chapter 3b iba[1]
TRANSCRIPT
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INDUSTRIAL BUILDING
ALLOWANCE.
By
Philip Lim
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Qualifying Building Expenditure
Paragraph 3, Schedule 3, ITA 1967 QBE is capital expenditure incurred on the
construction or purchase of a building which is beingused at any time after its construction or purchase asan industrial building
Para 63, Sch 3 Industrial Building is defined as
A factory
A dock, wharf, jetty or other similar building
A warehouse let out to public
Building used in the utility business or telecommunicationservices
Building used in the working of a mine or farm
Mill, workshop in connection with the working of mine
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Factory is defined as: A building consisting of a mill, workshop or other
building for the housing of machinery or plant used inthe manufacture of any product or the subjection of
goods or materials to any process or the generatingof power used for the purposes of that manufacture orprocess
A building used incidental to the manufacturingbusiness
A workshop used for the repair or servicing of goodswhich is carried out in conjunction with or incidental toa business of selling those goods is not considered asa workshop for the purpose of industrial buildingsallowance
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A building (within the same curtilage as a
building which is used as factory) used for the
storage of any raw material, fuel or stores
necessary for the manufacture of that productor the processing of those goods or materials,
or the storage of that product or those goods
or materials when processed prior to the sale
of those goods or materials
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Certain building treated as IB
Buildings used for staff welfare [Para 65(1)]
Canteen
Recreational facilities
Conditions:
Must have the existence of an industrial building
Additional building for the benefits of the
employees
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Living Accommodation for
employees
Farm (Para 65(2))
Where a building is used for the welfare of persons,
or as living accommodation for a person, employed in
connection with working of a farm, then the building isan industrial building provided the building is likely to
be of little or no value to any person except in
connection with the working of that farm or of another
farm
Can claim agriculture allowance on the building cost
instead
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Construction of employees quarters (Para
42(1))
Where an industrial building is in used in a business
and an additional building is constructed for livingaccommodation of employees employed in that
business, that additional building is treated as an
industrial building.
Initial allowance is 40% Employees are factory workers excluding directors or
individuals having control of that business or a person
who is a member of management, administrative or
clerical staff engaged in that business
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Manufacturing, hotel, tourism, approvedservice projects (Para42A(1))
A person carrying on the business of manufacturing,hotel or tourism business or an approve serviceproject (Schedule 7B) incurring qualifying capitalexpenditure on the construction or purchase of abuilding for living accommodation of employees, such
buildings shall be deemed as an industrial building. No initial allowance will be given and the annual
allowance is 10%.
For purchased building the purchase price shall be
treated as qualifying expenditure.
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Child care facilities (Para 42A (2))
A person carrying on a business n incurred
expenditure on the construction or purchase
of a building used as child care facilities foremployees employed in the business, such
building shall be deemed as an industrial
building
There is no IA rate and the AA rate is 10%
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School, educational institution &
technical training (Para 42B & C)
Where a person has constructed or
purchased a building for use as a school or an
educational institution approved by the
Education Minister for the purpose of the
business, such building shall be treated as anIndustrial Building.
Rate:- A.A = 10%
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Licensed private hospital, maternity and
nursing home (Para 37A)
Research (Para 37B) A building used for the purpose of research approved
by the Minister within the meaning of Section 34A(1)
Research by an approved Research Company or
institute under Section 34B
Research by an R&D company or Contract R&D
company as defined under Section 29D & 29E of the
PIA 1986)
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Storage of Goods for Export (Para 37C)
Building used for storage of goods for export or for
the storage of imported goods which are to be
processed and distributed or re exported. (AA 10%) Public Road & Ancillary Structures (Para
67A)
Where pursuant to an agreement with the Govt, a
person incurs capex on the constructionreconstruction extension or improvement of any
public roads and ancillary structures which is
recoverable through toll collection. (IA 10% & AA 6%)
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Building used in Approved serviceProject (Para 37E)
A building used solely for the purpose of the
provision of services and modernisation ofoperations in relation to an approve serviceproject will qualify for IBA
Approved service project are projects
undertaken by service sector intransportation, communications, utilities orany other sub-sector which are approved bythe Minister of Finance under schedule 7B
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Hotel building (Para 37F)
Approval by Minister of Tourism
Airport (Para 37G)
Capex on construction, reconstruction,
extension, improvement or purchase of any
building, runway or ancillary structures in
relation to an airport shall be treated as an IB
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Motor racing circuit (Para 37H)
Capex incurred on construction,
reconstruction, extension & implementation of
motor racing circuit or ancillary structures inrelation to a motor racing circuit as approved
by the Minister is deemed an IB
Old Folks care centre [PU(A) 143/2003]
-Approved by Social Welfare Department
- Rate of AA 10%
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Qualifying Building Expenditure
It includes the following:- Architects fees
Cost of preparing plans, etc in connection with obtaining approvalfrom the local authority for the erection of the building
Cost of clearing the old site including the demolition of anyexisting building
Cost of construction which includes labour, materials, haulage,management, supervision and other overhead charges
Incidental expenditure on work which may be separatelycontracted eg drainage scheme, installation of water & electricity
facility Cost of installing fittings example electrical supply wiring, air
conditioning fans other equipment
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Qualifying Building Expenditure
(cont) Legal charges, stamp duty etc connected with the building
Interest expenses on loan borrowed to construct building till itscompletion
Does not include cost of land and incidental expenses related to
the land
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75% Rule (Para 67)
If the cost of preparing, cutting, tunelling orlevelling land in order to prepare a site forthe installation of machinery or plant to be
used for the purpose of a business, then ifthat expenditure amounts to more than75% of the aggregate of that expenditureand the capital expenditure incurred on
that machinery & plant, the machinery orplant shall as regards that aggregateexpenditure be treated as a building.
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Plant & machinery cost P
Add : Cost of preparing,
cutting, tunneling/leveling land L
E
If L>75% of E E=QBEIf L75% of E P = QPE
(no tax relief for L)
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20 Capital allowances
Industrial building (IB)IB include:
Factory (refer definition Para 64)
Dock, wharf, jetty or similar building
Warehouse for mainly public storage
Building for
- farm business- mine business
- water, electricity or telecommunication business (for thepublic)
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21 Capital allowances
Industrial building (IB)Special IB include:
Licensed private hospital, maternity/nursing home [Para 37A]
Building used for approved research or research undertaken
by approved R&D company or contract R&D company [Para
37B] Warehouse export / processing of imported goods
[Para 37C]
Building used for approved service project [Para 37E]
Hotel [Para 37F] Airport [Para 37G]
Motor racing circuit [Para 37H]
Living accommodation for non-management workers and child
care facilities [Para 42 and 42A]
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22 Capital allowances
Industrial building (IB)Special IB include (contd):
Approved school and educational institution [Para 42B]
Approved industrial, technical, vocational training [Para42C]
Public road and ancillary structures which expenditure isrecoverable through toll collection [Para 67A]
Approved building constructed pursuant to agreement with
Government on a build-lease-transfer basis [Para 67B]
Retail shop, office, showroom DO NOT QUALIFY ASINDUSTRIAL BUILDING
Is this list complete??
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23 Capital allowances
Initial Allowance (Para 12 & 13)
IA of 10% on QBE for constructed/ purchasedIB if:-
a) QBE incurred on construction/ purchase of an
IB;b) Building was in use/ about to be used as IB for
the purpose of business; and
c) Owner of the building at the end of the basis
period.
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24 Capital allowances
Annual Allowance
(Para 16, Sch. 3)
W.e.f YA 2002 AA = 3%
Prior YA 2002 AA = 2%
Conditions:-
a) QBE incurred on construction/ purchase of anIB;
b) Building was in used as IB for the purpose ofbusiness; and
c) Owner of the building at the end of the basisperiod.
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25 Capital allowances
Part of Building Used as IB
(Para 66, Sch. 3)
If cost of construction of non-qualifying part 10% of total construction cost of buildingQBE = proportion of building in used for
qualifying activity
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MD Trading Co bought the following assets in2004. Computers RM4,500
Motor vehicle (new) costing RM157,000 under hire
purchase. The tenure of the HP is 5 years and thedown payment is RM57,000
Electricity generator RM5,000
Used bus costing RM155,000.
Compute the initial and annual allowance forYA2004 and 2005.
If the MV is sold in 2006 for RM100,000,calculate the BC/BA.
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Shoes-R-Us Sdn Bhd which makes up its accounts to 31 Decemberannually, commenced its shoe manufacturing business on 1February 2004 in rented premises. The company completed theconstruction of a new factory in March 2005, incurring expenditureas follows:
RM Land 150,000
Architects design fees 35,750
Legal fees for purchase of land 1,800
Civil and structural works 411,000
Electrical and plumbing works 53,250
The factory was used in the shoe manufacturing business from June2005.
In respect of the new factory, determine the qualifying
industrial building expenditure, calculate the capital allowancesfor the year of assessment 2005 and state the residualexpenditure of the industrial building at the end of the year ofassessment 2005.
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In March 2004 Shoes-R-Us purchased a new motor car for its productionmanager. The relevant details were as follows:
RM
Total cost of motor car 145,800
Down payment 45,000
Hire purchase loan 100,800
Terms of hire purchase: Total number of monthly instalments 36
Number of instalments paid in 2004 9
Number of instalments paid in 2005 12
Principal repayment in each instalment payment 2,800
Calculate the capital allowances for the motor car acquired under hirepurchase for the years of assessment 2004 and 2005, and state theresidual expenditure of this asset at the end of the year of assessment2005.