1

Chapter 2

CAPITAL ALLOWANCES
(Agriculture, Forest & Mining)

Old textbook
2 Capital Allowances

 The ITA allows a deduction for the use of assets in the form of

capital allowances which are deductible from Adjusted Income

– sec 42 & Schedule 3

 Qualifying Expenditure on Plant & Machinery (ACW290)

 Qualifying Expenditure on Industrial Buildings (ACW290)

↳Midterm
 Qualifying Agricultural Expenditure


Qualifying Forest Expenditure

Qualifying Mining Expenditure

3 Final Exam

 Allowances on qualifying Prospecting Expenditure is deductible

from Aggregate Income (Schedule 4/ Sections 43 and 44).

3 Capital Allowances (Cont’d)

 Capital allowances (CA) are not mandatory and are

granted if taxpayer makes a claim in writing each year of
assessment(YA).
 Capital allowances are only given in respect of a
business source. Capital allowances cannot be claimed
against employment income.
 CA is calculated for a YA.
 CA are deducted from the Adjusted income to arrive at
the Statutory Income.
4 Scheme for Deduction of Capital
Allowances under Schedule 3

 Adjusted Income XX
 Add Balancing Charges X
XXX
Less:
 Capital allowances b/f from previous Y/A X
 Capital allowances for Current Year X
 Balancing allowances X (XX)
 Statutory Income XX
 5 Carry Forward of Capital
Allowances

 Where CA claimed cannot be fully set off against the

Adjusted Income in any YA, they are carried forward for set
off against future profits from the same business source (at
the same statutory income stage).
 CA from one business cannot be set off against the profits
of another business. So, if a business ceases permanently,
any unabsorbed allowances in relation to that business are
lost forever.
6 Agricultural Allowance
7 Agricultural Allowance
8 Agricultural Allowance
 A person who incurs qualifying agriculture
expenditure will be given agriculture allowance
 Cost of plant and machinery used in the farm would
be given normal capital allowances. Hence it would not
qualify as qualifying agricultural expenditure.
 The land cost is excluded from the meaning of
qualifying agriculture expenditure
 Rates of Agriculture Allowance
9
Qualifying Expenditure Rate of AA
Clearing & preparation of land for agricultural 50%
purpose
claim under P&L
A ->

New planting (not replanting) of crops on 50%

land cleared for planting
Construction on a farm of roads / bridges 50%

Construction of buildings for staff welfare or 20%

accommodation (labor quarters, temple)
=>

Other buildings for business (estate office, 10%

smoke house)
NO INITIAL Allowance available for qualifying
agricultural expenditure
10
Labor quarters & Temple (AA20%)
 Agricultural Allowance calculation
11
 See Choong (2022) e.g 29.2 pg 562

-
no mention new or
replanting -> assume new
 ⑦PE YA
claim hand the end of
↓> when
CA the still
asset on at

①BE

Disposal of Asset
GAE minimum one month on hand
do
apportionment,
-

12
 Disposal of asset (apportionment of agriculture
allowance is allowed on the condition that the seller
uses at least 1 month before the transfer / sale). If
less than 1 month, seller not entitled to CA, buyer
claims all.
 Purchase price of the purchaser is not -> can
just
(continue
claim
from
what

pass)
c laim before

relevant. Buyer can only claim the remaining

of CA.
 e.g 29.3 + 29.4
 Disposal of Asset
sell assets

19121 113122 31/8/22 3yalaz

YA2026
Tumbuh Sepat Sdn Bhd Asia Pacific Rubber Mantation
Sdn Bhd

13

CAPRP
although hold assets for 10 months can
but
only claim
remaining 6 months

in YA aUdd)
 Disposal – clawback within 5 years
&CA
14
claim before have to back become balancing charge although sold for
pay
- asset a loss

 Disposal within 5 years from the incurring such

expenditure, ALL agriculture allowance previously
claimed would be withdrawn as agriculture charge.
 If dispose after 5 years, NO agriculture charge
 Election for spread back e.g 29.5
 Disposal - clawback within 5 years
15

A claim
cannot

3
->

*A 2018
V

3
-
YA 1019
v

v
 Disposal - clawback within 5 years
16

I 10,000
->

↳ 430,000 10,000 420,000 24%

x
=
-

2
=
100, 800
 Disposal – cessation of business within 5 years
17
 When disposal took place after permanent cessation of farm
business, the disposal shall b e deemed to have been made
in the year of cessation, NOT in the year of disposal.
 Agriculture charge is all previously claimed agriculture
allowance, not disposal price.
-> YA1020-sold I claw back count until 2020)

 E.g ABC Sd, Bhd ceased farm business in Nov 2020,

managed to dispose the farm on 2 Feb 2021.

12,500
72,500 =
60,000 agriculture
->

charger
 TUTORIAL A Final Exam

18

 ACCA F6 December 2015 Q1 Section B

 ACCA F6 December 2013 Q3 Switch becousing

 ACCA F6 June 2018 Q1

19 Forest Allowance – timber forest
 Forest Allowance
20
A person who has been granted a concession or license and
carries on a business of timber extraction is entitled to claim
forest allowances on expenditure incurred

Qualifying Expenditure Rate of AA

Construction of road / building used for the 10%
purpose of extracting timber from the forest
Building for welfare of employees (living 20%
accommodation)

 NO INITIAL Allowance available for qualifying forest

expenditure.
 Forest Allowance
21

 Timberland Sdn Bhd was granted a timber

concession by the Pahang state government
in March 2014. The period of concession is for
10 years. Timberland started its business of
timber extraction in September 2014.
Normally, it closes accounts on 30 June
every year, following the closing date of the
holding company’s accounts. Between July
2014 to September 2014, Timberland incurred
expenditure on the construction of:
 (a) laterite road – RM60,000;
 (b) site office in the forest – RM100,000;
 (c) workers’ quarters – RM200,000.
 Forest Allowance
22
 Forest Allowance
23
 Where a company permanently ceases to extract
timber from a forest, the remaining residual expenditure
is available as forest allowance at the YA of cessation
I claim together when sell
remaining

 Buyer / transferee will NOT get any forest allowance

upon acquiring forest buyer -> New c laim
cannot whatever seller claim
before, unless build new road, welfare, etc.
 Forest Allowance
24

6000 14000

20000 24000
25 Mining Expenditure
26 Mining Expenditure

 Given mining allowance as a revenue expense

against gross income of mining business.

 Mining business
 Gross Income XX
Less:
 Mining allowance (X)
 Adjusted Income XX
 Qualifying Mining Expenditure
27
(Para 1, Schedule 2 ITA)
 On the acquisition of mine / rights in / over the mine
 Expenditure on searching for, on discovering & testing / on
winning access to deposits of mineral.
 On construction of any works / buildings when the mine ceases
to be worked.
 On development, general administration / management before
the production of minerals begins / during any period when
minerals are not being produced.
 Acquisition of land which contain mine deposit was not a
qualifying mining expenditure.
 See (2022) pg 551-554, e.g 28.1- 28.5
 Mining Allowance calculation
28

-> new business do

apportionment
 Mining Allowance calculation
29
 Mining Allowance calculation
30
 Mining Allowance calculation
31
 Mining Allowance calculation
32
 Mining Allowance calculation
33 ignore
 Sch 4 para 5(a)
34
 Sch 4 para 5(a)
35
 Sch 4 para 5(a)
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