JANUARY 30 — The Covid-19 pandemic has hit many businesses badly. As we are at the beginning of 2021, it is a good time to start looking into tax benefits for your business. Thorough tax planning is an all year-round process that should be undertaken to achieve tax benefits. In a pandemic affected year, traditional year-end tax planning strategies may no longer be relevant to businesses. It is important for businesses to be alert on special tax incentives so that a benefit of claim is not missed out.
One key element to tax planning is understanding the myriad of tax incentives out there. Due to the pandemic, the Government has introduced many tax measures via the various stimulus packages and budget initiatives to enable businesses to achieve some tax savings. Let’s look at 4 key tax benefits that may be useful to businesses.
1. Tax rebate for companies and limited liability partnerships (LLPs)
If you are one of those who started a new business venture during this pandemic, this tax rebate is for you. Companies or LLPs which commence operations from 1 July 2020 to 31 December 2021 are entitled to a tax rebate of RM20,000 for each year of assessment (YA), for three consecutive YAs. To claim the rebate, the company or LLP must be a company resident and incorporated in Malaysia with a paid-up ordinary share capital or capital contribution of not more than RM2.5 million at the beginning of the basis period for a YA and with gross business income not exceeding RM50 million for that YA . This rebate is effective from YA 2021.
2. Accelerated capital allowances (ACA) for capital expenditure incurred on machinery and equipment
General plant and machinery qualify for capital allowances at an initial allowance rate of 20 per cent and an annual allowance rate of 14 per cent, which means that the claim for deduction is spread over six YAs. ACA will be given for qualifying capital expenditure incurred on machinery and equipment, including ICT equipment, used in the business. The ACA can be claimed as a deduction over two YAs (i.e. 60 per cent in the first year and 40 per cent in the second year).
The ACA is to incentivise businesses to undertake capital investments during the period between 1 March 2020 and 31 December 2021 to accelerate investments that boost the development of the economy.
3. Deduction for renovation and refurbishment (R&R) costs
Another measure introduced to encourage business owners to renovate and refurbish their premises is via a special outright deduction of RM300,000 in a YA. This is to prepare business premises to be renovated and refurbished once the economy returns to normal. This special deduction applies to renovation and refurbishment (R&R) costs incurred between 1 March 2020 and 31 December 2021. The types of R&R costs that qualify are wall covering including painting, general electrical installation, lighting, flooring, water system, fixed partitions, canopy and awning, air-conditioning system, reception area, etc.
If you are thinking of renovating your business premise, this may be an opportune time to do so. This is especially beneficial to businesses where the capital expenditure incurred ordinarily do not qualify for capital allowances such as those incurred on office spaces that do not fall within the ambit of an industrial building.
4. Special reinvestment allowance (RA)
Companies involved in manufacturing and selected agriculture activities which incurred capital expenditure on qualifying projects can claim RA. The claim for RA is for a period of 15 consecutive YAs beginning from the basis period for a YA in which a claim for RA was first made. A special RA at 60 per cent on qualifying capital expenditure will be given to eligible companies engaged in manufacturing and selected agriculture activities for YAs 2020 and 2021. RA is given for companies which incurred capital expenditure on undertaking expansion, diversification, automation or modernisation projects.
Some companies involved in manufacturing and selected agriculture activities would have exhausted the first 15 years of RA incentive period and possibly the additional 3 years of special RA for YA 2016 to 2018. The introduction of this special RA for YAs 2020 and 2021 is a timely move to encourage eligible companies to expand, diversity, automate or modernise their businesses.
This special RA should incentivise businesses to upgrade their production facilities to be competitive in the market place. It is therefore timely for businesses to review their capital expenditure plans to maximise tax benefits.
Timing is of essence when it comes to tax planning as failure to do so will result in lost opportunities. The bottom line is for business owners to understand their current tax position and take advantage of the tax planning strategies available whilst remaining compliant with tax legislation. It’s the beginning of 2021. Whilst no one can predict what the future holds, there is ample time to plan and execute.
* Thisha Gunasilan is a director of Tricor Taxand Sdn Bhd.
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.