ACA for the purchase of machinery and equipment

Accelerated capital allowance (ACA) for the purchase of machinery and equipment

In the 2020 Economic Stimulus Package announced on 27 February 2020, it was proposed that accelerated capital allowance (ACA), made up of 20% initial allowance and 40% annual allowance, be given on qualifying capital expenditure on machinery and equipment (including information and communications technology (ICT) equipment), 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 (PENJANA) announced on 5 June 2020, it was proposed that the ACA to cover such qualifying expenditure incurred be extended up to 31 December 2021 (see EY Take 5: COVID-19: Short-term Economic Recovery Plan).

To legislate the proposals, the Income Tax (Accelerated Capital Allowance) (Machinery and Equipment including Information and Communication Technology Equipment) Rules 2021 [P.U.(A) 268] were gazetted on 15 June 2021. The Rules provide that a person will be given ACA (20% initial allowance and 40% annual allowance) in respect of qualifying plant expenditure (QPE) incurred between 1 March 2020 and 31 December 2021, for the purpose of his business.

The Rules also provide that in a case where the person incurs QPE under a hire purchase agreement for the purchase of machinery and equipment (including ICT equipment) for the purpose of his business:

(a)   The person shall be treated as the owner of the machinery and equipment, and

(b)  The QPE incurred in the basis period for a year of assessment (YA) shall be taken to be the capital portion of any instalment payments made in the basis period

The following terms have been defined in the Rules:

(a) QPE

Capital expenditure incurred under Paragraph 2, Schedule 3 of the Income Tax Act 1967 (ITA) in relation to the provision of machinery and equipment (including ICT equipment), but excluding motor vehicles

(b) ICT equipment

• Access control system

• Banking systems

•  Barcode equipment

• Bursters or decollators

• Cables and connectors

• Computer assisted design (CAD)

• Computer assisted manufacturing (CAM)

• Computer assisted engineering (CAE)

• Card readers

• Computers and components

• Central processing units (CPU)

• Storages

• Screens

• Printers

• Scanners or readers

• Accessories

• Communications and networks

The non-application provisos stipulate that the Rules will not apply to a person who has made a claim on the same QPE under the:

• Income Tax (Accelerated Capital Allowance) (Automation Equipment) Rules 2017, or

• Income Tax (Exemption) (No. 8) Order 2017

The Rules are effective from YA 2020.