Tax treatment of assets held for sale
As per LHDN Guidelines for income tax treatment of MFRS 5 : Non-Current assets held for sales and discontinue operation :
The asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. Highly probable is defined under Para 8 FRS 5. One of the criteria is the sale should be completed within one year.
Overview of assets held for sale
By the end of this article, you will understand the meaning of assets held for sale and their tax impact.
What are Assets Held for Sales (HFS)?
Assets held for sale are a non-current asset which a Company plan to sell.
However, the process of selling assets may take a long time. During the period, the assets are not used for the operation of the business and not generating any kind of income.
Criteria of classification as an asset held for sales:
1. The asset must be available for immediate sale in its present condition.
2. The sale must be highly probable.
One of the criteria of “highly probable” is the sale should be completed within one year.
However, there are also some events and circumstances that may extend the period of completion of sale beyond one year.
Tax impact of assets held for sale
There are 2 circumstances if your assets classified as HFS:
Disposal made within the same basis period or within the following year of assessment
Balancing charge / (Balancing allowance) = Market value – Residual expenditure
A balancing charge will increase your chargeable income, but a balancing charge reduces your chargeable income.
Note: Market value is to be compared with a fair value of assets and disposal value whichever is higher.
Disposal in subsequent basis period (sale completed in more than 1 year, but not within the following year of assessment).
The calculation will be the same as scenario 1.
Once the classification of the asset has been made, the Company is not allowed to enjoy the capital allowance until disposal took placed.
Besides, the market value is based on the 2nd year fair value after being classified as HFS even no disposal is made.
Note: The asset is deemed disposed of if no disposal is made within the following year of assessment.
Want to get tax savings on the disposal of assets? Plan the action before classifying your fixed assets to reduce your tax!
Source assets held for sale
Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
KTP (Audit, Tax, Advisory)
An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients
THK (Secretarial, Account, Payroll, Advisory)
A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsource booking, accounting and payroll services to clients
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Published : 8-Sep-2021