This document discusses the definition and computation of agriculture allowances under Malaysian tax law. It defines qualifying agriculture expenditures that allowances can be claimed on, such as land clearing and preparation, new planting, and construction of roads, buildings, and structures on farms. It provides the rates of allowances for different types of qualifying expenditures. It also addresses the treatment of allowances on the disposal or transfer of assets, including apportioning allowances between the transferor and transferee. Agriculture charges that may arise from government grants are also discussed.

1. CHAPTER 3
AGRICULTURE
ALLOWANCE
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2. Learning Objective
• At the end of this lecture, students should
be able to:
– Understand the definition of agriculture
– Identify qualifying agriculture expenditure
– Show the computation of agriculture
allowances/agriculture charge
– Understand the treatment of allowance on
disposal or transfer
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3. Introduction
 A taxpayer who has incurred exp. in the
working of farm is entitled to claim
Agriculture Allowance.
 The allowance can be deducted from the
adjusted income in arriving at the Statutory
Income of a business.
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4. Meaning Of Agriculture
 Section 18, ITA 1967: Agriculture means any form of
cultivation of crops, animal farming, aquaculture, inland
fishing and any other agriculture or pastoral pursuits.
 Crops – any form vegetable produce.
 Farm – any land used for the purpose of agriculture.
 Replanting
– the replacement of the crop of any product on any area
of land to produce on the same area of a crop of the
same product and includes reforestation of timber.
– Sec. 34(6)(d) – exp. incurred on replanting is allowed as
deduction from GI in arriving at AI
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5. Qualifying Agriculture
Expenditure (Para. 7, Schedule
3)
 QAE is capital expenditure incurred by a person on the
following items:
– The clearing and preparation of land for the purpose of
agriculture.
– The planting (but not replanting) of crops on land
cleared for planting.
– The construction on a farm of a road or bridge.
– The construction on a farm of a building:
• Used for the purpose of a business and which is used
wholly or partly for the working farm.
• Provided as accommodation for the welfare of the
employees who employed in connection with the
working of farm.
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6. Continue
 Building Constructed on a Farm
– This building can be used in the business of working
of farm – i.e. office, stores for harvested crop
product and warehouse for fertilizers and
equipment.
– Building provided for the welfare or living
accommodation for employees (i.e. mosque, temple
and labour quarters).
– As alternative, a person may claim IBA instead
agriculture allowance
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7. Continue
 Expenditure on clearing and preparation of land
– This expenditure includes the following costs:
• Removing existing trees and clearing the land.
• Constructing the drainage and irrigation system.
• Fertilizing the land.
 Planting expenditure
– It includes the cost of planting of the new crop.
– It not include cost incurred after the point of
planting the seedlings.
– Cost of up keeping, maintenance, fertilising and
pesticide are NOT planting exp.
These costs are revenue exp. and deductible from
GI in arriving at AI.
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8. Continue
Qualifying Agriculture Expenditure
Clearing
& preparation
of land
*Exclude:
• cost of land
•Cost of PM
New planting
*Exclude:
• cost of land
Construction
of road/
Bridge on farm
Use in
business
Construction of
Farm & building
living acc.
for
employees
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9. Person Entitled To Claim
Agriculture Allowance
 In order to claim agriculture allowance, the person
 Must be the owner at the end of the basis period.
 Must incurred the qualifying agriculture exp.
 The assets must be in use in the business.
 Paragraph 25(b) – AA will not be granted if the above
requirement will not be fulfilled.
 Paragraph 25(a) – AA will not be granted for the YA in
which asset is sold if the asset is not in use for buss.
Purpose within 1 month before the sale
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10. Example 1
 Desa Bhd. (accounting year ending 30 June) has been
operating a cocoa plantation since 2000. In 2007, the
company constructed a new office building and used it
in the business until 31 Dec. 2011. On 12 Jan 2012, the
building was sold to Pandan Bhd.
 Answer:
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11. Rate Of Agriculture Allowance
Clearing and preparation of land for the
purpose of agriculture.
50% [Para. 23]
Planting of crops on land cleared for
planting.
50% [Para. 23)]
Construction on a farm of a road and
Bridge.
50% [Para. 23]
Construction of a building provided for
the welfare/living accommodation for
workers
20%
[Para. 22(a)]
Any other building used in business
(e.g. estate office, smoke house).
10%
[Para. 22(b)]
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12. Continue
 There is no initial allowance given on qualifying
agriculture expenditure.
 Any agriculture allowance that cannot be fully absorbed
in a year of assessment is carried forward to the
following YA.
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13. Example 2
Growing Fast SB,
incurred the following capital
expenditure for the financial year 31 August 2010:
Cost of land
RM500,000
Land clearing
RM200,000
Seedling and fertilizing
RM480,000
Construction of:
Labour quarter
RM160,000
Office building
RM120,000
Compute the agriculture allowance for YA 2010-2012
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14. Answer 2
Land clearing
Planting
Labour
Quarter
Office
Building
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15. Disposal Or Transfer Of
Assets
 Paragraph 24(a) – states that when a person transfer or
sells an asset which is in use within 1 month before the
transfer or sale, he is entitled to only part of the allowance
in the basis period for YA the asset is transferred.
 Agr. allowance is apportioned on a time basis up to the
date of transfer.
 The calculation of agriculture allowance for the transferor:
– No. of days from beginning
X Agriculture allowance
of basis period to the day of
transfer or sale………………
365
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16. Continue
The apportionment of Agr. Allowance is based on the
basis period of the seller, not basis period of purchaser.
The purchaser is entitled to the balance of that agr.
allowance in the basis period for which the sale took place.
The purchase price of asset is irrelevant in calculating
the agr. allowance for the purchaser.
For the subsequent YA, the purchaser can claim full
amount of agr. allowance if the farm or asset used for the
purpose of business.
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17. Example 3
Refer to example 2;
GFSB sold the entire assets to APR on 1/3/2012. APR
financial year 31/12)
Compute the agriculture allowance for YA 2012 and
YA2013
GFSB
Land clearing
Planting
Labour
Quarter
Office
Building
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18. Answer 3
APR
Land clearing
Planting
Labour
Quarter
Office
Building
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19. Agriculture Charge
(Para. 26, Sch. 3)
 An agriculture charge arises when:
– Received grant from government (state/statutory).
• Grant or subsidy is received from govt. to relieve
burden of any capital incurred by person on the
farm.
• The agriculture charge is equal to the sum of grant
receivable made on the person in the basis year
for which the sum first become receivable.
• The agriculture charge shall be deemed to be first
payable in the period of cessation if such grant is
payable after the disposal of farm.
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20. Continue
 Disposal within 6 years.
– Where a person disposes of an asset within 6 years
of the date on which QAE was incurred and agr.
allowance have been given , an AC is made on him
(The 6 years threshold takes effect from 13 Sept.
2003, prior 13 Sept. 2003, imposition was 10 years).
– In the event the disposal took place after the
permanent cessation of farm business, the disposal
shall be deemed to have been made in the year of
cessation.
– The agr. charge is equal to the total amount of
agriculture allowance made to that person on that
qualifying exp.
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21. Election For Spread Back
(Para. 27, Sch. 3)
 The taxpayer can make an election under Para. 27, to
spread back the agriculture charge evenly over the YA in
which the agriculture allowance is given.
 The election must be made within three months (or the
longer period as the Director General may allow) of the
beginning of the YA for the basis period in which the
disposal is made.
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22. THANK YOU
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