Malaysian Tax - How Do You Compute Balancing Charge Part 2

Do you remember the formula of Balancing Charge? Let's revise it again.

Formula:

Balancing charge (hereinafter BC) = Disposal value > Residual value

You can check out my last post for more details😉

https://eric2921.blogspot.com/2020/10/malaysian-tax-how-do-you-compute.html

Now, let's talk about the tricky part. What should we do if the qualifying expenditure is different from the actual capital allowance (CA) claimed?

Formula:

BC = Diposal value* - Residual value

*Disposal value = qualifying expenditure/purchase price x selling price

For example, a reconditioned Vellfire was purchased at rm200,000. According to CA rules, the qualifying expenditure for a non-commercial motor vehicle is restricted to RM50,000 when the purchase cost was > RM150,000. Meaning to say, you can only claim CA up to RM50,000 only. Of course, under CA rules, your BC can't be more than the amount of CA claimed, that is RM50,000.

Here is the tricky part, after 4 years, when you claimed all the available CA RM50,000, the residual value = RM NIL. You later sold it off for RM100,000. Applying the normal BC computation, we can get an RM50,000 BC (RM100,000 - RM0, no more than RM50,000). 

Summary

Purchase price                    RM200,000

Qualifying expenditure      RM50,000 (restricted)

Selling price                       RM100,000

Well, there is more to it.

Since the Vellfire is sold in whole, we need to calculate the portion that selling price (RM100,000) is 'attached' to the car's actual value. Hence, disposal value = RM50,000/RM200,000 x RM100,000 = rm25,000 only. Applying BC formula, RM25,000 - RM0, (no more than RM50,000), the BC = RM25,000.

Easy right? I hope this helps when you are computing your client's tax. Do let me know if you need further clarification!