Deduction on renovation and refurbishment costs of business premises

Tax deduction on costs for renovation and refurbishment of business premises

As part of the First Economic Stimulus Package announced on 27 February 2020, it was proposed that a tax deduction of up to RM300,000 be given on costs for renovating and refurbishing business premises, where such costs are incurred between 1 March 2020 and 31 December 2020 (see EY Take 5: Economic Stimulus Package 2020). Thereafter, in the Short-term Economic Recovery Plan announced on 5 June 2020, it was proposed that the tax deduction be extended to cover such costs incurred until 31 December 2021 (see EY Take 5: COVID-19: Short-term Economic Recovery Plan).

To legislate this, the Income Tax (Costs of Renovation and Refurbishment of Business Premise) Rules 2020 [P.U.(A) 381] were gazetted on 28 December 2020. The Rules provide that in ascertaining the adjusted income of a person from its business for a YA, there shall be allowed a deduction, capped at RM300,000, for the costs of renovation and refurbishment of a business premise incurred by the person from 1 March 2020 until 31 December 2021, and used for the purpose of its business.

The Rules provide that the above-mentioned costs mean the costs outlined in Note 1 below, which are certified by an external auditor. However, the costs outlined in Note 2 below would not qualify for the tax deduction.

Note 1

1. General electrical installations
2. Lighting
3. Gas systems
4. Water systems
5. Kitchen fittings
6. Sanitary fittings
7. Doors, gates, windows, grilles and roller shutters
8. Fixed partitions
9. Flooring (including carpets)
10. Wall coverings (including paint work)
11. False ceilings and cornices
12. Ornamental features or decorations excluding fine art
13. Canopies or awnings
14. Fitting rooms or changing rooms
15. Recreational rooms for employees
16. Air-conditioning systems
17. Children play areas
18. Reception areas
19. Suraus

Note 2

1. Designer’s fees
2. Professional fees
3. Purchase of antiques (purchase of an object or work of art which, representing a previous era in human society, is a collectible item due to its age, rarity, craftsmanship or other unique features and appreciates in value over time)

The non-application provisos provide that the Rules will not apply to a person who has made any of the following claims in relation to the costs of renovation and refurbishment:

(a)   As allowable expenses under Section 33(1) of the ITA;

(b)  Capital allowance under Schedule 2 of the ITA; or

(c)   Capital allowance under Schedule 3 of the ITA

The Rules are effective from YA 2020.