Deferring Capital Allowance Claims

There are circumstances where you may wish to defer capital allowance claims. 

Typically, companies defer capital allowance when: 

(a) the company is in a loss position; or 

(b) the company qualifies for tax exemption for new start-up companies.

 

Companies that are in a loss position may still claim capital allowance instead of deferring. Any unutilised capital allowance can be carried forward to offset against the income for subsequent Years of Assessment (YAs), subject to the shareholding test and business continuity test.

Deferment of Capital Allowance (Section 19)

Initial allowance (IA) must be claimed in the YA the capital expenditure was incurred. In the event that IA was not claimed, annual allowance (AA) will be computed based on the full cost, that is, 100% of the cost over the prescribed working life.

"Prescribed working life of asset" refers to the number of years of working life based on the Sixth Schedule of the Income Tax Act (e.g. the working life for motor vehicle is six years and that for motorcycle is eight years)

 

 

 

Deferment of Capital Allowance (Section 19A)

From YA 2009, a capital allowance claim made under Section 19A will be allowed deferment i.e. the claim made need not be for three consecutive YAs. For example, your company purchased an asset costing $3,000 in YA 2019 and claimed capital allowance on the asset under Section 19A in the same YA. Capital allowance of $1000 (1/3 x $3,000) will be granted to your company from YAs 2019 to 2021. However, in any YA, your company will be allowed to defer its capital allowance claim of $1,000 if it so decides not to claim capital allowances in that YA.

Example of Deferment of Capital Allowance Under the Three-Year Write-off

Your company purchased a machine costing $120,000 in the basis period relating to YA 2016 using cash. It defers its claim for capital allowance in YAs 2016 and 2018, and only makes a claim in YAs 2017, 2019 and 2020. The capital allowance to be granted to your company is as follow:

  $
Cost of machine in year relating to YA 2016 120,000
YA 2016 AA deferred  -
Tax written down value (TWDV) c/f  120,000
YA 2017 AA (1/3 of cost)  (40,000)
TWDV c/f  80,000
YA 2018 AA deferred  -
TWDV c/f  80,000
YA 2019 AA (1/3 of cost)  (40,000)
TWDV c/f 40,000
YA 2020 AA (1/3 of cost)   (40,000)
 TWDV c/f 0 

 

Your company purchased an office equipment costing $12,000 in YA 2018 under hire purchase. The details of the hire purchase agreement are as follow:

Purchase price   $12,000
Deposit paid  $600
Hire purchase interest  $300
Number of instalments  6
Amount payable per instalment  $1,950
Hire purchase interest per instalment $300 / 6 $50
 Principal payment per instalment $1,950 - $50 $1,900

The deposit of $600 and three instalments were paid in the basis period relating to YA 2018 and the remaining three instalments were paid in the basis period relating to YA 2019. 

The deposit and principal payments in YA 2018 = $600 + (3 x $1,900) = $6,300
The principal payments in YA 2019 = 3 x $1,900 = $5,700

Scenario A: The company makes a claim for capital allowance in YAs 2018, 2020, 2021 and 2022 but defers its claim in YA 2019.

AA for each YA is computed as follow:

Year of payment  Deposit and principal amount ($)  Amount of AA ($) to be claimed in:        
   YA 2018

 YA 2019

 YA 2020 YA 2021YA 2022 
 2017 6,300 2,100 Deferred 2,100 2,100 -
 2018 5,700 - Deferred 1,900 1,900 1,900
 Total  2,100 Deferred 4,000 4,000 1,900

Your capital allowance schedule is as follow:

Description  Office equipment ($)
Cost12,000 
YA 2018 AA (2,100)
 Tax written down value (TWDV) c/f 9,900
 YA 2019 AADeferred 
 TWDV c/f9,900
 YA 2020 AA(4,000) 
 TWDV c/f5,900 
YA 2021 AA(4,000) 
 TWDV c/f1,900 
 YA 2022 AA(1,900)
 TWDV c/f 0

 

Scenario B: The company makes a claim for capital allowance as follow:

  • On the YA 2018 deposit and principal payments - claims capital allowance in YA 2018, YA 2019 and YA 2020; and
  • On the YA 2019 principal payments - defers its claim for capital allowance in YA 2019 and claims in YA 2020, YA 2021 and YA 2022. 

AA for each YA is computed as follow:

Year of payment Deposit and principal amount paid ($) Amount of AA ($) to be claimed in:         
  YA 2018 YA 2019 YA 2020 YA 2021  YA 2022
2017 6,300 2,100 2,100 2,100  -
2018 5,700 Deferred 1,900 1,900  1,900
Total  2,100 2,100 4,000 1,900  1,900

Your capital allowance schedule is as follow:

Description Office equipment ($) 
Cost 12,000 
YA 2018 AA (2,100) 
Tax written down value (TWDV) c/f 9,900 
YA 2019 AA (2,100)
TWDV c/f 7,800 
YA 2020 AA (4,000) 
TWDV c/f 3,800 
YA 2021 AA(1,900) 
TWDV c/f 1,900 
 YA 2022 AA (1,900)
 TWDV c/f 0

Deferment of Capital Allowance For Company Claiming Productivity And Innovation Credit (PIC)

If your company is claiming PIC and wishes to defer its capital allowance claim, it needs to defer both the base capital allowance (100%) and enhanced capital allowances (300%) at the same time. 

Example

Your company purchased a computer costing $5,000 in YA 2018 with cash. It wishes to defer its claim for capital allowance in YA 2018 as the company is in a loss position. The capital allowance to be deferred is as follows:

 $

Cost of computer

5,000

  

Base allowance (100%)

5,000

Enhanced allowance (300%)

15,000

Total capital allowance deferred

20,000 *

*The company must defer both the base capital allowance ($5,000) and enhanced capital allowance ($15,000) at the same time. It cannot choose to defer only the base allowance or only the enhanced allowance.