Tax Update: Cost of R&R of Business Premises

A tax deduction of up to RM 300,000 was suggested as part of the First Economic Stimulus Package, which was unveiled on 27th February 2020, for expenses paid between 5th March and 31st December 2020, for remodeling and rebuilding business properties. After then, it was recommended that the tax deduction be extended to cover such costs incurred until 31st December 2021 in the Short-term Economic Stimulus Package announced on 5th June 2020.

The business is allowed to claim a tax deduction for costs of renovation and refurbishment of business premises under the Income Tax Rules 2021.

The conditions to claim the special deduction:

• All business premises, regardless of whether they are owned or rented by the taxpayer would qualify for the deduction.

• This is no condition that the taxpayer claiming the deduction uses the premises for business purposes.

• The eligible period is from 1st March 2020 and has been extended to 31st December 2022.

• The cost of renovation and refurbishment of the business premises must be certified by an external auditor.

Taxpayers claiming the tax deduction are required to retain the following supporting documents, to be produced in the event of an audit:

• Business registration certificate.

• Proof of ownership of the business premises or valid tenancy agreement.

• Invoices for the renovation and refurbishment costs.

• Certificate of the said costs by an external certified auditor.

Eligible Cost

The PU Order has stated below expenses eligible for special breakdown, provided it must be certified by an external auditor:

• General electrician installation

• Lighting

• Gas System

• Water system

• Kitchen Fittings

• Sanitary Fittings

• Door, window, gate, grills

• Fixed partition

• Flooring

• Wall coverings (inc. carpets)

• False ceiling and cornices

• Ornamental features or deco

• Canopy

• Fitting room/changing room

• Recreational room for employees

• Air-conditioning system

• Children’s play area

• Reception area

• Surau

Note that the below list is not eligible for claims,

1.Designer’s fees

2.Professional fees

3.Purchase of antiques (purchase of an object or work of art, which represents a previous era in human society, is a collectible item due to its age, rarity, craftsmanship, or other unique features and appreciation over time)

The non-application provision provides that the Rules will not apply who have made any of the following claims about the costs of renovations and refurbishment:

a) As allowable expenses under Section 33(1) of the ITA

b) Capital allowance under Schedule 2 of the ITA

c) Capital Allowance under Schedule 3 of the ITA.

The rules were effective from YA 2020.

If you have done any renovation this year for your shop, I suggest you keep those receipts, as you will get a tax deduction of RM 300,000.