost (RM54,000) will qualify as qualifying plant expenditure
for the purpose of computing capital allowances (The 10% Rule). [CA = RM54,000 × (20% +
14%) = RM18,360]

(b) Plant and machinery

RM
Cost 56,000
RM
Cost of plant and machinery 50,000
Cost of preparing site Nil
Qualifying Plant Expenditure 50,000

10% rule will be used since the cost of plant and machinery (RM50,000) is higher than cost of
preparing site (RM6,000). Since the cost of preparing site (RM6,000) exceeds 10% of the total
cost (RM56,000), only the cost of plant and machinery (RM50,000) will qualify as qualifying
plant expenditure for the purpose of computing capital allowances. The cost of preparing site
RM6,000 does not qualify (The 10% Rule). [CA = RM50,000 × (20% + 14%) = RM17,000]

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Example 5

High Tech Sdn. Bhd. (year ending 30 June) incurred the following expenses on 1/4/2017 for
the purchase of a machine for its business:

RM
Purchase price of machine 100,000
Incidental cost of installation 20,000
Alteration of building for installation 30,000
Preparing site for installation 40,000
190,000

Required:

Identify and explain the amount of qualifying plant expenditure.

Answer

Machine
RM
Cost 190,000
RM
Purchase price of machine 100,000
Incidental cost of installation 20,000
Alteration of building for installation 30,000
Preparing site for installation Nil
Qualifying Plant Expenditure 150,000

10% rule will be used since the cost of plant and machinery, installation and alteration of
building (RM150,000) is higher than cost of preparing site (RM40,000).
Since the cost of preparing site (RM40,000) exceeds 10% of the total cost (RM190,000), only
the cost of machine, incidental cost of installation and alteration of building (RM150,000) will
qualify as qualifying plant expenditure for the purpose of computing capital allowances. The
cost of preparing site (RM40,000) does not qualify (The 10% Rule). [CA = RM150,000 × (20%
+ 14%) = RM51,000]

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