Maximizing Tax Benefits on Capital Expenditure
Maximizing Tax Benefits on Capital Expenditure
Company may maximize their tax benefits on the capital expenditure. Below are actions, you may take in order to help you with tax saving.
No worries, we explain to you how to maximize your tax benefits by using some real-life cases.
Capital Allowance
Generally, capital allowance is eligible for plant and machinery, or tools and equipment for business.
What are tools and equipment?
Some examples of the case law to enhance our understanding.
KPHDN v Tropiland Sdn Bhd (2012) (Court of Appeal)
• The argument here is whether the 7-storey car park is a tool and equipment to the business?
• The taxpayer is a property developer and constructed a multi-story car park before letting it out. They claim a capital allowance for the car park.
• The taxpayer’s income was derived from the rental of the car park. Without the multi-story car park, the taxpayer could not have generated an income from the land.
Hence, they can claim the capital allowance for the car park.
Industrial Building Allowance(IBA)
If you own or rent a factory for your business, you may claim the qualifying expenditures under Industrial Building Allowance (IBA).
Reinvestment Allowance(RA)
The definition given by MIDA, RA is available for existing companies engaged in manufacturing and selected agricultural activities that reinvest for expansion, automation, modernization, or diversification into any related products within the same industry on condition.
Lavender Confectionery & Bakery Sdn Bhd V KPHDN
Lavender is a manufacturer, distributor and dealer in cakes, confectionery, bread and biscuits.
In YA 2011, the company claimed Industrial Building Allowance (IBA) for the additional demolition of substructures and renovation and Reinvestment Allowance (RA) for plant and machinery for JB factory and KL Outlet.
However, it had been rejected due to one of the demolition cost before constructing the buildings which did not form part of the Lavender’s factory. Company is also disallowed to claim under RA due to the items are not used in the factory.
For IBA claim of the Company, the decision of the Court is the Company can claim for the IBA since they fulfilled the IBA claim requirement of building used for purpose of business and used as a factory.
The Company can claim for RA as they fulfilled the RA claim requirement as
• The Company must be a resident of Malaysia
• An operation for more than 36 months
• Incurred capital expenditures are for the expansion of their business.
As their outlet in KL continues the manufacturing process of bread and confectionaries in the principal factory at Plentong.
The capital expenditures incurred for plant and machinery that leads to the expansion of Company’ business is entitled to RA.
What does KTP say?
From the story above, we can understand that the determining factor between Capital allowance and Industrial building allowance is whether it is a “tool” to generate income or it is a "building" that is used as industrial business purposes.
Qualified expenditure can be the assets themselves and also the incidental cost incurred on the assets. To maximize your claim, we can always go back to the ruling or act to look at the definition.
Sources
KPHDN v Tropiland Sdn Bhd (2012) (Court of Appeal)
https://bit.ly/3MIlDBq
Lavender Confectionery & Bakery Sdn Bhd V KPHDN
https://bit.ly/35RDSnn
Qualifying Expenditure and Computation of Industrial Building Allowances
https://bit.ly/379lK8P
Qualifying Expenditure And Computation Of Capital Allowances
https://bit.ly/366wQek
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Visit Us
Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
KTP (Audit, Tax, Advisory)
An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients
Website www.ktp.com.my
Instagram https://bit.ly/3jZuZuI
Linkedin https://bit.ly/3sapf4l
Telegram http://bit.ly/3ptmlpn
THK (Secretarial, Book-keeping, Payroll, Advisory)
A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsource book-keeping, and payroll services to clients
Website www.thks.com.my
Facebook https://bit.ly/3nQ98rs
KTP Lifestyle
An internal community for our colleagues on work and leisure.
Tiktok http://bit.ly/3u9LR6Q
Youtube http://bit.ly/3ppmjyE
Facebook http://bit.ly/3ateoMz
Instagram https://bit.ly/3jZpKLo
KTP Career
An external job community on vacancy in Johor Bahru for interns, graduates & experienced candidates.
Instagram https://bit.ly/3u2PxHg
Facebook http://bit.ly/3rPxz9o
#Ktp #Thks
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