Capital Allowance Calculation 2026: Step-by-Step Guide
Learn how to calculate capital allowance on equipment purchases in 2026. Maximize your tax deductions with easy examples.
What is Capital Allowance?
Capital allowance is a tax deduction. You claim it when you buy equipment for your business. Instead of deducting the full cost in one year, you spread it over several years.
This deduction reduces your taxable income. Lower taxable income means less tax to pay.
Types of Capital Allowance
Initial Allowance
This is your first-year deduction. It's a percentage of the equipment cost:
- Standard Rate: 20% of equipment cost
- Accelerated Rate: 40% for qualifying assets
- Claim in Year 1: When you first buy and use the equipment
Annual Allowance
This is your ongoing deduction each year after Year 1:
- Standard Rate: 20% of remaining value
- Reduced Rate: 10% for some assets
- Claim Every Year: Until the full cost is deducted
How to Calculate Capital Allowance
Example 1: RM100,000 Excavator
Year 1 (40% Initial Allowance):
β’ Equipment cost: RM100,000
β’ Initial allowance (40%): RM40,000
β’ Tax deduction: RM40,000
β’ Remaining value: RM60,000
Year 2 (20% Annual Allowance):
β’ Remaining value: RM60,000
β’ Annual allowance (20%): RM12,000
β’ Tax deduction: RM12,000
β’ Remaining value: RM48,000
Year 3 (20% Annual Allowance):
β’ Remaining value: RM48,000
β’ Annual allowance (20%): RM9,600
β’ Tax deduction: RM9,600
β’ Remaining value: RM38,400
Year 4 (20% Annual Allowance):
β’ Remaining value: RM38,400
β’ Annual allowance (20%): RM7,680
β’ Tax deduction: RM7,680
β’ Remaining value: RM30,720
Year 5 (20% Annual Allowance):
β’ Remaining value: RM30,720
β’ Annual allowance (20%): RM6,144
β’ Tax deduction: RM6,144
β’ Remaining value: RM24,576
Capital Allowance vs. Bank Loan
| Factor | Bank | Ing Heng Credit |
|---|---|---|
| Down Payment | 10-20% | 0% |
| Loan Amount | 90% max | 100% Full Loan |
| Equipment Age | 5 years max | NO Age Limit |
| Capital Allowance | Same | Same |
Capital Allowance for Used Equipment
Used equipment gets the same capital allowance. The percentage applies to the purchase price:
Example: RM50,000 Used Excavator
β’ Year 1 (40%): RM20,000 deduction
β’ Year 2 (20%): RM6,000 deduction
β’ Year 3 (20%): RM4,800 deduction
β’ Year 4 (20%): RM3,840 deduction
β’ Year 5 (20%): RM3,072 deduction
Total: RM37,712 deductions
Banks Reject Used Equipment:
β’ Banks only finance equipment up to 5 years old
β’ Ing Heng finances equipment of any age
β’ Get capital allowance on affordable used equipment
Interest Deduction on Top
When you finance equipment, you also deduct interest:
- Interest is 100% deductible
- Claim each year as part of your loan payments
- Additional tax savings beyond capital allowance
Example: RM100,000 Loan at 6% for 5 Years
β’ Total interest paid: ~RM30,000
β’ Annual interest deduction: ~RM6,000
Total Tax Deductions: Capital allowance + Interest
Multiple Equipment: How to Calculate
If you buy multiple equipment, calculate each separately:
Equipment 1: RM80,000 Excavator
β’ Year 1 allowance: RM32,000
Equipment 2: RM40,000 Forklift
β’ Year 1 allowance: RM16,000
Equipment 3: RM25,000 Lorry
β’ Year 1 allowance: RM10,000
Total Year 1 Deduction: RM58,000
When to Claim Capital Allowance
You claim capital allowance in the year you:
- Purchase the equipment
- Start using it for business
- Install it at your business location
Timing Tip: Buy in January for full year of deductions. Buy in December and still get full Year 1 allowance.
Capital Allowance Record Keeping
Keep these records for LHDN:
- Purchase invoice with date and amount
- Delivery note showing when received
- Asset register listing all equipment
- Depreciation schedule showing annual calculations
- Loan documents if financed
0% Down Payment Benefit
How 0% down payment helps your capital allowance strategy:
Full Loan Amount:
β’ Finance 100% of equipment cost
β’ Same capital allowance as cash purchase
β’ More interest to deduct
β’ Cash preserved for operations
Example: RM120,000 Excavator
β’ Bank (10% down): RM12,000 upfront, RM108,000 loan
β’ Ing Heng (0% down): RM0 upfront, RM120,000 loan
Result: Same capital allowance, but RM12,000 cash saved
Quick Calculation Formula
Year 1 Deduction: Equipment cost Γ 40%
Year 2+ Deduction: Remaining value Γ 20%
Remaining Value: Previous year value - Current year deduction
2026 Capital Allowance Tips
- Buy Early: Purchase in January for maximum benefit
- Use 0% Down: Preserve cash while getting deductions
- Consider Used: Lower cost, same allowance percentage
- Finance Multiple: Each equipment gets separate allowance
- Track Everything: Keep detailed records for each asset
Get Your Equipment in 2026
Capital allowance reduces your tax bill. 0% down payment preserves your cash. 100% full loan means more equipment options. NO age limit means used equipment qualifies too.
We approve in 24-48 hours. Start your 2026 capital allowance claims today.
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