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Agriculture Allowance

Agriculture Allowance

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Agriculture Allowance

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  1. Agriculture Allowance

  2. Introduction • Agriculture allowance applies to agriculture business. • Agriculture business means any form of cultivation of crops, animal farming, aquaculture, inland fishing and any other agricultural or pastoral pursuit.

  3. Agriculture Allowance • Qualifying Agriculture Expenditure (QAE) • Rate of Allowance • Conditions for Agricultural Allowance (para 25) • Disposal of Asset (para 52)

  4. QAE • Clearing and preparation of land (50%) • New planting (not replanting) (50%) • Road and bridges (50%) • Building: Living accommodation (20%) - “little or no value” Other building (10%) Note: Land and P&M are excluded

  5. Rules on Claiming Allowance • A portion (according to the rates) in year of acquisition and subsequent years up to exhaustion of QE. • Allowance is set off against adjusted income from that business to arrive at statutory income. • No initial allowance. • Only annual allowance available.

  6. Rules for Claiming AA • Used in business at the end of basis period; and • Ownership at end of bp OR • Not in use within one month before the transfer

  7. Disposal Rules– in use within one month before transfer • In year of disposal, allowance is time apportioned up to date of transfer or sale, if the qualifying expenditure was in use within one month before the transfer. • Apportion allowance between transferor and transferee: • Transferor: Days owned before transfer/ 365 - Transferee the remaining

  8. Rules on Disposal Transferor Transferee • Can claim allowance up to date of disposal in YA of disposal if asset was in use one month before disposal. • Can only claim remaining agriculture allowance due to transferor. • If YA of acquisition=YA of disposal, claim part of allowance only in YA of acquisition.

  9. Rules on Disposal • Taxpayer can elect to have the agriculture charge assessed over the YA’s for which the allowances were made rather than the year of disposal. • Conditions: permanently ceased • Deemed disposed in that (permanently ceased) basis period • Make election for spread back: • Within 3 months from beginning of YA following the first mentioned YA • Where a grant becomes payable, an agriculture charge equal to the grant amount shall be computed.

  10. Rules on Disposal • Where disposal of qualifying agriculture expenditure took place within 6 years from incurring such expenditure, agriculture allowance previously claimed would be withdrawn as agriculture charge.

  11. AC Facts: • Roads: RM 50,000 incurred in 15.3.02 • AA: YA 2002 : 25,000 : YA 2003 : 25,000 Disposed on 30.6.05 (< 6 years) AC : YA 2005 = 50,000

  12. AC Same Facts: Disposed on 30.6.09 (> 6 years) Plantation permanently ceased 14.3.08 (< 6) AC : YA 2008 = 50,000

  13. AC Same Facts: Disposed on 30.6.09 (> 6 years) Plantation permanently ceased 14.3.08 Para 27 election AC : YA 2002 : 25,000 : YA 2003 : 25,000

  14. Forest Allowance (Schedule 3 Allowance)

  15. Qualifying Expenditure • Construction in a forest of: • Road or building used for the purposes of a business which consists wholly or partly of the extraction of timber from the forest. • A building provided by him for the welfare of persons or as living accommodation for a person, employed in or in connection with such extraction.

  16. Rules on Allowance • No initial allowance. • Annual allowance at the following rates: • Road or building used for the purposes of a business - 10%. • A building provided by him for the welfare of persons or as living accommodation for a person, employed in or in connection with such extraction - 20%.

  17. Rules on Claiming Allowance • Full year’s allowance in YA of incurring expenditure & subsequent years up to YA of disposal or YA of permanent cessation. • In case of permanent cessation, in relevant YA, the remaining residual expenditure will be given as an allowance.

  18. Rules on Disposal • On disposal of forest, there will be a forest charge. • Forest charge = Allowance Clawback. • If forest disposed off after YA of cessation, the disposal shall be deemed to have been made in YA of cessation. • Can elect to spread the forest charge over the past years of assessment, for which the allowances were made.

  19. Rules on Disposal Transferor Transferee • Will not get any forest allowance upon acquiring the forest expenditure from the disposer. • Forest allowance given on new QE incurred.

  20. Questions • Compare and contrast agriculture and forest allowance in respect to claiming of capital allowance and balancing charge on disposal • State the uniqueness of approved agricultural projects from a tax perspective. 20 Minutes

  21. AA FA 1st Year Allowance Full Full Allowance in YA of cessation N/A RE b/f cessation Allowance in YA disposal Time-Based** None Charge in YA of disposal Yes Yes Amount of charge Clawback*** Clawback*** BA in YA of disposal N/A N/A Note: * Only in case of operator commencing its first mining business. ** Up to date of disposal if used one-month before disposal. *** Clawback of allowances granted.