FAQs Deduction on renovation & refurbishment costs of business premise

Frequently Asked Questions on tax deduction on costs for renovation and refurbishment of business premises

As highlighted in earlier tax alerts, 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 2021 (see EY Take 5: Economic Stimulus Package 2020 and EY Take 5: COVID-19: Short-term Economic Recovery Plan). To legislate the proposal, the Income Tax (Costs of Renovation and Refurbishment of Business Premise) Rules 2020 [P.U.(A) 381] were gazetted on 28 December 2020 (see Tax Alert No. 1/2021).

Following the above, the IRB has published a Frequently Asked Questions (FAQs) document in Bahasa Malaysia, titled “Soalan Lazim Potongan Cukai Bagi Kos Pengubahsuaian Dan Pembaharuan (R&R) Premis Perniagaan Di Bawah P.U.(A) 381/2020” dated 11 March 2021, to provide clarification on the Rules.

Some of the key points are outlined below.

• The FAQs clarify that all business premises, regardless of whether they are owned or rented by the taxpayer, would qualify for the deduction. This is   on condition that the taxpayer claiming the deduction uses the premises for the purpose of his business.

• The Rules stipulate that to be eligible for the tax deduction, the costs of renovation and refurbishment of the business premises must be certified by an external auditor.

The FAQs clarify that an “external auditor” refers to a certified auditor who is able to verify the said cost and issue a specific certification (in any format deemed suitable) upon verification.

The FAQs further stipulate that the fees incurred for the external auditor are not to be included as part of the “cost for renovation and refurbishment of business premises” and will not be allowed a tax deduction.

• The FAQs clarify that in instances where the total cost of renovating and refurbishing the business premises exceeds RM300,000, the taxpayer would still be able to claim a tax deduction of up to RM300,000 (i.e. the taxpayer will not forfeit the entire claim by virtue of incurring an amount exceeding RM300,000).

• Taxpayers claiming the tax deduction are required to retain the following supporting documents, to be produced in the event of an audit:

-        Business registration certificate

-        Proof of ownership of the business premises or valid tenancy agreement           (whichever applicable)

-        Invoices for the renovation and refurbishment costs

-        Certification of the said costs by an external certified auditor