RM9 million Reinvestment Allowance, upheld on LHDN audit: turning an expansion into tax savings
KTP secured a RM9 million Reinvestment Allowance on a manufacturer's RM15 million expansion, and the claim was upheld on LHDN audit.
A precision engineering manufacturer spent approximately RM15 million expanding its operations, but was unsure what the spending could qualify for. KTP identified the qualifying expenditure, assembled the evidence and supported a Reinvestment Allowance claim of RM9 million. LHDN later audited the claim and accepted it.
The result
The company claimed Reinvestment Allowance (RA) at 60% on approximately RM15 million of qualifying capital expenditure for year of assessment 2013, an allowance of about RM9 million to set against its statutory income. The savings were reinvested in the business and its operations.
The claim was later audited by LHDN and accepted. For an incentive claimed through the tax return without prior approval, that is the result that counts.
At a glance
Client: Malaysian manufacturer and trader of precision engineering parts, in operation for more than 36 months
Incentive: Reinvestment Allowance under Schedule 7A of the Income Tax Act 1967
Qualifying project: Expansion
Year of assessment: 2013
Outcome: About RM9 million RA claimed. Accepted by LHDN on audit
Service: Eligibility assessment, identification of qualifying expenditure, site verification and claim preparation
The challenge
The company had committed significant capital to expanding its manufacturing operations. Management was not sure whether the spending qualified for incentives, what records a claim would need, or what process to follow.
The stakes were real. RA claims turn on technical definitions of qualifying projects, factories and manufacturing activity. A claim the company could not support would be at risk of being disallowed on audit.
Our approach
KTP first confirmed that the capital spending formed part of a qualifying expansion project under Schedule 7A. We then went through the fixed asset records to identify the factory, plant and machinery expenditure that qualified, and gathered the supporting documentation.
Our team visited the site to verify the assets and confirm how the factory space was actually used. We also reviewed production reports against the productivity level needed for the enhanced set-off. The company did not meet that level, so the claim was set against up to 70% of statutory income, the standard limit.
RA is claimed through the tax return, not by prior application, so the quality of this evidence is what protects the claim from a later dispute. We prepared the claim and the supporting file on that basis. When LHDN did audit, the file supported the claim.
Why this matters today
RA can still be claimed through the tax return without prior approval, subject to the conditions of Schedule 7A, for 15 consecutive years of assessment from the first claim. The Special RA for companies that had used up their 15-year period ran until year of assessment 2024. Time limits also apply to carrying forward unabsorbed allowances, so a claim should be planned with the company's expected profits in mind.
KTP's View
Claiming the allowance is the easy part. Proving it is the hard part. Every RA claim is a promise that the spending was for a qualifying project, in a qualifying factory, on qualifying assets. Companies that document that promise when they invest, not when LHDN asks, keep the savings they claimed.
