Special Reinvestment Allowance 2020 Part 3

Special Reinvestment Allowance 2020 Part 2

Special Reinvestment Allowance 2020 Part 3

Overview of Special Reinvestment Allowance

An eligible manufacturing and agriculture company is entitled to claim Reinvestment Allowance (RA) and is to be deducted against the statutory income in the basic period for a year assessment.

However, how much is the entitle amount of RA to an eligible company? Any restriction to be applied on RA?

Key takeaways:

You will understand: -

1.     The calculation of RA and deduction against statutory income.

2.     Basic understanding of non-Application rule.

3.     The documents to be prepared to claim RA.

 Summary of learning:

 1.Tax treatment of special reinvestment allowance

1.     An eligible company is entitled to claim RA of 60% on the capital expenditure incurred the year of assessment (YA).

 2.     But, it will be restricted against 70% of statutory income. Any unabsorbed RA can be carried forward to next YA.

 3.     With effective from YA 2019, the unabsorbed RA can only be carried forward for a maximum of 7 consecutive years of assessment upon expiry of the qualifying period.

 4.     Any balance of unabsorbed RA after the end of that seven (7) consecutive years of assessment will be disregarded.

 

Example:

In YA 2020, ABC Sdn Bhd incurred a total capital expenditure of RM450,000.00 to increase its production capacity. The statutory income (SI) for the year is RM300,000.

How much is the RA claim by the company in YA2020?

Solution:

The tax treatment and calculation is demonstrated as follow:

-       RA to be claimed by the company is RM270,000 (60% x RM450,000)

-       However, it will be restricted to RM210,000.00 (70% x RM300,000 (SI))

∴ Therefore, the chargeable income to tax of the company in YA 2020 is RM90,000.00 (RM300,000 – RM210,000). The unabsorbed RA of RM60,000 (RM270,000 – RM210,000) will be carried forward to next YA.

 2. Non-Application with Special reinvestment allowance

A company claiming RA is not able to enjoy the following tax incentives in the same year of assessment:

  1. Pioneer status under the Promotion of Investments Act 1986 (PIA).

  2. Investment tax allowances (ITA) under the PIA.

  3. Incentive under Investment Incentive Act 1968 (IIA).

  4. Industrial adjustment allowance under the PIA in respect of a manufacturing activity or a manufactured product (approval granted prior to the coming into operation of section 27 of the Promotion of Investments (Amendment) 2007 Act [Act A1318].

  5. Group Relief for companies under section 44A of the Income Tax Act 1967 (ITA).

  6. Deductions under any rules made under section 154 of the ITA.

  7. Exemption from tax on income under exemption orders made under paragraph 127(3)(b) or exemption under subsection 127(3A) of the ITA.

 3. Claim Procedures for Reinvestment Allowance

1.     The eligible company is not required to apply or get written approval from Inland Revenue Board Malaysia (IRBM).

 2.     However, the company must prepare the RA claim form which can be downloaded from IRBM’s Official Portal.

 3.     The original copy of the RA claim form shall be kept by the company together with all relevant documents.

 Sources:

  • Reinvestment Allowances Part 1 – Manufacturing activity:

http://lampiran1.hasil.gov.my/pdf/pdfam/PR_10_2020.pdf

  • RA claim form:

http://phl.hasil.gov.my/pdf/pdfborang/BORANGTUNTUTANEPS_1.pdf

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