INDUSTRIAL BUILDING ALLOWANCE

(IBA)
 Definition of Industrial Building
 Determination of Qualifying Building Expenditure (QBE)
 Constructed Building
 Purchased Building

 Person Eligible to claim IBA

 Types of Industrial Building Allowance
 Initial Allowance
 Annual Allowance

 Temporary Disuse of Industrial Building

 Disposal of Industrial Building
 Balancing Charge
 Balancing Allowance
 A taxpayer who has incurred expenditure on the construction or
purchase a building of a building which is used for his
business is entitled to claim Industrial Building Allowance
(IBA)
 IBA is deducted from the adjusted income in arriving to the
statutory income of a business
 Para 75 (Sch 3) – any IBA that cannot be fully absorbed in a YA
can be carried forward for subsequent YA until fully absorbed.
 Sec 2, ITA 1967, defined building as any structured erected on
land (not being plant & machinery)
 Sec 3, para 63 – specifies the types of building that qualifies as
industrial building.
 Types of industrial building
 Used as factory
 Used as dock, wharf, jetty or etc
 Used as a warehouse
 Used in water, electricity, and telecommunication
 Used in working in a farm
 Used in working of a mine
 Para 64- factory as to include mill, a workshop, and a building for
the housing of plant and machinery
 Factory also includes a building within same cartilage as a
building which is used for storage of raw material, fuel or
stores necessary for the manufacture as well as finished product
before it has been sold
 Internal road, car parks fences and bridges in same compound –
industrial building
 Workshop used for repairing goods which is incidental to a
business of selling those goods – NOT considered as industrial
building.
 within the
same cartilage”
 A building attached or adjacent to or within the same enclosure
as the other building.
Example:
Messy Bhd is a manufacturing company. The factory is located in
Klang. The warehouse is to store raw materials within the same
compound of the factory. But the warehouse for finished project is
in Kajang.

Are both warehouse considered as IB?

 within the
same cartilage”
 Answer:

Only the warehouse in Klang is considered as IB as it is within the

same curtilage(yard) as factory.
 Under para 65(3) of Sc 3 ITA 1967, building used for the following
purpose are NOT treated as industrial buildings:
 Dwelling house
 Retail shop
 Showroom
 Office
 QBE – capital outlay incurred on the building and incidental cost
exclusively related to the building. It includes
i. Architects fees
ii. The cost of preparing plane, etc in connection with obtaining
approval from the local authority for the erection of the bulding
iii. The cost of clearing the old site including the demolition of any
existing building
iv. The cost of construction which includes labor, materials, haulage,
management supervision and other charges.
v. Interest expenses on loan borrowed to construct the building its
completion
vi. Incidental expenditure on work which may be separately contracted
eg drainage equipment
vii. Legal fees, stamp duty etc connected with the acquisition of
building.
The cost of the land and legal fees relating to the acquisition
of the land wont qualify for IBA. Legal expense on loan borrowed
to construct the building also excluded.
 Where part of the building or extension of a building is used as
industrial building and the other part of the building is not used.
 Rule: Application of
1. 10% rule using cost of construction or
2. 10% rule using the floor space are

 If the capital expenditure incurred on the construction of the non

qualifying part does not exceed 10% of the total cost/space so
the whole building qualifies as a industrial building (para 66)
 If the construction cost of the non – qualifying exceeds 10% of
total cost/space incurred of the whole building, then only part
of such building is qualified for IBA.
 Unlike plant and machinery which we buy and normally the cost of
purchase(or the price) is the qualifying expenditure, one can
purchase a building or construct a building. In this case, there are
two ways to determine the qualifying building expenditure.
1. Purchased building
 Cost of purchase, excluding the cost of land and cost related to
acquisition of land.
2. Constructed building
The capital expenditure on construction of a building includes the
following:
 Cost of land; x
 Legal fees on acquisition of the land; x
 Architect’s fees;
 Cost of preparing plans in connection with obtaining building
approval;
 Cost to clear the old site; (caution!)
 Cost of construction the building;
 Other incidental cost, for example, wiring, plumbing and drainage
system.
 All the above are qualified building expenditure except cost of
land and legal fee on land and cost to clear the old site.
 Caution!!!
The cost of clearing old site may qualify for IBA if the new building
that is constructed is situated on the site of the old building and the
old building was not used as industrial building.
 Star Sdn Bhd incurred the following expenditure to construct a
factory.
Item RM
Cost of land 280,000
Legal fees for acquisition of land 6,000
Cost of approving plan 15,000
Construction cost 180,000
Cost of demolishing and old factory 35,000

 Determine the QBE for the factory

 QBE for factory
- Cost of approving RM15,000
- Construction cost RM180,000
- RM195,000
 In the case where capital expenditure incurred on preparing,
cutting, tunneling or levelling land for purpose of installing
plant and machinery exceeds 75% of the aggregate cost of
plant & machinery and the cost of installation, the total cost
will be treated as an expenditure on a building.
 If the building qualify as an industrial building, then it will qualify
for IBA.
 Hence the plant and machinery will not qualify for capital
allowance
A building :
 Used as factory (includes mill, workshop, building to house machinery
and generating of power and building which is within the same curtilage
to factory used for storage of raw materials and finished products
(*warehouse));
 canteen, restroom, recreation room, lavatory, bathhouse,
washroom for employees with an existing industrial building;
 Building purchased or constructed to be used as living accommodation
for employees in manufacturing, hotel or tourism business, approved
service sector, excluding for a director, an individual having control of the
business or an individual of the management, administrative or clerical
staff. (No IA, AA 10%)
 Constructed living accommodation for employees where there is an
existing IB. (IA40%, AA 3%)
 Child care centre for employees (No IA, AA10%)
 Used as a dock, wharf, jetty or other similar building;
Building type
Used for staff welfare (65(1)) In an existing IB, any additional building
expenditure incurred such as canteen,
recreation room, lavatory, bath house,
bathroom or washroom for employees
shall be treated as IBE
Farm (65(2)) Farm employees living accommodation
is to claim under agricultural allowance
Construction of employees quarters (42 When IB is used in a business and
(1)) additional building is constructed for
(excluding director, individuals having living accommodation of employees
control of that business or an individual employed in that business, the
wo is a member of the management, additional building is treated as IB.
administrative or clerical staff engages
in that business)
Manufacturing, hotel or tourism project Incurred expenditure on construction or
(42A(1), Child care facilities (42A(2)) purchase
Workshop is qualifying IB except a workshop used for the repair or
servicing of goods and if the repair or service is carried out in
conjunction with or incidentally to the business of selling those
goods.
 Example (not qualifying as IB): where a person carries on the
repairs and servicing of motor vehicles in conjunction with the
selling of motor vehicles, capital expenditures on such workshops
do not qualify for IBA.
 Used as a *warehouse where the business consists of hire
of storage space to the public;
 Used for storage of goods for export or storage of imported
goods for processed and distributed or re-exported;(No IA,
AA10%) (*Warehouse)
 Used in the business of water or electricity undertaking,
supplying water or electricity for consumption by the
public;
 Used in connection with the working of a plantation and
the business consists of working of the plantation
 Used in connection with the working of a mine and the
business consists of the working of a mines;
 Public road recoverable through toll (IA 10%, AA 6%);
 Building on built, lease and transfer to Government
(IA10%, AA6%);
 Private hospital, maternity home and nursing home;
 Used for approved research (R&D approved by the
Minister, R&D undertaken by a Research and Development
company or a contract Research and development
company)
 used for approved service project ;
 Hotel that is registered with the Ministry of Tourism;
 Any building, runway or ancillary structures for an airport;
 Motor racing circuit approved by the Minister;
 Constructed or purchased and used for school and
educational institution approved by the Minister of
Education
 Constructed or purchased and used for industrial,
technical or vocational training (approved)
 Old folks home approved by the Social Welfare
Department
 Constructed or purchased building located in the
Cyberjaya Flagship Zone used for the purposes of a
business of an approved MSC status company or
rented to an approved MSC status company
 Constructed or purchased building used by a Malaysian resident
company (approved by Minister) as a BioNexus status company
solely for the purpose of its new business or for expansion project
(No IA, AA10%)
 Constructed building under a privatisation project and private
financing initiatives approved by the Privatisation or privatisation
financing initiatives Committee under the Prime Minister’s
Department pursuant to an agreement entered into with the
Government, or a statutory body on a ‘build-lease-transfer’ basis
for which no consideration has been paid by the Government or
the statutory body.
 Constructed or purchase commercial building by a Tun
Razak Exchange Marquee Status Company for the
qualifying activity used in Tun Razak Exchange
 Constructed or purchased and used for purpose of
business as child care centre.(registered with the
Department of Social Welfare)
 Constructed or purchase building used for the purpose
of business relating to kindergarten (registered with
the Minister of Education)
Where a building is used as an IB, for example
a factory, but part of the building is used for non
IB purpose, if the proportion of the non IB
purpose is not more than 10% of the capital
expenditure incurred on the construction of the
whole building, then the building will be
considered as IB.
A Sdn. Bhd constructed a factory building at a cost of
RM500,000. 15% of the total floor space of the factory
is used for office and showroom purpose.
Determine the qualifying building expenditure (QBE) of
the factory building.
QBE = 85% x RM500,000 = 425,000
 If a person incurred capital expenditure on
preparation of land or site (example, cutting,
tunnelling or levelling land) to install a plant
or machinery, and the cost of preparation of
site more than 75% of the aggregate cost
(aggregate cost of preparation of site and cost of
plant or machinery), then the aggregate cost is
QBE (qualified building expenditure)
 If the cost of preparation of site is 75% or less
of the aggregate cost, then it is only the cost of
plant or machinery qualifies for QPE (qualified
plant expenditure)
C Sdn. Bhd bought a machine at RM40,000 and
incurred RM250,000 on cost on preparation of site.
Determine the qualifying capital expenditure of the
machine.
Cost of machine 40,000
Cost of preparation of site 250,000
290,000
250,000/290,000 = 86%
The qualifying Building Expenditure (QBE) is
RM290,000 (86% is more than 75%)
 Initial allowance =10%
 Annual allowance =3%
 The day the expenditure incurred on the construction of a building
is on the day on which the construction of the building is
completed.
 Where a person is about to commence the business, the
expenditure shall be deemed to be incurred on the day when they
commence to carry on the business.
 Interest in the building where a person who has
incurred the capital expenditure (lessor or owner)
would be entitled to the allowances of the building
if it is used as an industrial building.
Example 1:
ABC Sdn. Bhd. constructed a factory at a cost of
RM1 million and leased the factory to XYZ Sdn.
Bhd. XYZ Sdn. Bhd uses the factory in its business.
Answer:
SHE Sdn. Bhd. entered into a lease agreement
to rent a factory for its business operations and
the monthly rental is RM15,000. The company
extended the rented factory and incurred cost of
extension of RM100,000.
The company has the relevant interest on the
extension of the factory. Can SHE Sdn. Bhd.
claim IBA on the cost incurred on the extension
of the factory?
Answer:
 A person who incurred the QBE starts to claim when the building
is completed. However, if the business has not commenced, the
person will claim on the date of commencement of the business.
This is because the expenditure incurred before the
commencement date is deemed incurred on the commencement
date.