75% Rule
75% Rule
75% Rule
RM
Cost of plant and machinery P
Cost of prepare, cut, tunnel and levelling land (in order to prepare a site for L
the installation of that plant and machinery)
Total Cost E
Conclusion:
If L ≤ 75% of E, then QPE is P
If L > 75% of E, then QBE is E
Note:
When P > L => Use 10% Rule (Refer C3, Part 3)
When P < L => Use 75% Rule
When P = L => QPE = P
Example 2
A Sdn. Bhd. (year ending 30 June) purchased plant and machinery and incurred cost of
preparing site on 1/11/2019 as follows:
(i) (ii)
RM RM
Cost of plant and machinery [P] 10,000 10,000
Cost of preparing site [L] 90,000 25,000
Total cost [E] 100,000 35,000
Required:
Identify and explain the amount of qualifying plant expenditure and qualifying building
expenditure.
Answer
(i) Plant and machinery (deemed industrial building)
RM
Cost 100,000
RM
Cost of plant and machinery 10,000
Cost of preparing site 90,000
Qualifying Building Expenditure 100,000
C6 - 1
ABFT2033 TAXATION II
75% rule will be used since the cost of plant and machinery (RM10,000) is lower than cost of
preparing site (RM90,000). Since the cost of preparing site RM90,000 exceeds 75% of the total
cost (RM100,000), the plant and machinery is deemed to be an industrial building. Thus, all
the cost (RM100,000) will qualify as qualifying building expenditure for the purpose of
computing industrial building allowances. [IBA = RM100,000 × (10% + 3%) = RM13,000]
75% rule will be used since the cost of plant and machinery (RM10,000) is lower than cost of
preparing site (RM25,000). Since the cost of preparing site RM25,000 does not exceed 75% of
the total cost (RM35,000), only the cost of plant and machinery (RM10,000) will qualify as
qualifying plant expenditure for the purpose of computing capital allowances. The cost of
preparing site (RM25,000) does not qualify. [CA = RM10,000 × (20% + 14%) = RM3,400]
C6 - 2