Capital Allowance

Capital Allowance is used as a subsidy to for the depreciation of fixed assets. Capital allowance is given to reduce the tax payable for the capital.

Capital allowance is only applicable for businesses and not individuals. The nature of the capital and the purpose of the capital must be for the use of a business.

Qualifying expenditure (QE)

QE includes:

• cost of assets used in a business, such as plant and machinery, office equipment, furniture and fittings, motor vehicles, etc. “Plant” is defined to mean an apparatus used by a person for carrying on his business but does not include a building or any asset used and that functions as a place within which a business is carried on. W.e.f YA 2023, the MoF may prescribe any asset to be excluded from the definition of plant.
• the cost of construction and installation of plant and machinery (subject to payment of withholding tax where the installation is carried out by a non-resident)
• expenditure on fish ponds, animal pens, chicken houses, cages and other structures used for agricultural or pastoral pursuits
• where an asset is acquired on a hire purchase term, the QE for a particular basis period is based on the amount of capital repayment made during that basis period

How to calculate capital allowance?

Capital allowances consist of an initial allowance (IA) and annual allowance (AA).

Initial allowance

IA is fixed at the rate of 20% based on the original cost of the asset at the time when the capital was obtained.

Annual allowance

Annual allowance is a flat rate given annually according to the original cost of the asset. The annual allowance is distributed each year until the capital expenditure has been fully written off.

Annual allowance rates depend on the types of assets. The rates are as follow:

• Motor vehicle is 20%
• Plant and Machinery is 14%
• Other assets like furniture and office equipment is 10%

General rates of capital allowance

ASSETS	IA (%)	AA (%)
Heavy machinery	20	20
General plant and machinery	20	14
Furniture and fixtures	20	10
Office equipment	20	10
Others Assets***	20	10
Motor vehicles	20	20*
ICT equipment and computer software packages	20	20

* QE for non-commercial vehicle is restricted to the maximum amount below:

MOTOR VEHICLE	MAXIMUM QE (RM)
New vehicles purchased where the total cost is RM150,000 or less	100,000
Vehicles other than the above	50,000

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