CAPITAL GOODS ADJUSTMENT

Transcription

1 CAPITAL GOODS ADJUSTMENT 1

2 AGENDA 2

3 INTRODUCTION 3

4 1. BASIC CGA I. What is CGA? INTRODUCTION Adjustments to be made to the initial amount of input tax claimed, during a specified period. II. III. Who need to make CGA Mixed supplier When to make CGA Capital item acquires, imports, manufactures, produces or constructs is used for making taxable supply and exempt supply and the proportion of taxable supplies change over the time 4

5 INTRODUCTION IV. Why we need to make CGA? to provide a fair and reasonable attribution of input tax to taxable supplies because Capital goods can be used in the business over a period of years. Taxable supplies may vary over the years. V. How to make CGA If the proportional taxable supply decrease - a certain percentage of input tax initially claimed has to be paid to JKDM (output tax). If the proportional taxable supply increase - a further amount of input tax can be claimed on the capital goods. 5

6 INTRODUCTION 2. DEFINITION CAPITAL GOODS :- Reg. 57 capitalized under accounting principles used in the course or furtherance of a business Not for the purposes of re-selling Each unit valued at RM100,000 or more and exclusive of GST Include alteration, extension, refurbishment or fitting if such cost has been capitalized 6

7 INTRODUCTION 2. DEFINITION CAPITAL GOODS :- Reg. 57 Continue Any capital goods which do not fall under disallowed goods by the DG for CGA purposes. Separate components are considered as a single unit if its function as a unit. They cannot function separately on their own. 7

8 3. TYPES OF CAPITAL GOODS Land and buildings (building or part of a building that is completed and ready for occupation) Goods and services acquired in connection with the construction and alteration of a building including any extension of a building or part of a building Plants, equipment, computers (excluding computer s software) or machines. Commercial vehicles INTRODUCTION Civil engineering works - include roads, bridges, drainage and installation of pipes for connection to the main services Capital expenditure for example refurbishment, renovation and repair works Goods and services acquired in connection with the construction, manufacture or assembling of a plant, equipment, computer, machine, vehicle or any other capital items. 8

9 SAMPLE BALANCE SHEET 9

10 INTRODUCTION 4. GST TREATMENT ON CAPITAL GOODS A supply of capital goods is standard rated. Input tax can be claimed in full on all capital goods that are used to make wholly taxable supply. If capital good are used solely for exempt supply, no input tax can be claimed. Where capital goods are used for making both taxable and exempt supplies, input tax would need to be apportioned according to its proportional taxable use. Intangible asset such as trademark and goodwill are taxable supplies (not a capital goods under CGA) 10

11 INTRODUCTION 5. WHEN CGA IS NOT APPLICABLE CGA does not apply in the following cases: When a registered person makes wholly taxable supply When a mixed supplier acquires a capital item to be used solely for making taxable supply When a mixed supplier acquires a capital item to be used solely for making exempt supply When capital item is acquired or imported solely for resale Capital item acquired is used for non-business purposes Capital item acquired is excluded from input tax credit (block input tax), e.g. passenger car Value of capital item is less than RM100k (excluding tax) Capital item acquired is an exempt supply (company buy residential house for investment) 11

12 VALUE OF CAPITAL GOODS FOR CGA PURPOSE 12

13 VALUE OF CAPITAL GOODS 1. GENERAL / SPECIFIC 2. ISSUES 13

14 VALUE OF CAPITAL GOODS 1. GENERALLY To determine RM100,000 or more; Local goods - GST-exclusive value of its supply and this value includes any excise duty paid. Imported goods : the value will be the sum of the GST- exclusive value of the goods and include the amount of import and excise duties. 14

15 VALUE OF CAPITAL GOODS 1. SPECIFICALLY The value depends on the manner the owner acquires the capital item I. Where a capital item is imported by or supplied to the owner a) Land or building the value of the capital item includes the value of the land and/or buildings. exclude any associated cost such as legal cost and estate agency fees. 15

16 VALUE OF CAPITAL ITEMS b) Equipment, machinery or vehicle the value of the equipment, machinery or vehicle supplied includes the delivery and installation costs, if not separately supplied and charged. If separately supplied and charged, they will be considered as separate item 16

17 VALUE OF CAPITAL GOODS II.Where a capital item is built, manufactured, produced, constructed, altered, extended, refurbished or fitted out by the owner a)building The value of a building constructed by the owner includes the following: the value of the land that was capitalized; 17

18 VALUE OF CAPITAL ITEMS the cost of goods and services incurred on the construction of the building, for example: goods affixed to the building including materials used in the construction; services provided by architect, surveyor, engineer, contractor and any other professional, consultant or person, for the construction; fitting out (e.g.: lift installation); landscaping; any other cost that might be allowed by the JKDM 18

19 VALUE OF CAPITAL GOODS b) Alteration And Extension of a Capital Goods Includes the value of all goods and services supplied in connection to the alteration or extension. c) Capital Items That is Refurbished or Fitted Out Includes the value of all goods and services supplied in connection to the refurbishment or fitted out. d) Equipment, Machinery or Vehicle Manufactured, Produced or Constructed By The Owner Include the value of the goods and services supplied to the owner for the manufacturing, production or construction of the equipment, machinery or vehicle. 19

20 VALUE OF CAPITAL GOODS 2. ISSUES I. Asset which is appropriate for use by the owner as a capital item The value is the total GST-exclusive cost incurred by the owner 20

21 VALUE OF CAPITAL GOODS 2. ISSUES II. Part of a capital item which is used for non business purposes The value has to be apportioned between business and non business use The value of capital item only attributed to business purposes only. Not entitled to claim ITC on the whole value of the capital item. 21

22 VALUE OF CAPITAL GOODS 2. ISSUES III. Value of capital item is uncertain Estimate the value with supporting documents (e.g. certificate by architect, progress billing, etc.) Supporting documents for your estimation must be kept in cases of customs audit (7 years) 22

23 VALUE OF CAPITAL GOODS 2. ISSUES IV. The cost of goods that are not affixed to the building cannot be separated from those goods which are affixed to the building Include the total cost of the goods irrespective whether the cost is affixed or not affixed to the building 23

24 VALUE OF CAPITAL GOODS 2. ISSUES V. Refurbishment done in phases Treated as separate capital items Separate value and adjustment Each phase is covered by a separate contract If it is in a single contract, the contract contains clauses that allow for separate option for each phase Each phase is completed before the next phase begins. 24

25 INTERVAL 25

26 INTERVAL Definition - Fixed period of time during which the proportional taxable usage of a capital item is re-evaluated. Land and building - 10 intervals Any other capital items - 5 intervals Inclusive of both the first and final intervals 26

27 1 st Interval INTERVAL First interval for a capital item would start from: When the owner is a registered person - the date of its acquisition, importation or supply if the capital item is imported, acquired or supplied; or When the owner is a registered person appropriates to use an asset as a capital item - the date the owner first uses the item 27

28 1 st Interval INTERVAL First interval for a capital item would start from: When the owner is a registered person - where the capital item is manufactured, produced, constructed - the date the owner first uses the item the date of registration where the owner is not a registered person when the capital item was first used, or the date when the owner should be registered where the owner is not a registered person when the capital item was first used (i.e in the case of late registration). Ends on the last day of the tax year that coincides or corresponds with the first interval. 28

29 INTERVAL 1 st Interval If a capital item is acquired during the first tax year of a registrant, the first interval for the capital item may vary from a day (1 day) to a maximum of 18 months depending on the acquisition date of the capital item and category of taxable period. 29

30 INTERVAL 1 st Interval Example (Capital Goods acquired before registered) The financial year for Partly-Exempt Sdn. Bhd. ends on 31 st December 2016 and subject to quarterly taxable period Partly-Exempt Sdn. Bhd. become a registrant on 1 ST Oct Assuming Partly-Exempt Sdn. Bhd. acquired a lorry for RM120, on 1 st April 2016, the first interval for this capital goods would start from 1 st Oct 2016 and end on 31 st December 2017 (the last day of his first tax year) covering a period of 15 months plus Asset Purchased Registration 1/1/2016 1/4/2016 1/10/ /12/ /12/ months 30

31 1 st Interval Example INTERVAL (Capital Goods acquired after registered) The financial year for Partly-Exempt Sdn. Bhd. (mixed supplier) ends on 31 st December 2016 and subject to quarterly taxable period. Partly-Exempt Sdn. Bhd. became a registrant on 1 st April If Partly-Exempt Sdn. Bhd. purchased the lorry on 31 st December 2016, the first interval for the lorry would only make up of a single day /1/2016 Registration 1/4/2016 Asset Purchased 31/12/ day 31

32 Subsequent Interval INTERVAL The interval immediately following the first interval A subsequent interval for a capital item would be for the whole of the corresponding tax year if the capital item is not disposed off during the year. 32

33 INTERVAL the subsequent & final intervals for the lorry acquired by Partly-Exempt Sdn. Bhd. would be as follows: Subsequent Interval Period Second 1 st Jan 2017 to 31 st Dec 2017 Third 1st Jan 2018 to 31st Dec 2018 Fourth 1st Jan 2019 to 31st Dec 2019 Fifth (Final) 1st Jan 2020 to 31st Dec

34 INTERVAL Final Interval For land and buildings, the final interval is the 10 th interval and for other capital items is the 5 th interval. The adjustment period for assets acquired in different tax year will fall under different tax years. 34

35 WORKING OUT ADJUSTMENTS 35

36 WORKING OUT ADJUSTMENTS 1. CONCEPT Proportional taxable supply is re-evaluated. Land and building - 10 intervals Any other capital items - 5 intervals Inclusive of both the first and final intervals 36

37 WORKING OUT ADJUSTMENTS Adjustments are made to the initial input tax claim when the proportional taxable supply fluctuates from interval to interval. If the proportional taxable supply decreases - a certain percentage of input tax initially claimed has to be paid to JKDM as an output tax. If taxable supply increases - a further amount of input tax can be claimed on the capital goods. 37

38 WORKING OUT ADJUSTMENTS No capital goods adjustment is required to be made in the first interval (only PE in the 1 st interval). No further adjustment is required to be made on a capital item after the adjustment on the final interval is made. 38

39 WORKING OUT ADJUSTMENTS 2. FORMULA I. Residual Input Tax Recovery Rate (IRR) STANDARD METHOD Reg.39 (4) IRR = T - O S - O X 100% = T O¹ X 100% T + E - O² 39

40 WORKING OUT ADJUSTMENTS IRR = recoverable percentage of residual input tax T = total value of taxable supplies made in the taxable period E = total value of exempt supplies made in the taxable period O = Total value of excluded supplies made in the taxable period 40

41 WORKING OUT ADJUSTMENTS O = total value of all excluded amount Excluded Supplies O¹ O² Supply of capital goods Imported services Value of any supply made by a recipient in accordance with the ATMS under Sec. 72 Incidental financial supply Supply of land for general use 41

42 WORKING OUT ADJUSTMENTS II. Adjustment In Subsequent Intervals Amount of adjustment = Total input tax incurred x Adjustment % Number of intervals Adjustment % = A B (CGAR), where; A = % of taxable use for any particular interval (current rate) B = % of taxable use in the first interval (baseline rate) 42

43 3. 1 st Interval Single Capital Item Example Assuming the tax year for Partly-Exempt Sdn. Bhd. ends on 31 st December 2016 and during the year the company makes the following acquisition of capital items which has a 60% annual residual input tax recovery rate (AIRR). Date of acquisition WORKING OUT ADJUSTMENTS Items acquired Value of acquisition (RM) GST (6%) paid (RM) 12/01/2016 Machine 1,000,000 60,000 1,000,000 60,000 43

44 WORKING OUT ADJUSTMENTS Total residual input tax incurred in the relevant tax year is RM60, The total amount of input tax that can be claimed on the capital item acquired for the first interval is RM36, (60% x RM60,000.00) First interval: To apply partial exemption rules No need to make any adjustment under CGA 44

45 WORKING OUT ADJUSTMENTS 3. 1 st Interval Acquisition of Multiple Capital Goods If there are multiple capital goods acquired in the same tax year, even on different dates but the items has the same number of intervals, all these items can be summed up as a group having the same adjustment period 45

46 WORKING OUT ADJUSTMENTS Example Assuming the tax year for Partly-Exempt Sdn. Bhd. ends on 31 st December 2016 and during the year the company makes the following acquisition of capital items which has a 60% annual residual input tax recovery rate. Date of acquisition Items acquired Value of acquisition (RM) GST (6%) paid (RM) Machine 1,000,000 60, Lorry 200,000 12,000 1,200,000 72,000 46

47 WORKING OUT ADJUSTMENTS Total residual input tax incurred in the relevant tax year is RM72,000. The total amount of input tax that can be claimed on the 2 items acquired for the first interval is RM43, (60% x RM72,000) Capital goods with different number of intervals cannot be summed up as a group for the purpose of working out capital goods adjustment, even though purchased within the same tax year 47

48 WORKING OUT ADJUSTMENTS 4. Subsequent Intervals Capital goods adjustments would only be made in the subsequent intervals and When there is proportional change in its taxable supply in relation to the first interval Amount of adjustment = Total input tax incurred x Adjustment % Number of intervals Adjustment % = A B (CGAR), where; A = % of taxable use for any particular interval (current rate) B = % of taxable use in the first interval (baseline rate) 48

49 WORKING OUT ADJUSTMENTS EXAMPLE: Partly-Exempt Sdn. Bhd., a mix supplier, was registered under the GST Act 2014 on 1 st Jan 2016 and his first tax year ends on 31 st December The company acquired a new machine for RM1 million plus RM60,000 (6% GST) on 10th Jan The annual proportional taxable supply (or annual residual input tax recovery rate) of the machine is as follows:- INTERVAL % First interval 60 % Second interval 70 % Third interval 55 % Fourth interval 65 % Fifth (final) interval 75 % 49

50 WORKING OUT ADJUSTMENTS The intervals applicable to the machine are as follows:- Interval Period / Tax Year First interval 10 th Jan st Dec 2016 Second interval 1st Jan st Dec 2017 Third interval 1st Jan st Dec 2018 Fourth interval 1st Jan st Dec 2019 Fifth interval 1st Jan st Dec 2020 The amount of input tax credit (ITC) that can be claimed for the first interval is RM36, 000 and the amount of adjustment made under CGA in the subsequent intervals is shown in the table below: 50

51 Interval (year) 1 (2016) 2 (2017) 3 (2018) 4 (2019) 5 (2020) *% of taxable use Adjustment % 60 % - 70 % 70 % - 60 % 55 % 55 % - 60 % 65 % 65 % - 60 % 75 % 75 % - 60 % Computation ITC = RM60,000 x 60% 60,000 X 10 % 5 60,000 X (-5 %) 5 60,000 X 5 % 5 60,000 X 15 % 5 Adjustment (RM) 36,000 1,200 (600) 600 1,800 For the 2 nd interval the company can claim additional ITC of RM1,200. For the 3rd interval company has to repay RM600 For 4 th & 5 th intervals the company can claim additional ITC, totalling RM2,400. No further adjustment after the final adjustment has been made 51

52 WORKING OUT ADJUSTMENTS 5. Accounting For Adjustment Reg.59 (5) The GST amount on capital goods adjustment must be declared in the GST No.3 Return for the second taxable period immediately after the end of each relevant interval. Declare as output tax (increase) if CGA payable to JKDM Declare as input tax (increase) if CGA claimable from JKDM 52

53 WORKING OUT ADJUSTMENTS Example (Continue): First Interval 10 th Jan st Dec 2016 Second interval 1 st Jan st Dec 2017 Third interval 1 st Jan st Dec 2018 Fourth interval 1 st Jan st Dec 2019 Fifth interval 1 st Jan st Dec 2020 Monthly taxable period GST Return Feb. 2017, last day 31 Mac 2017 Quarterly taxable period GST Return Apr Jun 2017, last day 31 July

54 WORKING OUT ADJUSTMENTS 6. Record Keeping keep all the proper records and book-keeping on capital goods adjustments for a period of 7 or 10 years from the date of the last adjustment made on a capital item. Other records as specified in the Act, should include the following details: Date of acquisition. Description of each capital goods. Value of the capital item. Amount of input tax incurred on the capital item. Amount of input tax claimed on each capital item. The start and end date of each interval. When adjustments are made. The date and value of disposal if capital goods were disposed off. If a capital goods is lost or stolen, the date of such goods were lost or stolen and proof of the lost, such as a police report. 54

55 OTHER ADJUSTMENT ON CAPITAL GOODS 55

56 OTHER ADJUSTMENT ON CAPITAL GOODS 1. Disposal of Assets in the 1 st Interval When a capital item is disposed off in the first interval, no adjustment under the CGA is required to be made. Only the annual adjustment (longer period) is required to be made. 56

57 OTHER ADJUSTMENT ON CAPITAL GOODS 1. Disposal of Assets in the 1 st Interval Example: Partly-Exempt Sdn. Bhd., a mix supplier, was registered under the GST Act 2014 on 1 st January 2016 and his first tax year ends on 31st December 2016 (Quarterly Taxable Period). The company acquired a new machine A for RM1 million plus RM60,000 (6% GST) on 10 th January Partly-Exempt Sdn. Bhd. had sold its machine A on 30 TH June 2016 at RM600,000. Input tax recovery rate (IRR) for the first taxable period (3 months) is 65%. Whereas, annual input tax recovery rate (IRR for 2016) is 75%. The adjustment the company has to make is shown below; 57

58 OTHER ADJUSTMENT ON CAPITAL GOODS 1. Disposal of Assets in the 1 st Interval Example: /01 10/01 31/03 30/06 31/12 machine Disposed machine RM 1M + 60K GST RM600K + 36K GST IRR 65 % IRR 75 % 58

59 OTHER ADJUSTMENT ON CAPITAL GOODS 1. Disposal of Assets in the 1 st Interval Example: 1 st quarter taxable period (Jan-Mac 2016) o ITC = (60,000 x 65% = 39,000) 2 nd quarter Taxable Period (April-June 2016) o output tax RM36,000 2 nd quarter Taxable Period (April - Jun 2017) o ITC Adjustment (60,000 x 75%) (60,000 X 65%) = 6,000 o Annual adjustment 59

60 OTHER ADJUSTMENT ON CAPITAL GOODS 2. Disposal of Assets in other than 1 st interval When a capital item is disposed off before the end of its adjustment period (interval), the mix supplier has to make a final adjustment for the remaining interval that is from the date of disposal until the end of the adjustment period. If the disposal is a taxable supply, the mix supplier is able to claim additional input tax for any remaining intervals. The remaining complete intervals is deemed to make a wholly (100%) taxable supply. If a capital item is disposed off on the first day of an interval, the mix supplier can treat that interval which the disposal took place as a remaining complete interval No further adjustment is necessary after the final adjustment has been made. 60

61 OTHER ADJUSTMENT ON CAPITAL GOODS 2. Disposal of Assets in other than 1 st interval Example 1 : Disposal Assets On The 1 st Day Of The Interval Partly-Exempt Sdn. Bhd., a mix supplier, was registered under the GST Act 2014 on 1st Jan 2016 and his first tax year ends on 31st December The company acquired a new machine for RM1 million plus RM60,000 (6% GST) on 10th Jan Partly-Exempt Sdn. Bhd. had sold its machine on 1st January 2019 (as a taxable supply), the adjustment the company has to make is as shown in the table below. 61

62 OTHER ADJUSTMENT ON CAPITAL GOODS 2. Disposal of Assets in other than 1 st interval (2 nd final interval) Example 1 : Disposal Assets On The 1 st Day Of The Interval 36,000 62

63 OTHER ADJUSTMENT ON CAPITAL GOODS 2. Disposal of Assets in other than 1 st interval When Partly-Exempt Sdn. Bhd. sold the machine on 1 st January 2019, there are 2 complete intervals (2019 and 2020) remaining before the adjustment period ends. Therefore, Partly-Exempt Sdn. Bhd. can claim additional input tax of RM9, (RM4,800 + RM4,800) for the two remaining complete intervals as the company is deemed to be making a wholly (100%) taxable supply for the two remaining intervals. The company has to charge output tax on the sale of the machine based on the consideration received. The adjustment for the fifth interval is carried at the end of the fourth interval as the final adjustment. 63

64 OTHER ADJUSTMENT ON CAPITAL GOODS 2. Disposal of Assets in other than 1 st interval If the disposal date of a capital item is other than the first day of the interval, the annual residual input tax recovery rate for the interval in which the sale took place is calculated by using the following formula; 64

65 OTHER ADJUSTMENT ON CAPITAL GOODS 2. Disposal of Assets in other than 1 st interval EXAMPLE 2 : Disposal Assets Other Than 1 st Day of The Interval Based on Example above and assuming Partly-Exempt Sdn. Bhd. sold its machine on 13 th June 2019, instead of 1 st January 2019, the adjustment the company has to make for the fourth interval is as shown in the table: RM60,000 RM36, %* 24.37% 2,

66 OTHER ADJUSTMENT ON CAPITAL GOODS 2. Disposal of Assets in other than 1 st interval (2 nd final interval) EXAMPLE 2 : Disposal Assets Other Than 1 st Day of The Interval Taxable use from 1/1/19 to 12/6/19 (163 days) - 65% Taxable use from 13/6/19 to 31/12/19 (202 days) - 100% Annual residual input tax recovery rate: 163 days 365 days = 84.37% Additional input tax claimable for the 4 th interval is : RM60,000 (84.37% - 60%) = RM 2,

67 OTHER ADJUSTMENT ON CAPITAL GOODS 2. Disposal of Assets in other than 1 st interval - Non Taxable Supply If the disposal is a non-taxable supply, the item is deemed to be disposed off on the date the lost were discovered or destruction occurred. Registrants will have to make a final adjustment for that particular interval where the lost were discovered or destruction occurred. Adjustment for any remaining intervals is not required 67

68 OTHER ADJUSTMENT ON CAPITAL GOODS 3. Input Tax Incurred Before 1 st Interval If a mixed supplier incurs input tax on a capital item before its first interval, he is required to calculate the average percentage by using the following formula: Total input tax claimed X 100% Total input tax incurred The average percentage obtained from the above formula will be used as the base percentage for calculating the adjustment in subsequent intervals. 68

69 OTHER ADJUSTMENT ON CAPITAL GOODS 3. Input Tax Incurred Before 1 st Interval Example : Partly-Exempt Sdn. Bhd constructs a new building. It incurs RM450,000 of input tax on the building in the tax year ending 31/12/2016. Its IRR for the year 2016 is 80% so it reclaims RM360,000. In the following tax year, the year ending 31/12/2017, it incurs another RM250,000 of input tax on the building and reclaims RM187,500 because its IRR for the year is 75%. It occupies the building for use in its partly exempt business on 1/1/2018 so the first interval runs from 1/1/2018 to the day before the start of the next tax year, which is 31/12/

70 OTHER ADJUSTMENT ON CAPITAL GOODS 3. Input Tax Incurred Before 1 st Interval Example : DATE INPUT TAX INCURRED AIRR ITC ENTITLED 31/12/ ,000 80% 360,000 31/12/ ,000 75% 187,500 TOTAL 700, ,500 Total input tax claimed X 100% Total input tax incurred 547,500 X 100% 700, % Therefore, 78.21% is the baseline against which future adjustments are measured 70

71 OTHER ADJUSTMENT ON CAPITAL GOODS 4. Input Tax Incurred After 1 st Interval It happens when (e.g. Refurbishment) work is carried out over a period of time and also where a contract includes a retention clause. If input tax incur in the 1 st interval normal partial exemption rules applies. If input tax incur in the 2 nd interval it will not form part of the CGA interval 2, but will be adjusted from the 3 rd interval onwards 71

72 OTHER ADJUSTMENT ON CAPITAL GOODS 4. Input Tax Incurred After 1 st Interval 2 Options of calculating input tax I. Combined adjustments II. Parallel adjustments 72

73 OTHER ADJUSTMENT ON CAPITAL GOODS 4. Input Tax Incurred After 1 st Interval Example : ABC Development Bhd. constructed a building which was first occupied for use on 1/4/2015. In the 1 st interval : Input Tax Incurred RM 500,000 Partial Exemption percentage (IRR) - 80% 73

74 OTHER ADJUSTMENT ON CAPITAL GOODS 4. Input Tax Incurred After 1 st Interval Additional amounts of input tax were incurred in subsequent intervals in completing the construction as below: Date Interval Input Tax Incurred (RM) 1/1/ /12/2016 1/1/ /12/2017 1/1/ /12/2018 AIRR (%) 2 300, , ,

75 OTHER ADJUSTMENT ON CAPITAL GOODS 4. Input Tax Incurred After 1 st Interval I. Combined adjustments: rolling together the adjustment calculations for the remaining intervals re-evaluate baseline each time an additional amount of input tax is incurred Input Tax Claimed x 100 = % Average Claimed (baseline) Input Tax Incurred 75

76 Interval Input tax incurred AIRR (%) Input tax claimed CGA baseline CGA Input Tax to be adjusted Adj. % Adj. Amount 1 500, % 400, % - 0% , % 255, % 500, % 2, , % 280, % 800, % (9,500.00) 4 350, % 262, % 1,200, % (3,500.00) 5-80% % 1,550, % 4, % % 1,550, % 10, % % 1,550, % 16, % % 1,550, % ( 5,050.00) 9-72% % 1,550, % (8,150.00) 10-70% % 1,550, % (11,250.00) 1,550, ,197, (3,600.00) 76

77 OTHER ADJUSTMENT ON CAPITAL GOODS 4. Input Tax Incurred After 1 st Interval II. Parallel Adjustments : carrying out separate, but simultaneous adjustments for the remaining intervals of the Capital Goods adjustment period. 77

78 Adj of Interval 1 Adj of Interval 2 Adj of Interval 3 Adj of Interval 4 Interval Input tax incurred AIRR % Input tax reclaimed % Amount % Amount % Amount % Amount TOTAL 1 500, % 400, % - 0% - 0% - 0% , % 255, % 2, % - 0% - 0% - 2, , % 280, % (5,000.00) -15% (4,500.00) 0% - 0% - (9,500.00) 4 350, % 262, % (2,500.00) -10% (3,000.00) 5% 2, % - (3,500.00) 5-80% - 0% - -5% (1,500.00) 10% 4, % 1, , % - 4% 2, % (300.00) 14% 5, % 3, , % - 8% 4, % % 7, % 4, , % - -6% (3,000.00) -11% (3,300.00) 4% 1, % (350.00) (5,050.00) 9-72% - -8% (4,000.00) -13% (3,900.00) 2% % (1,050.00) (8,150.00) 10-70% - -10% (5,000.00) -15% (4,500.00) 0% - -5% (1,750.00) (11, ) 1,550, ,197, (11,000.00) (20,100.00) 21, , (3,600.00)

79 OTHER ADJUSTMENT ON 5. Refurbishment in Phases CAPITAL GOODS If each phase is a separate refurbishment then they should be treated as separate items CGA - separate value & separate adjustment Normally, separate refurbishment can be ascertained as follows: (i) Each phase is covered by a separate contract. (ii) A single contract but contains clauses that allows for separate option for each phase. (iii)each phase is completed before the next phase begins. 79

80 OTHER ADJUSTMENT ON 6. Subsequent Refurbishment CAPITAL GOODS Subsequent refurbishments may be made before the 10- year period for adjustment expires. Registrant have to treat the original refurbishment as destroyed or written out if there is nothing left of the earlier refurbishment or this earlier work is replaced. Registrant have to continue making adjustment on the earlier refurbishment until the stipulated adjustment period expires if elements of the earlier refurbishment are retained. 80

81 EXAMPLE: (earlier refurbishment is written out / destroyed) Interval (year) 1 (2016) 2 (2017) 3 (2018) 4 (2019) 5 (2020) 6 (2021) 7 (2022) 8 (2023) 9 (2024) 10 (2025) *% of taxable use Adjustment % Computation CG Adjustment (RM) 60 % - ITC = RM40,000 x 60% RM24, % 70 % - 60 % 55 % 55 % - 60 % 65% 65 % - 60 % 40,000 X 10 % 5 40,000 X (-5 %) 5 40,000 X 5 % 5 0 % % % % % % (400)

82 OTHER ADJUSTMENT ON 7. De Minimis Rule in CGA CAPITAL GOODS The de minimis rule is taken into account when determining the reclaimable percentage of input tax in an interval. Treated as fully taxable and reclaimable percentage for that interval is 100% if eligible. Different capital assets may subject to different adjustment percentage (i.e depend on usage of the assets, if method of apportionment is other than standard method (i.e. based on the usage) 82

83 OTHER ADJUSTMENT ON 7. De Minimis Rule in CGA EXAMPLE: CAPITAL GOODS Partly-Exempt Sdn. Bhd. qualify for de minimis rule in the tax year RM24,

84 OTHER ADJUSTMENT ON CAPITAL GOODS 8. Change in The Method of Apportionment During an Interval When there is a change in the method of apportionment during an interval, the computation of the annual residual input tax recovery rate can be work out using the following formula:- 84

85 OTHER ADJUSTMENT ON CAPITAL GOODS 8. Change in The Method of Apportionment During an Interval Where; a is the total number of days in the interval applicable to the method of apportionment before the change in method takes place; r a is the percentage (%) of attributable taxable use applicable to a; b is the total number of days in the interval applicable to the alternative method of apportionment; r b is the percentage (%) of attributable taxable use applicable to b; and y is the total number of days in the interval a and interval b 85

86 OTHER ADJUSTMENT ON CAPITAL GOODS 8. Change in The Method of Apportionment During an Interval Example : Partly-Exempt Sdn. Bhd., who is on quarterly taxable period, was allowed to change its apportionment method from the standard method to transaction-based method with effect from the second quarter its tax year (2019). Assuming the company attributed percentage of taxable supplies for the tax year is as follows:- Taxable period Method used 1 st quarter (a) Standard 2 nd quarter to 4 th quarter (b) Transaction method method % of taxable supplies 50% 70% 86

87 OTHER ADJUSTMENT ON CAPITAL GOODS 8. Change in The Method of Apportionment During an Interval Example : Taxable use from 1/1/19 to 31/3/19 (90 days) - 50% Taxable use from 1/4/19 to 31/12/19 (275 days) - 70% Annual residual input tax recovery rate: (90 days X 50%) + (275 days X 70%) x 100 = 65.07% 365 days 87

88 OTHER ADJUSTMENT ON CAPITAL GOODS 8. Change in The Method of Apportionment During an Interval Example : 2016 RM24,

89 OTHER ADJUSTMENT ON CAPITAL GOODS 9. Change in Use of Capital Item What if registrant purchase an asset for making wholly taxable supplies, after a few years, he use that asset for making mix supply? It is treated as a capital item. If during the adjustment period the registrant begin to use the item wholly or partly for making exempt supplies, he has to make an adjustment under the CGA. 89

90 OTHER ADJUSTMENT ON CAPITAL GOODS 9. Change in Use of Capital Item

91 91