CHAPTER 3 B

AGRICULTURE
ALLOWANCE

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 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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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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 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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 Qualifying Agriculture
Expenditure (Para. 7, Schedule
 QAE is capital expenditure3)
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. 5
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 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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 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. 7
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Qualifying Agriculture Expenditure

Clearing New planting Construction Construction of

& preparation *Exclude: of road/ Farm & building
of land • cost of land Bridge on farm
*Exclude:
• cost of land living acc.
•Cost of PM Use in
for
business
employees

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 P e rson E ntitled T o C la im
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.
 Th e 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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 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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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 20%
the welfare/living accommodation for [Para. 22(a)]
workers
Any other building used in business 10%
(e.g. estate office, smoke house). [Para. 22(b)]
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 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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 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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 Answer 2
Land clearing Planting Labour Office
Quarter Building

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 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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 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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 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 Office
Quarter Building

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 Answer 3
APR
Land clearing Planting Labour Office
Quarter Building

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THANK YOU

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