SOLE proprietors can optimise their taxes by taking capital allowances on business assets into account.
Fixed assets: Fixed assets acquired for use in the business are eligible for tax relief in the form of capital allowance. Capital allowances are deducted from the adjusted income of a business to arrive at statutory income. Depreciation on fixed assets is not tax deductible.
Newly acquired assets will be given an initial allowance of 20% and annual allowance of 10%, 14%, 20% or 40%, depending on the asset category.
The capital allowance amount is computed on a straight-line basis by reference to the cost. Full capital allowance is given even though it is acquired and in use for less than a year.
The cost of the asset includes alteration costs and incidental costs for the installation of fixed assets.
Small-Value Assets: With effect from YA 2006, where the sole proprietor acquires fixed assets (small- value assets) which are not valued at more than RM1,000 for each asset, the full cost of the asset enjoys capital allowance in a year (100% cost = capital allowance).
The maximum capital allowance allowed for small-value assets in a year is restricted to RM10,000.
To optimise tax planning, the acquisition of fixed assets like printers, telephone systems, fans, calculators and kettles should be staggered to reduce taxable income.
Capital allowance is given on a year’s basis even if it is acquired and in use for less than a year. Sole proprietor may consider accelerating the acquisition of small-value assets in November/December 2008 instead of January 2009 as capital allowance is available in YA 2008 to reduce taxable income.
Motor vehicles: Motor vehicles used in business are entitled to capital allowances.
The qualifying cost eligible for capital allowance is restricted to RM100,000 provided:
·it is a newly acquired car; and
·the cost does not exceed RM150,000.
Other motor vehicles which do not satisfy the above two conditions will be given qualifying cost of RM50,000 even if the actual cost may have exceeded RM50,000.
Capital allowance can be claimed on the full cost of commercial vehicles, which are motor vehicles used directly to transport trading stock, such as lorries and vans.
Other motor vehicles used in the business are known as passenger vehicles, which are restricted to a maximum cost of RM100,000. These are used in business to meet customers, bankers or suppliers. To maximise claims on passenger vehicles up to RM100,000, the sole proprietor has to ensure the cost of the new motor vehicle does not exceed RM150,000.
Personal fixed assets: Sole proprietors may transfer personal assets for use in their business. Once such assets are used in the business, capital allowance is then available.
The sole proprietor has to first establish the market value of the assets at the time they were brought into use in the business. The assets will then be recorded in the balance sheet of the business.
Annual allowance is given on the market value of these assets, but no initial allowance is allowed.
In the event that the sole proprietor continues using the assets for personal use, the portion of such personal usage must be excluded and no capital allowance is available on that portion.
Details: Tax planning for business assets
Fixed assets: Fixed assets acquired for use in the business are eligible for tax relief in the form of capital allowance. Capital allowances are deducted from the adjusted income of a business to arrive at statutory income. Depreciation on fixed assets is not tax deductible.
Newly acquired assets will be given an initial allowance of 20% and annual allowance of 10%, 14%, 20% or 40%, depending on the asset category.
The capital allowance amount is computed on a straight-line basis by reference to the cost. Full capital allowance is given even though it is acquired and in use for less than a year.
The cost of the asset includes alteration costs and incidental costs for the installation of fixed assets.
Small-Value Assets: With effect from YA 2006, where the sole proprietor acquires fixed assets (small- value assets) which are not valued at more than RM1,000 for each asset, the full cost of the asset enjoys capital allowance in a year (100% cost = capital allowance).
The maximum capital allowance allowed for small-value assets in a year is restricted to RM10,000.
To optimise tax planning, the acquisition of fixed assets like printers, telephone systems, fans, calculators and kettles should be staggered to reduce taxable income.
Capital allowance is given on a year’s basis even if it is acquired and in use for less than a year. Sole proprietor may consider accelerating the acquisition of small-value assets in November/December 2008 instead of January 2009 as capital allowance is available in YA 2008 to reduce taxable income.
Motor vehicles: Motor vehicles used in business are entitled to capital allowances.
The qualifying cost eligible for capital allowance is restricted to RM100,000 provided:
·it is a newly acquired car; and
·the cost does not exceed RM150,000.
Other motor vehicles which do not satisfy the above two conditions will be given qualifying cost of RM50,000 even if the actual cost may have exceeded RM50,000.
Capital allowance can be claimed on the full cost of commercial vehicles, which are motor vehicles used directly to transport trading stock, such as lorries and vans.
Other motor vehicles used in the business are known as passenger vehicles, which are restricted to a maximum cost of RM100,000. These are used in business to meet customers, bankers or suppliers. To maximise claims on passenger vehicles up to RM100,000, the sole proprietor has to ensure the cost of the new motor vehicle does not exceed RM150,000.
Personal fixed assets: Sole proprietors may transfer personal assets for use in their business. Once such assets are used in the business, capital allowance is then available.
The sole proprietor has to first establish the market value of the assets at the time they were brought into use in the business. The assets will then be recorded in the balance sheet of the business.
Annual allowance is given on the market value of these assets, but no initial allowance is allowed.
In the event that the sole proprietor continues using the assets for personal use, the portion of such personal usage must be excluded and no capital allowance is available on that portion.
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