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)

Effective 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 2017 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 2017 to 2019. 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.

Similarly, under the two year write-off for capital expenditure incurred during the basis periods relating to YA 2010 and 2011, you are allowed to defer your claim for capital allowance.

For two-year write-off, the rates of 75% and 25% of capital expenditure for the purpose of computing your capital allowance will apply when you eventually make a claim for the capital allowance.

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

Your company purchased a machine costing $100,000 in the basis period relating to YA 2010 using cash. It defers its claim for capital allowance in YAs 2010 and 2012, and only makes a claim in YAs 2011 and 2013. The capital allowance to be granted to your company is as follow:

  $
Cost of machine in year relating to YA 2010  100,000
YA 2010 AA deferred  -
Tax written down value (TWDV) c/f  100,000
YA 2011 AA (75% of cost)  (75,000)
TWDV c/f  25,000
YA 2012 AA deferred  -
TWDV c/f  25,000
YA 2013 AA (25% of cost)  (25,000)
 TWDV c/f NIL

 

Your company purchased an office equipment costing $10,000 in YA 2010 under hire purchase. The details of the hire purchase agreement are as follow:

Purchase price   $10,000
Deposit paid  $1,000
Hire purchase interest  $500
Number of instalments  5
Amount payable per instalment  $1,900
Hire purchase interest per instalment $500 / 5 $100
 Principal payment per instalment $1,900 - $100 $1,800

The deposit of $1,000 and two instalments were paid in the basis period relating to YA 2010 and the remaining three instalments were paid in the basis period relating to YA 2011. 

The deposit and principal payments in YA 2010 = $1,000 + (2 x $1,800) = $4,600
The principal payments in YA 2011 = 3 x $1,800 = $5,400

Scenario A: The company makes a claim for capital allowance in YAs 2010, 2012 and 2013 but defers its claim in YA 2011.

AA for each YA is computed as follow:

Year of payment  Deposit and principal amount ($)  Amount of AA ($) to be claimed in:      
   YA 2010 YA 2011 YA 2012 YA 2013
 2009 4,600 3,450 Deferred 1,150 -
 2010 5,400 - Deferred 4,050 1,350
 Total  3,450 Deferred 5,200 1,350

Your capital allowance schedule is as follow:

Description  Office equipment ($)
Cost10,000 
YA 2010 AA (3,450)
 Tax written down value (TWDV) c/f 6,550
 YA 2011 AADeferred 
 TWDV c/f6,550 
 YA 2012 AA(5,200) 
 TWDV c/f1,350 
 YA 2013 AA(1,350) 
 TWDV c/f

 

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

  • On the YA 2010 deposit and principal payments - claims capital allowance in YA 2010 and YA 2011; and
  • On the YA 2011 principal payments - defers its claim for capital allowance in YA 2011 and claims in YA 2012 and YA 2013. 

AA for each YA is computed as follow:

Year of payment Deposit and principal amount paid ($) Amount of AA ($) to be claimed in:       
  YA 2010 YA 2011 YA 2012 YA 2013 
2009 4,600 3,450 1,150 
2010 5,400 Deferred 4,050 1,350 
Total  3,450 1,150 4,050 1,350 

Your capital allowance schedule is as follow:

Description Office equipment ($) 
Cost 10,000 
YA 2010 AA (3,450) 
Tax written down value (TWDV) c/f 6,550 
YA 2011 AA (1,150) 
TWDV c/f 5,400 
YA 2012 AA (4,050) 
TWDV c/f 1,350 
YA 2013 AA (1,350) 
TWDV c/f 

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 2017 with cash. It wishes to defer its claim for capital allowance in YA 2017 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.

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