CAPITAL GOODS ADJUSTMENT - bursar.upm.edu.my · • Capital item acquired is used for non-business...

CAPITAL GOODS ADJUSTMENT

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AGENDA

INTRODUCTION

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INTRODUCTION

1. BASIC – CGA

I. What is CGA?

Adjustments to be made to the initial amount of input tax claimed, during a specified period.

II. Who need to make CGA

Mixed supplier

III. When to make CGA

Capital item acquires, imports, manufactures, produces or constructs is used for making taxable supply and exempt supply and the proportion of taxable supplies change over the time

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INTRODUCTION IV. Why we need to make CGA?

to provide a fair and reasonable attribution of input tax to taxable supplies because

Capital goods can be used in the business over a period of years.

Taxable supplies may vary over the years.

V. How to make CGA

If the proportional taxable supply decrease - a certain percentage of input tax initially claimed has to be paid to JKDM (output tax).

If the proportional taxable supply increase - a further amount of input tax can be claimed on the capital goods.

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INTRODUCTION

2. DEFINITION “CAPITAL GOODS ” :- Reg. 57

• capitalized under accounting principles • used in the course or furtherance of a business

• Not for the purposes of re-selling

• Each unit valued at RM100,000 or more and exclusive of GST

• Include alteration, extension, refurbishment or fitting if such cost has been capitalized

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INTRODUCTION

2. DEFINITION “CAPITAL GOODS ” :- Reg. 57

Continue

• Any capital goods which do not fall under disallowed goods by the DG for CGA purposes.

• Separate components are considered as a single

unit if its function as a unit. They cannot function separately on their own.

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3. TYPES OF CAPITAL GOODS

• Land and buildings (building or part of a building that is completed and ready for occupation)

• Goods and services acquired in connection with the construction and alteration of a building including any extension of a building or part of a building

• Plants, equipment, computers (excluding computer’s software) or machines.

• Commercial vehicles

• Civil engineering works - include roads, bridges, drainage and installation of pipes for connection to the main services

• Capital expenditure for example refurbishment, renovation and repair works

• Goods and services acquired in connection with the construction, manufacture or assembling of a plant, equipment, computer, machine, vehicle or any other capital items.

INTRODUCTION

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SAMPLE BALANCE SHEET

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4. GST TREATMENT ON CAPITAL GOODS

• A supply of capital goods is standard rated.

• Input tax can be claimed in full on all capital goods that are used to make wholly taxable supply.

• If capital good are used solely for exempt supply, no input tax can be claimed.

• Where capital goods are used for making both taxable and exempt supplies, input tax would need to be apportioned according to its proportional taxable use.

• Intangible asset such as trademark and goodwill are taxable supplies (not a capital goods under CGA)

INTRODUCTION

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5. WHEN CGA IS NOT APPLICABLE CGA does not apply in the following cases:

• When a registered person makes wholly taxable supply

• When a mixed supplier acquires a capital item to be used solely for making taxable supply

• When a mixed supplier acquires a capital item to be used solely for making exempt supply

• When capital item is acquired or imported solely for resale

• Capital item acquired is used for non-business purposes

• Capital item acquired is excluded from input tax credit (block input tax), e.g. passenger car

• Value of capital item is less than RM100k (excluding tax)

• Capital item acquired is an exempt supply (company buy residential house for investment)

INTRODUCTION

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VALUE OF CAPITAL GOODS FOR CGA PURPOSE

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VALUE OF CAPITAL GOODS

2. ISSUES 1. GENERAL / SPECIFIC

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1. GENERALLY

• To determine RM100,000 or more; Local goods - GST-exclusive value of its supply and

this value includes any excise duty paid.

Imported goods : the value will be the sum of the GST- exclusive value of the goods and include the amount of import and excise duties.

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1. SPECIFICALLY The value depends on the manner the owner

acquires the capital item

I. Where a capital item is imported by or supplied to the owner

a) Land or building • the value of the capital item includes

the value of the land and/or buildings.

•exclude any associated cost such as legal cost and estate agency fees.

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VALUE OF CAPITAL ITEMS

b) Equipment, machinery or vehicle

• the value of the equipment, machinery or vehicle supplied

• includes the delivery and installation costs, if not separately supplied and charged.

• If separately supplied and charged, they will be considered as separate item

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II.Where a capital item is built, manufactured, produced, constructed, altered, extended, refurbished or fitted out by the owner

a)Building The value of a building constructed by the owner includes the following:

• the value of the land that was capitalized;

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VALUE OF CAPITAL ITEMS • the cost of goods and services incurred on the

construction of the building, for example:

goods affixed to the building including materials used in the construction;

services provided by architect, surveyor, engineer, contractor and any other professional, consultant or person, for the construction;

fitting out (e.g.: lift installation); landscaping;

• any other cost that might be allowed by the JKDM

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b) Alteration And Extension of a Capital Goods

• Includes the value of all goods and services supplied in connection to the alteration or extension.

c) Capital Items That is Refurbished or Fitted Out

• Includes the value of all goods and services supplied in connection to the refurbishment or fitted out.

d) Equipment, Machinery or Vehicle Manufactured, Produced or Constructed By The Owner

• Include the value of the goods and services supplied to the owner for the manufacturing, production or construction of the equipment, machinery or vehicle.


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2. ISSUES

I. Asset which is appropriate for use by the owner as a capital item

• The value is the total GST-exclusive cost incurred by the owner

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2. ISSUES

II. Part of a capital item which is used for non business purposes

• The value has to be apportioned between business and non business use

• The value of capital item only attributed to business purposes only.

• Not entitled to claim ITC on the whole value of the capital item.

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2. ISSUES

III. Value of capital item is uncertain

• Estimate the value with supporting documents (e.g. certificate by architect, progress billing, etc.)

• Supporting documents for your estimation must be kept in cases of customs audit (7 years)

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2. ISSUES

IV. The cost of goods that are not affixed to the building cannot be separated from those goods which are affixed to the building

• Include the total cost of the goods irrespective whether the cost is affixed or not affixed to the building

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2. ISSUES

V. Refurbishment done in phases • Treated as separate capital items Separate value and adjustment Each phase is covered by a separate

contract If it is in a single contract, the contract

contains clauses that allow for separate option for each phase

Each phase is completed before the next phase begins.

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INTERVAL

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INTERVAL

• Definition - Fixed period of time during which the proportional taxable usage of a capital item is re-evaluated.

• Land and building - 10 intervals

• Any other capital items - 5 intervals

• Inclusive of both the first and final intervals

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1st Interval

• First interval for a capital item would start from:

When the owner is a registered person - the date of its acquisition, importation or supply if the capital item is imported, acquired or supplied; or

When the owner is a registered person – appropriates to use an asset as a capital item - the date the owner first uses the item

INTERVAL

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1st Interval

• First interval for a capital item would start from:

When the owner is a registered person - where the capital item is manufactured, produced, constructed - the date the owner first uses the item

the date of registration where the owner is not a registered person

when the capital item was first used, or

the date when the owner should be registered where the owner is

not a registered person when the capital item was first used (i.e in

the case of late registration).

• Ends on the last day of the tax year that coincides or corresponds with the first interval.

INTERVAL

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INTERVAL

1st Interval

• If a capital item is acquired during the first tax year of a registrant, the first interval for the capital item may vary from a day (1 day) to a maximum of 18 months depending on the acquisition date of the capital item and category of taxable period.

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INTERVAL 1st Interval – Example (Capital Goods acquired before registered)

• The financial year for Partly-Exempt Sdn. Bhd. ends on 31st December 2016 and subject to quarterly taxable period

• Partly-Exempt Sdn. Bhd. become a registrant on 1ST Oct. 2016.

• Assuming Partly-Exempt Sdn. Bhd. acquired a lorry for RM120,000.00 on 1st April 2016,

• the first interval for this capital goods would start from 1st Oct 2016 and end

on 31st December 2017 (the last day of his first tax year) covering a period

of 15 months plus.

15+ months

1/1/2016 31/12/2016 31/12/2017 1/10/2016

Registration Asset Purchased

1/4/2016

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

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INTERVAL

1st Interval – Example (Capital Goods acquired after registered)

• The financial year for Partly-Exempt Sdn. Bhd. (mixed supplier) ends on 31st December 2016 and subject to quarterly taxable period.

• Partly-Exempt Sdn. Bhd. became a registrant on 1st April 2016.

• If Partly-Exempt Sdn. Bhd. purchased the lorry on 31st December 2016, the first interval for the lorry would only make up of a single day.

1 day

1/1/2016 31/12/2016

1/4/2016

Registration Asset Purchased

1 2 3 4 5 6 7 8 9 10 11 12

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INTERVAL

Subsequent Interval

• The interval immediately following the first interval

• A subsequent interval for a capital item would be for the whole of the corresponding tax year if the capital item is not disposed off during the year.

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• the subsequent & final intervals for the lorry acquired by Partly-Exempt Sdn. Bhd. would be as follows:

INTERVAL

Subsequent Interval Period

Second 1st Jan 2017 to 31st Dec 2017

Third 1st Jan 2018 to 31st Dec 2018

Fourth 1st Jan 2019 to 31st Dec 2019

Fifth (Final) 1st Jan 2020 to 31st Dec 2020

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INTERVAL

Final Interval

• For land and buildings, the final interval is the 10th interval and for other capital items is the 5th interval.

• The adjustment period for assets acquired in different tax year will fall under different tax years.

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WORKING OUT ADJUSTMENTS

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1. CONCEPT

• Proportional taxable supply is re-evaluated.

• Land and building - 10 intervals

• Any other capital items - 5 intervals

Inclusive of both the first and final intervals


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• Adjustments are made to the initial input tax claim when the proportional taxable supply fluctuates from interval to interval.

• If the proportional taxable supply decreases - a certain percentage of input tax initially claimed has to be paid to JKDM as an output tax.

• If taxable supply increases - a further amount of input tax can be claimed on the capital goods.


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• No capital goods adjustment is required to be made in the first interval (only PE in the 1st interval).

• No further adjustment is required to be made on a capital item after the adjustment on the final interval is made.

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STANDARD METHOD – Reg.39 (4)

100% X IRR = S - O

T – O¹ 100% X = _______

T + E - O²

T - O _______

2. FORMULA

I. Residual Input Tax Recovery Rate (IRR)

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IRR = recoverable percentage of residual input tax

T = total value of taxable supplies made in the taxable period

E = total value of exempt supplies made in the taxable period

O = Total value of excluded supplies made in the taxable period


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O = total value of all excluded amount

Excluded Supplies O¹ O²

Supply of capital goods √ √

Imported services √ √ Value of any supply made by a recipient in accordance with the ATMS under Sec. 72

√ √

Incidental financial supply √

Supply of land for general use

√


II. Adjustment In Subsequent Intervals


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Amount of adjustment = Total input tax incurred x Adjustment % Number of intervals

Adjustment % = A – B (CGAR), where; A = % of taxable use for any particular interval (current rate) B = % of taxable use in the first interval (baseline rate)

3. 1st Interval – Single Capital Item Example

• Assuming the tax year for Partly-Exempt Sdn. Bhd. ends on 31st December 2016 and during the year the company makes the following acquisition of capital items which has a 60% annual residual input tax recovery rate (AIRR).

Date of acquisition

Items acquired Value of acquisition

(RM)

GST (6%) paid (RM)

12/01/2016 Machine 1,000,000 60,000

1,000,000 60,000


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• Total residual input tax incurred in the relevant tax year is RM60,000.00.

• The total amount of input tax that can be claimed on the capital item acquired for the first interval is RM36,000.00 (60% x RM60,000.00)

• First interval: To apply partial exemption rules

No need to make any adjustment under CGA


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3. 1st Interval –Acquisition of Multiple Capital Goods

• If there are multiple capital goods acquired in the same tax year, even on different dates but the items has the same number of intervals, all these items can be summed up as a group having the same adjustment period


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Example

• Assuming the tax year for Partly-Exempt Sdn. Bhd. ends on 31st December 2016 and during the year the company makes the following acquisition of capital items which has a 60% annual residual input tax recovery rate.

Date of acquisition

Items acquired Value of acquisition

(RM)

GST (6%) paid (RM)

12.01.2016 Machine 1,000,000 60,000

30.12.2016 Lorry 200,000 12,000

1,200,000 72,000


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• Total residual input tax incurred in the relevant tax year is RM72,000.

• The total amount of input tax that can be claimed on the 2 items acquired for the first interval is RM43,200.00 (60% x RM72,000)

• Capital goods with different number of intervals cannot be summed up as a group for the purpose of working out capital goods adjustment, even though purchased within the same tax year


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4. Subsequent Intervals

• Capital goods adjustments would only be made in the subsequent intervals and

• When there is proportional change in its taxable supply in relation to the first interval

Amount of adjustment = Total input tax incurred x Adjustment % Number of intervals

Adjustment % = A – B (CGAR), where; A = % of taxable use for any particular interval (current rate) B = % of taxable use in the first interval (baseline rate)


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EXAMPLE: • Partly-Exempt Sdn. Bhd., a mix supplier, was registered under the

GST Act 2014 on 1st Jan 2016 and his first tax year ends on 31st December 2016. The company acquired a new machine for RM1 million plus RM60,000 (6% GST) on 10th Jan 2016. The annual proportional taxable supply (or annual residual input tax recovery rate) of the machine is as follows:-

INTERVAL %

First interval 60 %

Second interval 70 %

Third interval 55 %

Fourth interval 65 %

Fifth (final) interval 75 %


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• The intervals applicable to the machine are as follows:-

Interval Period / Tax Year

First interval 10th Jan 2016 – 31st Dec 2016

Second interval 1st Jan 2017 – 31st Dec 2017

Third interval 1st Jan 2018 – 31st Dec 2018

Fourth interval 1st Jan 2019 – 31st Dec 2019

Fifth interval 1st Jan 2020 – 31st Dec 2020

• The amount of input tax credit (ITC) that can be claimed for the first interval is RM36, 000 and the amount of adjustment made under CGA in the subsequent intervals is shown in the table below:


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Interval (year)

*% of taxable use

Adjustment %

Computation

Adjustment

(RM) 1

(2016) 60 % -

ITC = RM60,000 x 60%

36,000

2 (2017)

70 % 70 % - 60 % 60,000 X 10 %

5 1,200

3 (2018)

55 % 55 % - 60 % 60,000 X (-5 %)

5 (600)

4 (2019)

65 % 65 % - 60 % 60,000 X 5 %

5 600

5 (2020)

75 % 75 % - 60 % 60,000 X 15 %

5 1,800

• For the 2nd interval the company can claim additional ITC of RM1,200. • For the 3rd interval company has to repay – RM600 • For 4th & 5th intervals the company can claim additional ITC, totalling

RM2,400. • No further adjustment after the final adjustment has been made

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5. Accounting For Adjustment – Reg.59 (5)

• The GST amount on capital goods adjustment must be declared in the GST No.3 Return for the second taxable period immediately after the end of each relevant interval.

• Declare as output tax (increase) if CGA payable to JKDM

• Declare as input tax (increase) if CGA claimable from JKDM

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• Monthly taxable period

GST Return – Feb. 2017, last day – 31 Mac 2017

• Quarterly taxable period

GST Return – Apr – Jun 2017, last day – 31 July 2017

Example (Continue):

First Interval 10th Jan 2016 – 31st Dec 2016

Second interval 1st Jan 2017 – 31st Dec 2017

Third interval 1st Jan 2018 – 31st Dec 2018

Fourth interval 1st Jan 2019 – 31st Dec 2019

Fifth interval 1st Jan 2020 – 31st Dec 2020


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6. Record Keeping • keep all the proper records and book-keeping on capital goods

adjustments for a period of 7 or 10 years from the date of the last adjustment made on a capital item.

• Other records as specified in the Act, should include the following details:

Date of acquisition.

Description of each capital goods.

Value of the capital item.

Amount of input tax incurred on the capital item.

Amount of input tax claimed on each capital item.

The start and end date of each interval.

When adjustments are made.

The date and value of disposal if capital goods were disposed off.

If a capital goods is lost or stolen, the date of such goods were lost or stolen and proof of the lost, such as a police report.

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OTHER ADJUSTMENT ON

CAPITAL GOODS

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OTHER ADJUSTMENT ON CAPITAL GOODS

1. Disposal of Assets in the 1st Interval

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• When a capital item is disposed off in the first interval, no adjustment under the CGA is required to be made.

• Only the annual adjustment (longer period) is required to be made.



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Example: • Partly-Exempt Sdn. Bhd., a mix supplier, was registered under the GST

Act 2014 on 1st January 2016 and his first tax year ends on 31st December 2016 (Quarterly Taxable Period).

• The company acquired a new machine A for RM1 million plus RM60,000 (6% GST) on 10th January 2016.

• Partly-Exempt Sdn. Bhd. had sold its machine A on 30TH June 2016 at RM600,000.

• Input tax recovery rate (IRR) for the first taxable period (3 months) is 65%. Whereas, annual input tax recovery rate (IRR for 2016) is 75%. The adjustment the company has to make is shown below;



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Example:

01/01 10/01 31/03 30/06 31/12

machine Disposed machine

RM 1M + 60K GST RM600K + 36K GST

1 2 3 4 5 6 7 8 9 10 11 12

IRR 75 %

IRR 65 %



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Example:

• 1st quarter taxable period (Jan-Mac 2016)

o ITC = (60,000 x 65% = 39,000)

• 2nd quarter Taxable Period (April-June 2016)

o output tax – RM36,000

• 2nd quarter Taxable Period (April - Jun 2017)

o ITC Adjustment (60,000 x 75%) – (60,000 X 65%) = 6,000

o Annual adjustment


2. Disposal of Assets in other than 1st interval

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• When a capital item is disposed off before the end of its adjustment period (interval), the mix supplier has to make a final adjustment for the remaining interval that is from the date of disposal until the end of the adjustment period.

• If the disposal is a taxable supply, the mix supplier is able to claim additional input tax for any remaining intervals.

• The remaining complete intervals is deemed to make a wholly (100%) taxable supply.

• If a capital item is disposed off on the first day of an interval, the mix supplier can treat that interval which the disposal took place as a remaining complete interval

• No further adjustment is necessary after the final adjustment has been made.



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Example 1 : Disposal Assets On The 1st Day Of The Interval

• Partly-Exempt Sdn. Bhd., a mix supplier, was registered under the GST Act 2014 on 1st Jan 2016 and his first tax year ends on 31st December 2016. The company acquired a new machine for RM1 million plus RM60,000 (6% GST) on 10th Jan 2016. Partly-Exempt Sdn. Bhd. had sold its machine on 1st January 2019 (as a taxable supply), the adjustment the company has to make is as shown in the table below.


2. Disposal of Assets in other than 1st interval (2nd – final interval)

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Example 1 : Disposal Assets On The 1st Day Of The Interval

36,000



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• When Partly-Exempt Sdn. Bhd. sold the machine on 1st January 2019, there are 2 complete intervals (2019 and 2020) remaining before the adjustment period ends. Therefore, Partly-Exempt Sdn. Bhd. can claim additional input tax of RM9,600.00 (RM4,800 + RM4,800) for the two remaining complete intervals as the company is deemed to be making a wholly (100%) taxable supply for the two remaining intervals.

• The company has to charge output tax on the sale of the machine based on the consideration received.

• The adjustment for the fifth interval is carried at the end of the fourth interval as the final adjustment.



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• If the disposal date of a capital item is other than the first day of the interval, the annual residual input tax recovery rate for the interval in which the sale took place is calculated by using the following formula;



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EXAMPLE 2 : Disposal Assets Other Than 1st Day of The Interval

• Based on Example above and assuming Partly-Exempt Sdn. Bhd. sold its machine on 13th June 2019, instead of 1st January 2019, the adjustment the company has to make for the fourth interval is as shown in the table:

RM60,000 RM36,000

84.37%* 24.37%

2,924.40


2. Disposal of Assets in other than 1st interval (2nd – final interval)

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EXAMPLE 2 : Disposal Assets Other Than 1st Day of The Interval

• Taxable use from 1/1/19 to 12/6/19 (163 days) - 65%

• Taxable use from 13/6/19 to 31/12/19 (202 days) - 100%

• Annual residual input tax recovery rate:

= 84.37%

• Additional input tax claimable for the 4th interval is :

RM60,000 = RM 2,924.40

163 days

365 days

(84.37% - 60%)


2. Disposal of Assets in other than 1st interval - Non Taxable Supply

• If the disposal is a non-taxable supply, the item is deemed to be disposed off on the date the lost were discovered or destruction occurred.

• Registrants will have to make a final adjustment for that particular interval where the lost were discovered or destruction occurred.

• Adjustment for any remaining intervals is not required

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3. Input Tax Incurred Before 1st Interval

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• If a mixed supplier incurs input tax on a capital item

before its first interval, he is required to calculate the

average percentage by using the following formula:

• The average percentage obtained from the above formula will be used as the base percentage for calculating the adjustment in subsequent intervals.

Total input tax claimed X 100% Total input tax incurred



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Example : • Partly-Exempt Sdn. Bhd constructs a new building. It incurs

RM450,000 of input tax on the building in the tax year ending 31/12/2016.

• Its IRR for the year 2016 is 80% so it reclaims RM360,000.

• In the following tax year, the year ending 31/12/2017, it incurs another RM250,000 of input tax on the building and reclaims RM187,500 because its IRR for the year is 75%.

• It occupies the building for use in its partly exempt business on 1/1/2018 so the first interval runs from 1/1/2018 to the day before the start of the next tax year, which is 31/12/2018



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Example :

DATE INPUT TAX INCURRED

AIRR ITC ENTITLED

31/12/2016 450,000 80% 360,000

31/12/2017 250,000 75% 187,500

TOTAL 700,000 547,500

Total input tax claimed X 100% Total input tax incurred

547,500 X 100% 700,000

78.21%

• Therefore, 78.21% is the “baseline” against which future adjustments are measured


4. Input Tax Incurred After 1st Interval

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• It happens when (e.g. Refurbishment) work is carried out over a period of time and also where a contract includes a retention clause.

• If input tax incur in the 1st interval – normal partial exemption rules applies.

• If input tax incur in the 2nd interval it will not form part of the CGA interval 2, but will be adjusted from the 3rd interval onwards



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• 2 Options of calculating input tax

I. Combined adjustments

II. Parallel adjustments



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Example :

• ABC Development Bhd. constructed a building which was first occupied for use on 1/4/2015.

• In the 1st interval :

Input Tax Incurred – RM 500,000

Partial Exemption percentage (IRR) - 80%



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• Additional amounts of input tax were incurred in subsequent intervals in completing the construction as below:

Date Interval Input Tax Incurred (RM)

AIRR (%)

1/1/2016 – 31/12/2016

2 300,000 85

1/1/2017 – 31/12/2017

3 400,000 70

1/1/2018 – 31/12/2018

4 350,000 75



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I. Combined adjustments:

• rolling together the adjustment calculations for the remaining intervals

• re-evaluate “baseline” each time an additional amount of input tax is incurred

Input Tax Claimed x 100 = % Average Claimed (baseline)

Input Tax Incurred

CGA

Interval Input tax incurred AIRR (%) Input tax claimed

CGA baseline

Input Tax to be adjusted Adj. % Adj. Amount

1

500,000.00 80%

400,000.00 80% - 0% -

2

300,000.00 85%

255,000.00 80%

500,000.00 5% 2,500.00

3

400,000.00 70%

280,000.00 81.88%

800,000.00 -11.88% (9,500.00)

4

350,000.00 75%

262,500.00 77.92%

1,200,000.00 -2.92% (3,500.00)

5 - 80%

- 77.26%

1,550,000.00 2.74% 4,250.00

6 - 84%

- 77.26%

1,550,000.00 6.74% 10,450.00

7 - 88%

- 77.26%

1,550,000.00 10.74% 16,650.00

8 - 74%

- 77.26%

1,550,000.00 -3.26% ( 5,050.00)

9 - 72%

- 77.26%

1,550,000.00 -5.26% (8,150.00)

10 - 70%

- 77.26%

1,550,000.00 -7.26% (11,250.00)

1,550,000.00

1,197,500.00 (3,600.00)

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II. Parallel Adjustments :

• carrying out separate, but simultaneous adjustments for the remaining intervals of the Capital Goods adjustment period.

Adj of Interval 1 Adj of Interval 2 Adj of Interval 3 Adj of Interval 4

TOTAL Interval Input tax incurred AIRR %

Input tax reclaimed % Amount % Amount % Amount % Amount

1

500,000.00 80%

400,000.00 0% - 0%

- 0%

- 0%

-

2

300,000.00 85%

255,000.00 5%

2,500.00 0% - 0%

- 0%

- 2,500.00

3

400,000.00 70%

280,000.00 -10%

(5,000.00) -15%

(4,500.00) 0% - 0%

- (9,500.00)

4

350,000.00 75%

262,500.00 -5%

(2,500.00) -10%

(3,000.00) 5%

2,000.00 0% - (3,500.00)

5 - 80%

- 0%

- -5%

(1,500.00) 10%

4,000.00 5%

1,750.00 4,250.00

6 - 84%

- 4%

2,000.00 -1%

(300.00) 14%

5,600.00 9%

3,150.00 10,450.00

7 - 88%

- 8%

4,000.00 3% 900.00 18%

7,200.00 13%

4,550.00 16,650.00

8 - 74%

- -6%

(3,000.00) -11%

(3,300.00) 4%

1,600.00 -1%

(350.00) (5,050.00)

9 - 72%

- -8%

(4,000.00) -13%

(3,900.00) 2%

800.00 -3%

(1,050.00) (8,150.00)

10 - 70%

- -10%

(5,000.00) -15%

(4,500.00) 0%

- -5%

(1,750.00)

(11,250.00)

1,550,000.00

1,197,500.00 (11,000.00)

(20,100.00)

21,200.00

6,300.00 (3,600.00)


5. Refurbishment in Phases

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• If each phase is a separate refurbishment then they should be treated as separate items

• CGA - separate value & separate adjustment

• Normally, separate refurbishment can be ascertained as follows:

(i) Each phase is covered by a separate contract.

(ii) A single contract but contains clauses that allows for separate option for each phase.

(iii)Each phase is completed before the next phase begins.


6. Subsequent Refurbishment

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• Subsequent refurbishments may be made before the 10-year period for adjustment expires.

• Registrant have to treat the original refurbishment as destroyed or written out if there is nothing left of the earlier refurbishment or this earlier work is replaced.

• Registrant have to continue making adjustment on the earlier refurbishment until the stipulated adjustment period expires if elements of the earlier refurbishment are retained.

EXAMPLE: (earlier refurbishment is written out / destroyed)

Interval (year)

*% of taxable use

Adjustment % Computation

CG Adjustment

(RM) 1

(2016) 60 % - ITC = RM40,000 x 60% -

2 (2017)

70 % 70 % - 60 % 40,000 X 10 %

5 800

3 (2018)

55 % 55 % - 60 % 40,000 X (-5 %)

5 (400)

4 (2019)

65% 65 % - 60 % 40,000 X 5 %

5 400

5 (2020)

0 % 0 0 0

6 (2021)

0 % 0 0 0

7 (2022)

0 % 0 0 0

8 (2023)

0 % 0 0 0

9 (2024)

0 % 0 0 0

10 (2025)

0 % 0 0 0 81

RM24,000


7. De Minimis Rule in CGA

82

• The de minimis rule is taken into account when determining the reclaimable percentage of input tax in an interval.

• Treated as fully taxable and reclaimable percentage for that interval is 100% if eligible.

• Different capital assets may subject to different adjustment percentage (i.e depend on usage of the assets, if method of apportionment is other than standard method (i.e. based on the usage)


7. De Minimis Rule in CGA

83

EXAMPLE:

• Partly-Exempt Sdn. Bhd. qualify for de minimis rule in the tax year 2019

3200

2016

2017

2018

2019

2020

RM24,000


8. Change in The Method of Apportionment During an Interval

84

• When there is a change in the method of apportionment during an interval, the computation of the annual residual input tax recovery rate can be work out using the following formula:-



85

Where;

• a is the total number of days in the interval applicable to the method of apportionment before the change in method takes place;

• ra is the percentage (%) of attributable taxable use applicable to a;

• b is the total number of days in the interval applicable to the alternative method of apportionment;

• rb is the percentage (%) of attributable taxable use applicable to b; and

• y is the total number of days in the interval a and interval b



86

Example :

• Partly-Exempt Sdn. Bhd., who is on quarterly taxable period, was allowed to change its apportionment method from the standard method to transaction-based method with effect from the second quarter its tax year (2019). Assuming the company attributed percentage of taxable supplies for the tax year is as follows:-

Taxable period 1st quarter (a)

2nd quarter to 4th quarter (b)

Method used Standard

method

Transaction method

% of taxable supplies 50% 70%



87

Example :

Taxable use from 1/1/19 to 31/3/19 (90 days) - 50%

Taxable use from 1/4/19 to 31/12/19 (275 days) - 70%

Annual residual input tax recovery rate:

(90 days X 50%) + (275 days X 70%) x 100

365 days

= 65.07%



88

Example :

2017

2018

2019

2016

2020

RM24,000


9. Change in Use of Capital Item

89

What if registrant purchase an asset for making wholly taxable supplies, after a few years, he use that asset for making mix supply?

• It is treated as a capital item.

• If during the adjustment period the registrant begin to use the item wholly or partly for making exempt supplies, he has to make an adjustment under the CGA.


9. Change in Use of Capital Item

90

2017

2018

2016

2019

2020

91

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