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CAPITAL ALLOWANCES

Introduction
Capital allowances are allowed to a person/company who
incurred any capital expenditure for the purpose of his business
and allow by the tax authority to made a claim in writing in his
Income Tax Return Form.
The amount of capital expenditure incurred will be used in the
computation of initial allowance (IA) and annual allowance
(AA) under Schedule 3 of the Income Tax Act 1967.

Types of Qualifying Expenditure [QE]


cost of plant or machinery
Incidental expenditure such as alteration of an existing
building for the purposes of installing plant or machinery
and other expenditure incurred incidentally to the
installation and expense incurred on preparing, cutting,
tunneling or leveling 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.
Rates of Capital Allowance

Capital allowances consist of an initial allowance and


annual allowance. Initial allowance is fixed at the rate of
20% based on the original cost of the asset at the time when
the capital expenditure is incurred.

While annual allowance is a flat rate given every year


based on the original cost of the asset. The annual
allowance is given for each year until the capital
expenditure has been fully written off, unless the fixed
asset is sold, scrapped or disposed, in which case a
balancing allowance or balancing charge will be calculated

Annual allowance rates vary according to the type of the


assets and the rates tabulated in the table below.

Initial Allowance Annual


Type Of Asset
(%) Allowance (%)
Heavy Machinery /
20 20
Motor Vehicle
Plant and Machinery 20 14
Computer and ICT
20 40
Equipment
Others 20 10
Heavy Machinery Bulldozers, cranes, ditchers,
excavators, graders, loaders, rippers, rollers, rooters,
scrappers, shovels, tractors, vibrator wagons and so on.
Motor Vehicles All types of motorized vehicles such as
motorcycles, aeroplanes, ships and so forth

Plant and Machinery General plant and machinery not


included under heavy machinery such as air conditioners,
compressors, lifts, laboratory and medical equipment,
ovens and so forth.

Others Office equipment, furniture and fittings.

In the case of motor vehicles, other than a motor


vehicle licensed by the appropriate authority for
commercial transportation of goods or
passengers, the qualifying plant expenditure
incurred shall be limited to a maximum of
RM50,000 only.

Motor vehicles which are licensed for


commercial transportation of goods or passengers
such as lorry, truck, bus, mini bus, van, etc, are
not included in those restrictions.

Nevertheless, starting from year of assessment


2001, the limitation amount for qualifying plant
expenditure for motor vehicle, other than a motor
vehicle licensed by the appropriate authority for
commercial transportation of goods or
passengers, which is bought on or after
28/10/2000, has been increased from RM50,000
to RM100,000 on condition that the motor
vehicle bought is a new motor vehicle, and the on
the road purchase price does not exceed
RM150,000