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  • INLAND REVENUE BOARD OF MALAYSIA

    Translation from the original Bahasa Malaysia text

    DATE OF PUBLICATION: 20 JANUARY 2016

    AGRICULTURE ALLOWANCES

    PUBLIC RULING NO. 1/2016

  • INLAND REVENUE BOARD OF MALAYSIA

    AGRICULTURE ALLOWANCES

    Public Ruling No. 1/2016

    Date of Publication: 20 January 2016

    Published by Inland Revenue Board of Malaysia First edition 2016 by Inland Revenue Board of Malaysia All rights reserved on this Public Ruling are owned by Inland Revenue Board of Malaysia. One print or electronic copy may be made for personal use. Professional firms and associations are permitted to use the Public Ruling for training purposes only. Systemic or multiple reproduction, distribution to multiple location via electronic or other means, duplication of any material in this Public Ruling for a fee or commercial purposes, or modification of the content of the Public Ruling are prohibited.

  • INLAND REVENUE BOARD OF MALAYSIA

    AGRICULTURE ALLOWANCES

    Public Ruling No. 1/2016

    Date of Publication: 20 January 2016

    CONTENTS PAGE

    1. Objective 1

    2. Relevant Provisions of the Law 1

    3. Interpretation 1

    4. Introduction 2

    5.

    6.

    7.

    8.

    9.

    10.

    Qualifying Agriculture Expenditure

    Rates of Agriculture Allowances

    Apportionment of Agriculture Allowances Upon Sale or Transfer of an Asset

    Agriculture Charges

    Election to Spread Agriculture Charges

    Appendix 1 Summary of Qualifying Agriculture Expenditure

    2

    8

    9

    14

    19

    21

    DIRECTOR GENERAL'S PUBLIC RULING

    Section 138A of the Income Tax Act 1967 [ITA] provides that the Director General is empowered to make a Public Ruling in relation to the application of any provisions of the ITA. A Public Ruling is published as a guide for the public and officers of the Inland Revenue Board of Malaysia. It sets out the interpretation of the Director General in respect of the particular tax law and the policy as well as the procedure applicable to it.

    The Director General may withdraw this Public Ruling either wholly or in part, by notice of withdrawal or by publication of a new Public Ruling.

    Director General of Inland Revenue,

    Inland Revenue Board of Malaysia.

  • INLAND REVENUE BOARD OF MALAYSIA

    AGRICULTURE ALLOWANCES

    Public Ruling No. 1/2016

    Date of Publication: 20 January 2016

    Page 1 of 20

    1. Objective

    The objective of this Public Ruling (PR) is to explain the

    (a) types of qualifying agriculture expenditure;

    (b) computation of agriculture allowances;

    (c) computation of agriculture charges; and

    (d) tax treatment on receipt of a grant or subsidy.

    2. Relevant Provisions of the Law

    2.1 This PR takes into account laws which are in force as at the date this PR is published.

    2.2 The provisions of the Income Tax Act 1967 (ITA) related to this PR are section 18 and paragraph 34(6)(d), paragraphs 7, 18, 20 to 25, 27, 33, 38, 39, 40, 49, 52, 55, 75 and 81, proviso to subparagraph 42(1), subparagraphs 42(2), 63(e) and 65(2), of Schedule 3.

    2.3 Relevant subsidiary law referred to in this PR is Income Tax (Exemption) (No. 22) Order 2006 [P.U (A) 207/2006].

    3. Interpretation

    The words used in this PR have the following meaning:

    3.1 Control has the same meaning as defined in subparagraph 38(2) of Schedule 3 to the ITA;

    3.2 Farm means any land used for the purposes of agriculture;

    3.3 "Relevant interest means the interest in that building or structure to which the person who incurred the expenditure was entitled when he incurred it;

    3.4 Disposal of farm asset means the occurrence of any of the following events:

    (a) the relevant interest in the asset is sold;

    (b) on the expiration of a lease where the relevant interest is a leasehold interest, and payment is made by the incoming lessee or the owner of the interest in immediate reversion makes any payment to the person that incurred the qualifying agriculture expenditure;

    (c) the asset is transferred for valueable consideration; or

    (d) the asset ceases to be used for the working of a farm;

  • INLAND REVENUE BOARD OF MALAYSIA

    AGRICULTURE ALLOWANCES

    Public Ruling No. 1/2016

    Date of Publication: 20 January 2016

    Page 2 of 20

    3.5 Replanting means the replacement of the crop of any product on any area of land by taking such action as is calculated to produce on the same area a crop of the same product and includes reafforestation of timber;

    3.6 Agriculture means any form of cultivation of crops, animal farming, aquaculture, inland fishing and any other agricultural or pastoral pursuit, including the reafforestation of timber;

    3.7 Crops" includes any form of vegetable produce.

    4. Introduction

    A person who has incurred qualifying agriculture expenditure for the purposes of a business of his will be entitled to claim agriculture allowance that can be deducted against the adjusted income from that business to arrive at the statutory income. Business in this PR refers to agriculture business.

    5. Qualifying Agriculture Expenditure

    5.1 Types of qualifying agriculture expenditure

    Qualifying agriculture expenditure is capital expenditure incurred by a person on the

    (a) clearing and preparation of land for the purposes of agriculture. Where crops are planted on hilly ground and it is necessary to terrace the land to combat erosion and to provide easy access to estate workers, such expenditure is to be treated as qualifying agriculture expenditure;

    (b) planting (but not replanting) of crops on land cleared for planting;

    (c) construction on a farm of a road or bridge. Expenditure on the construction of drains would also qualify as qualifying agriculture expenditure;

    (d) construction on a farm of a building used for the purposes of a business of that person which consists wholly or partly of the working of the farm. The types of buildings would include estate office buildings, mills and godowns; and

    (e) construction on that farm of a building which is provided by that person for the welfare of persons or as living accommodation for a person, employed in or in connection with the working of that farm. If the farm ceases to be worked, that building is likely to be of little or no value to any person except in connection with the working of another farm. The types of buildings would include labour quarters, places of worship and community hall.

  • INLAND REVENUE BOARD OF MALAYSIA

    AGRICULTURE ALLOWANCES

    Public Ruling No. 1/2016

    Date of Publication: 20 January 2016

    Page 3 of 20

    Note

    A person may make an election under the proviso to subparagraph 42(1) of Schedule 3 to the ITA to treat a building as an industrial building. This election can be made if the building is provided for the welfare of persons or as living accomodation for a person, employed in or in connection with the working of a farm. If the farm ceases to be worked, the building is likely to be of little or of no value to any person except in connection with the working of another farm. The election to claim industrial building allowances (IBA) is to be made in the Income Tax Return Form for the basis period for a year of assessment in which the expenditure is incurred.

    However, by virtue of subparagraph 42(2) of Schedule 3 to the ITA, such building would not qualify for IBA if it were provided for an employee who is a director, an individual having control of the business or an individual who is a member of the management, administration or clerical staff of that business.

    Example 1

    Golden Pine Sdn Bhd acquired a piece of land for planting of pineapples. The company incurred the following expenditure:

    (a) clearing and preparation of land;

    (b) planting of seedlings; and

    (c) construction of workers quarters.

    Golden Pine Sdn Bhd is eligible to claim agriculture allowances on the above expenditure.

    Example 2

    Sunny Plantation Bhd has two oil palm plantations. Plantation A is situated in Sibu and Plantation B is in Miri. The plantations are worked in phases as shown below:

    (a) Plantation A (Sibu):

    (i) Phase 1 has been bearing fruits for three years;

    (ii) Phase 2 is in the initial stage of bearing fruits; and

    (iii) Phase 3 is in the later stage of planting.

    (b) Plantation B (Miri):

    In the initial stage of planting.

  • INLAND REVENUE BOARD OF MALAYSIA

    AGRICULTURE ALLOWANCES

    Public Ruling No. 1/2016

    Date of Publication: 20 January 2016

    Page 4 of 20

    The company has a factory in Sibu that processes fresh fruit bunches (FFB) into crude palm oil (CPO) and palm kernels (PK) before selling to third parties. As the plantations are not in full production yet, the company has over capacity in its factory. The company thus purchased about 50% of its FFB from other small holders and plantations for processing into CPO and PK. The main source of income reported in its account is from sale of CPO and PK. The company claimed agriculture allowances in respect of costs incurred on land development and construction of roads in Plantation B.

    Though the company carries on the activities of working of oil palm plantations and processing of FFB, the two activities are deemed to be an

    integrated agricultural activity and constitute one business source. The company is therefore entitled