Capital allowances provide tax relief for qualifying capital expenditure under Schedule 3 of the Income Tax Act 1967. Before relying on relief, review both the conditions for the claim and the consequences of disposing of the asset. An accelerated allowance does not remove the need to examine those disposal rules.
Budget 2026 announcement: verify the applicable instrument
The Ministry of Finance's Budget 2026 tax measures document (Appendix 21) proposed an accelerated capital allowance of a 20% initial allowance and a 40% annual allowance for qualifying capital expenditure incurred from 11 October 2025 to 31 December 2026. It lists four categories: heavy machinery procured from local manufacturers; plant and general machinery acquired from local manufacturers; ICT equipment and computer software; and consultation, licensing and incidental fees related to customised computer software development. The Budget announcement alone is not enough to support a claim. Confirm the implementing legislation, effective dates and qualifying conditions before including the allowance in the tax computation.
Assets owned for less than two years
For the disposal rule described below, two years means two calendar years measured by the exact number of days, rather than two years of assessment. The applicable exceptions still need to be considered. HASiL's Public Ruling No. 6/2022, Accelerated Capital Allowance, explains that where an asset is owned for less than two years, paragraph 71 of Schedule 3 applies, except where the disposal is by reason of the owner's death or for other reasons acceptable to the Director General. The Director General may direct that allowances are not made, or that allowances already made are withdrawn through a balancing charge in the year of disposal. The ruling states that allowances will not be withdrawn where the disposal has a bona fide commercial reason, such as damage to the asset, unsuitability for use, or the asset no longer being needed in the business. Relief from that withdrawal does not remove the need to apply the ordinary disposal rules. Any balancing charge or balancing allowance must still be calculated under the applicable rules.
Whether particular expenditure qualifies, and how a disposal is treated, depends on the facts. For the wider Budget context, see our article on assessing a Budget tax measure.
This article is general information only. Requirements depend on each company's circumstances; please refer to HASiL's official guidance, and see Saifudin & Co's tax advisory and compliance services if you would like assistance.