Income Tax (Accelerated Capital Allowance)(Automation Equipment) Rules 2017 amended

The Income Tax (Accelerated Capital Allowance) (Automation Equipment) Rules 2017 (‘the Principal Rules’) which allows a qualifying company to claim accelerated capital allowance for qualifying capital expenditure incurred in respect of a qualifying project for modernising or automating its existing manufacturing activity of a product, has been amended by the Income Tax (Accelerated Capital Allowance) (Automation Equipment) 2017 (Amendment) Rules 2020 (‘the Amendment Rules’).
The Amendment Rules were gazetted on 28 May 2020 and are deemed to have come into operation from year of assessment 2018.
The amendments made to the Principal Rules under the Amendment Rules are as follows -
  1. The time frame within which accelerated capital allowance may be claimed under the Principal Rules has been extended from year of assessment 2017/2020[1] to year of assessment 2023;
  1. The qualifying criterion set out in paragraph 3(a)(iv) of the Principal Rules that the qualifying project must have been carried on for at least 36 months has been replaced by a requirement that the qualifying company must have been in operation for at least 36 months;
  1. The qualifying capital expenditure in respect of a qualifying project may be incurred until year of assessment 2023;
  1. The deadline for an application to be made to the Malaysian Investment Development Authority for capital allowance has been extended to year of assessment 2023; and
  1. The disqualifying event set out in paragraph 7(c) of the Principal Rules, namely that the qualifying company has been granted any exemption under section 127 of the Income Tax Act (‘ITA’) has been clarified by replacing the reference to the section 127 of the ITA with a reference to an exemption granted under section 127(3)(b) or section 127(3A) of the ITA.
The extension of the time frame of the Principal Rules is one of the initiatives undertaken by the Malaysian Government to encourage companies to modernise or automate their manufacturing activities to reduce the dependence on labour.

[1] See paragraphs 3(a)(v)(A) and 3(a)(v)(B) of the Principal Rules.