This document discusses forest allowance under the Malaysian tax system. It defines a forest and qualifying forest expenditure (QFE). QFE includes expenditures on roads, buildings, and employee living accommodations used for a timber extraction business. Forest allowance is given annually at rates of 10% for roads/buildings and 20% for living accommodations on unclaimed QFE balances. If the business permanently ceases, the final allowance equals remaining QFE. If the forest is disposed of, a forest charge equals total allowances claimed must be paid that can be spread back under election. Examples calculate forest allowances and charges for various scenarios.

1. CHAPTER 4
Forest Allowance
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2. LEARNING OUTCOME
• Definition of Forest
• Determination Qualifying
Forest Expenditure (QFE)
• Rate of forest allowance
• Permanent cessation (Para.
31, Sch. 3)
• Forest Allowance and
Forest Charge
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3. INTRODUCTION
Forest allowance is given to a person who is
carrying on the business of extracting timber in
a forest and have incurred qualifying forest
expenditure.
Paragraph 29, Sch. 3 – specifies that a person
who is entitled to forest allowance in respect of
any expenditure shall not be entitled to any
other allowances under Sch. 3 in respect of the
same expenditure.
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4. DEFINING A ‘FOREST’
Paragraph 8(2) Sch. 3
Forest means a forest in respect of which a
person has a concession or a license to
extract timber there from for the purpose of
a business of his which consists wholly or
partly of that extraction.
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5. QUALIFYING FOREST
EXPENDITURE (QFE)
QFE is capital expenditure incurred by a person on
the construction in a forest, such as:
A road or building used for the purpose of a
business of his which consists wholly or partly of
the extraction of timber from the forest; or
A building provided for the welfare of persons or
as living accommodation for a person,
employed in or connection with such extraction,
and which if the forest ceases to be used for such
extraction, would be likely to be of little or no
value to any person. Sem 2, 2013/2014
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6. Rate of Forest Allowance
 Paragraph 30, Sch. 3 identifies the rates of forest
allowance on QFE.
 It should be noted that there is no initial allowance on
QFE. The rates are as follows:
QFE
Rate (%)
Building provided for
welfare/living accommodation for
employees
20% [Para.30(a)]
Road/building used for business
10% [Para.30(b)]
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7. Example 1
Timber Sdn. Bhd (accounting year ends on 31
Dec) is a company involved in timber extraction
business. The company incurred the following
expenditures:
Date
Expenditure
RM
2/3/2007
Construction of road
28,000
4/5/2008
Constr. Of office
35,000
6/7/2009
Constr. Of labour quarters.
67,000
Required:
Compute the FA available for all the years of
assessment up to YA 2012.
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8. Answer
Road
Office
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9. Permanent Cessation
(Para. 31, Sch 3)
 Where there is a permanent cessation of the
business to extract timber from a forest, a forest
allowance for final YA is equal to the excess of
QFE over total forest allowances given.
 There is no entitlement to any allowance after
the cessation of the business.
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10. Example 2
Refer Example 1 except that Timber Bhd
permanently ceased its timber extraction business
on 3 Nov 2011. Compute the forest allowance due
to company.
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11. Answer
Road
Office
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12. Forest Charge
(Para. 32, Sch 3)
 When person involved in extraction of timber and has
incurred qualifying forest exp disposes of that forest, a
forest charge is made for YA for which disposal took place.
 The forest charge – equal to the total amount of forest
allowance given to that person in relation to that QFE.
 Where a person disposed a forest after the end of the basis
period in which business has permanently ceased, the
disposal will be deemed to have been made in the basis
period in which cessation took place.
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13. Forest Charge (Cont…)
 The consideration received or sales proceeds
has no bearing on the computation of forest
charge.
 The acquirer of the forest is not entitled to
claim any forest allowance.
 In order to claim forest allowance, the acquirer
must have. incurred qualifying forest
allowance
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14. Spreading Back of Forest
Charge (Para. 32(1), Sch. 3)
 This para. provides that a person can make an
election to spread back the forest charge over
the YA in which forest allowances were claimed.
 The election must be made in writing three
months (or such further period as the DG may
allow) of the beginning of the YA for the basis
period in which forest is disposed of.
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15. Spreading Back of Forest
Charge (Para. 32(1), Sch. 3)
 This para. provides that a person can make an
election to spread back the forest charge over
the YA in which forest allowances were claimed.
 The election must be made in writing three
months (or such further period as the DG may
allow) of the beginning of the YA for the basis
period in which forest is disposed of.
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16. Example 3
Kembara Bhd (accounting year ends 31 Dec)
commenced a timber extraction business in March,
2007. The company incurred the following expenditure in
the forest:
Date
Expenditure
RM
1/6/07
Road
42,000
7/7/07
Labour quarters
60,000
On 12 Dec 2011, the company ceased the timber
extraction business permanently and disposed of the
forest on 15 Jan 2012 for RM130,000.
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17. Required:
Calculate the FA and FC due to Kembara Bhd
for all relevant YA under each following
circumstances:
i. The company did not make an election under
Para 32 (1), Sch 3.
ii. The company did make an election under Para
32 (1), Sch 3.
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18. Answer (i)
Road
Quarters
*When a forest is disposed – the disposal is deemed to
have been made in the basis of cessation
Sale proceed – no bearing on the computation of FC
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19. Answer (ii)
Road
FC(election)
Quarters
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20. Example 4
MyForest carries on a business of timber extraction in
Muadzam and has an annual accounting date of 31
December. The following expenditure was incurred:
YE 31/12/08 - construction of road
RM20,000
- const.of living accommodation
RM40,000
YE 31/12/09 - construction of road
RM100,000
- const.of living accommodation
RM60,000
The company ceased the extraction of timber from the
forest on 30.09.10 of the sale proceed, RM15,000 related
to capital expenditure in 2008 and RM60,000 related to
expenditure in 2009.
State the allowances ATXB223; Sem 2, 2013/2014
and charges (if any) for the relevant 20
years of assessment, assuming that an election was made.

21. Thank you
Q&A
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