Where a company has both taxable and non-taxable (tax-exempt) income streams, capital allowance computations / claims will be segregated or classified along the two income streams. Capital allowance from assets used in generating tax-exempt incomes (or other non-income yielding activities the assets may be used for), cannot be claimed (for tax offset) against the company’s assessable profits (or incomes subject to tax).
Where an asset (or a set of assets) is used by the company to jointly generate both taxable and non-taxable incomes, and the percentage of the tax-exempt incomes of the company is more than 20% of the total incomes, then the claim of capital allowance on those assets will be prorated and restricted to only the percentage relating to the taxable incomes of the company.
The law is silent as to what will happen when the percentage of tax-exempt incomes to total incomes of the company, is less than 20%. But our interpretation. (Until the tax authority issues further clarifications) is that the Law has deemed such percentages of tax-exempt income of 20% or less, too insignificant or immaterial to warrant any restriction or proration of capital allowance claim.
These provisions of the Finance Act 2021 do not apply to companies enjoying Pioneer Status Incentive.
For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.