| # Capital Goods Adjustment If there is a change is the proportion of taxable use of the capital goods, the initial amount of the input tax claimed must be adjusted accordingly. This adjustment is considered as Capital Goods Adjustment (CGA). The CGA is used to provide an appropriate attribution of input tax to the taxable supplies, because the capital goods can be used in the business over a period of years and the taxable supplies can also vary over the years. As explained in CGA, the goods are referred to as "capital item". Based on the GST provisions, the definition of capital item includes: All goods that can be capitalized based on the accepted accounting principles. Capital goods used by a person in the course or furtherance of a business. Capital goods not solely for the purposes of selling. Capital goods valued at RM 100,000.00 or more per “unit” exclusive (excluding) of GST. According to the CGA, capital items include items that are acquired, imported, self-supplied, manufactured, produced, constructed, altered, extended, refurbished or fitted out. The examples of a capital item are: Land. Building or part of a building that is completed and ready for occupation. Goods and services acquired in connection with the construction and alteration of a building, including extension of a building or part of a building. Civil engineering works that include roads, bridges, drainage and installation of pipes for connection to the main services. Plants, equipment, computers (excluding computer’s software) or machines. Commercial vehicles such as lorries and buses. Goods and services acquired in connection with the construction, manufacture or assembling of an equipment, computer, machine, vehicle or any other capital items. Capital expenditure, for example refurbishment, renovation and repair works, that are carried out to increase the value of the asset and capitalized for accounting purpose. Conditions when CGA is not applicable: The CGA is not applicable when: A registered person makes wholly taxable supply. A mixed supplier acquires a capital asset to be used solely for making taxable supplies. A mixed supplier acquires a capital asset to be used solely for making exempt supplies. The asset is acquired or imported solely for resale. The acquired asset is used for non-business purpose. The acquired asset is excluded from input tax credit, for example passenger cars. The value of an acquired capital asset is less than RM100,000.00, excluding tax. The Adjustment Period An adjustment period refers to a fixed period of time, consisting of intervals, during which the proportional taxable usage of a capital item is re-evaluated. For land and building, the adjustment period consists of 10 intervals (inclusive of both, the first and the final intervals) and for all other capital items, the adjustment period can consist of only 5 intervals. Categories of the time interval According to the CGA, the intervals in which the re-evaluation and adjustments must be made, can be categorized as 'first', 'subsequent' and 'final' interval. The 'first' interval for a capital item commences from the date when the capital item is imported, acquired or supplied. According to the CGA, you must not make adjustments to the first interval. In the 'subsequent' and the 'final' time interval, adjustments are made to the initial input tax claim when the proportional use of the item, fluctuates in each interval. If the proportional taxable use decreases in the subsequent or the final time intervals (as compared to the first time interval), a certain percentage of input tax that is claimed initially, must be paid back to RMCD. Conversely, if the taxable use of the capital item increases, the additional amount of the input tax can be claimed on the capital item. According to the CGA, you must not make any changes after the adjustment for the final time interval is made. There are two methods to determine the additional input tax incurred on a capital item after the first time interval. The two options are: Combined adjustments This approach involves combining the adjustment calculations for the remaining time intervals. Each time an additional input tax is incurred, the base percentage must be re-evaluated and used to measure the additional input tax for the next interval. The base percentage can be calculated by determining the percentage of input tax that has been reclaimed for the intervals that expired. Parallel adjustments This approach involves separate, but simultaneous calculation adjustments for the remaining time intervals. Processing Input Tax adjustment To process the input tax adjustment: Calculate IRR (same as in Partial exemption requirement). While calculating the IRR percentage, the following conditions must be checked and the data must be updated accordingly: Scenario A: If only taxable supplies exist in the given year, the IRR percentage is set as 100%. Scenario B: In case only Exempted supplies exist, Input Tax credit is not allowed on Tax for capital purchases. In this case the IRR percentage is set to 0%. Scenario C: In case both Exempted supplies and taxable supplies exist for the customer (Mixed supplies), calculate the IRR percentage same as in Partial exemption requirement. After calculating the IRR percentage, the tax amount for the Assets that you capitalized in the given year must be adjusted. You can execute this process only if the GST Implemented check box is selected in the GST Parameters (tfgld9120m00c) session. |