Tax Treatment on Repair and Renewal Expenses

​​Generally, repair and renewal expenses are claimed as tax deductions pursuant to Section 33(1)(c) of the Income Tax Act (ITA). Deduction will be allowed for expenses wholly and exclusively incurred for:
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• The repair of premises, plant, machinery or fixtures employed in the production of gross income;
• The renewal, repair or alteration of any implement or utensil of article so employed in the production of gross income (other than those qualify for capital allowances under Schedule 3 of the ITA)

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​The cost of reconstructing or rebuilding any premises, buildings, structures or works of a permanent nature and the cost of any plant or machinery or any fixtures will not be allowed as a tax deduction.
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​The word “repair” is not defined in the ITA. However, Public Ruling provides that a repair is where an asset is restored to its original state by renewing or replacing the parts which cannot be used or damaged, without any element of improvement, addition or alteration.

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​ It is expenditure incurred solely to put back the asset to its original condition which will enable it to function properly at its previous efficiency.
The PR has categorized repair expenses as follows:

• Repair to restore assets to their original condition
• Initial repairs
• The replacement of the entirety or part of the entirety
• Replacement or improvement
• Implements, utensils or articles with a life span of less than two years

 
Repair and renewal expenses

​Revenue Expenditure (allowable deduction)	​Capital Expenditure (disallowed deduction)
​Repair which restores an asset to its original condition	​Repairs or replacements with an element of   improvement or renewal to the assets/ altering the   original condition of the assets
​Repairs which allow businesses to continue	​Initial expenditure or repairs on an asset immediately after the asset is acquired
​Replacement of part of the entire asset	​Replacement of the entire asset (entirety)
Replacements and renewals of implements, utensils or articles that have an expected life span of not more than two years	-

​​If you need further clarification, please do not hesitate to contact our tax team.

Source: lampiran1.hasil.gov.my/pdf/pdfam/PR_06_2019.pdf
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