The purpose of CGA is to ensure that GST input tax claimed on capital good purchased by a GST mixed supplier is used consistently with the proportion of taxable supplies to exempt supplies. However, if the usage is changed, the CGA must apply for up to 10 years for land & building, and 5 years for other assets including taxable goodwill.
- Capital goods acquired must be accounting fixed asset (FA) and not trading stock. All blocked asset items (like motor cars) are not subject to CGA.
- The input tax on capital goods cannot be claimed if the registered business output supply is fully exempt. No CGA required.
- If the capital good acquired is for fully taxable supplies (at standard rate and/ or zero rate), input tax is claimed in full and there is no need for any capital goods adjustments (CGA), even if the business is in a mixed supplies status.
- If there are incidental exempt financial supplies (ES43), the de minimis rule must qualified ( monthly sales less than 5% of total sales and less than RM5,000), the business is then treated as wholly taxable status, and CGA is unnecessary.
- The capital good adjustments is only needed if it is used for both Exempt and Taxable (mixed) supplies.
- The FA in single unit or component set, must be greater than RM 100,000 taxable value. If it started with land and later add building, the two is also consider as a set for CGA. However, building in separated phases with separate contracts, they are considered as different units for CGA.
- If asset is used for both business and private, only the business portion is under CGA if the portion is over RM 100,000.
WHEN AND HOW TO CALCULATE CAPITAL GOOD ADJUSTMENT?
- CGA is performed for every CGA INTERVAL.
- An interval is the same as the business's financial year. Therefore a new business can have the first CGA interval between 6 to 18 months. First interval cannot be less than 6 months and not exceeding 18 months (longer period) to 31st December xxxx
- Thereafter every 12 months. Final interval can be less than 12 months. ( Five intervals can be 7,12,12,12,5).
- CGA requires 10 intervals for land and building.
- The interval, are called First interval, subsequent intervals and final interval.
- No CGA is required for the first and the final intervals. Only subsequent intervals need CGA. The apportionment percentage required by CGA is the same used for TX-RE residual code used for your monthly apportionments. The Input tax Relief Ratio (IRR).
- When capital good is purchased or build, the apportionment for the GST incurred is calculated according to the IRR for the month. Thereafter the IRR is based on the annual adjustment for TX-RE code.
- Therefore, you need one calculation of CGA for each subsequent interval for each asset. (may be grouped only if they all fall onto same purchase period).
- If assets are sold as a going concern, new owner must continue with the remaining CGA.
- If an asset is sold before the end of CGA intervals, and GST is added on the sale value, the remaining CGA intervals are treated as fully taxable supply periods for GST refund.
- Each CGA subsequent interval is calculated by the yearly IRR differences (IRR-3 minus IRR-2) x original GST claimed on the asset, divided by total intervals. For example, GST claimed on asset is 6,000. The IRR for interval 2 is 60% and IRR for interval 3 is 80%. The CGA for interval 3, is 6,000 divided by 5 intervals, and multiply with (80%-60%) for a machine with 5 intervals.
( all figures are based on output value of supplies only-Turnover Basis )
GST apportionment allowed = T-0 divided by (T+ E) - O =IRR allowed.
Where T = value of taxable supplies (sales)
E = value of Exempt supplies (sales)
O = value of capital goods sold + business transferred + Deemed supplies + ES43 financial supplies + imported services.
(where value = gross amount less GST if any).
GST ACCOUNTING FOR CGA
Since IRR can only be calculated at the month end, the input tax on capital goods is claimed in full (code TX-CG at 6%). An adjustment is made according to the disallowed portion via GST Adjustment posting (can use code AJS to add to the Output tax). Subsequent annual adjustments via AJS or AJP depending on whether it is payback to RMC or additional relief from RMC. Disallowed portion is written off to P&L account.
SOURCE : COPYRIGHT BY KY LEU