Capital allowance is only applicable to business activity and not for individual.
The purpose of capital allowance is to give a relief for wear and tear of fixed assets for business. Some examples of assets that are normally used in business are motor vehicles, machines, office equipments and furniture.
In order to qualify, expenditure must be capital in nature and used for business purposes. Claims for capital allowance can be made in the relevant column provided in the Tax Return Form.
In determining the business adjusted income during the basis period, no deductions are allowed for expenditures which are capital in nature or depreciation value for the assets which are used in the production of that business income. However, Schedule 3 of the Income Tax Act 1967 has laid down several allowable deductions in the form of allowances, for the capital expenditures that have been incurred.
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.
|Type Of Asset
|Initial Allowance (%)
|Annual Allowance (%)
|Heavy Machinery / Motor Vehicle
|Plant and Machinery
|Computer and ICT Equipment
- 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