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75% Rule

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ABFT2033 TAXATION II

The 75% Rule [Para 67, Schedule 3]


Where capital expenditure incurred on preparing, cutting, tunnelling or levelling land in order
to prepare a site for the installation of machinery or plant (installation cost) exceeds 75% of the
aggregate cost (cost of plant and machinery + cost of installation), that total cost is treated as
expenditure on a building.

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

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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]

(ii) Plant and machinery


RM
Cost 35,000
RM
Cost of plant and machinery 10,000
Cost of preparing site Nil
Qualifying Plant Expenditure 10,000

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]

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