Motor Vehicles and the Capital Allowance Restriction

A company buys a RM320,000 executive saloon, books it as plant, and expects capital allowances on RM320,000. It will get them on RM50,000. The car is new, but it costs more than RM150,000, so the higher cap never opens — and the difference, RM270,000, is simply never deducted.

What the cap actually says

Paragraph 2(2) of Schedule 3 to the Income Tax Act 1967 limits qualifying plant expenditure on a motor vehicle to RM50,000, unless the vehicle is licensed by the appropriate authority for the commercial transportation of goods or passengers — in which case there is no cap.

The proviso raises the limit to RM100,000 only where both conditions are met for a vehicle purchased on or after 28 October 2000:

1. the vehicle has not been used prior to purchase; and
2. the total cost does not exceed RM150,000.

Fail either one and you fall back to RM50,000. There is no sliding scale.

Vehicle	Cost	Qualifying expenditure
New, not commercially licensed	RM90,000	RM90,000 — the cap only bites above the ceiling
New, not commercially licensed	RM145,000	RM100,000
New, not commercially licensed	RM320,000	RM50,000 — total cost exceeds RM150,000
Used, not commercially licensed	RM90,000	RM50,000 — fails the new test
Reconditioned van	RM75,000	RM50,000 — reconditioned is not new
Lorry licensed for goods	RM260,000	RM260,000 — no restriction

Those outcomes follow the worked examples in Public Ruling No. 6/2015. The reconditioned-van case (Example 8) is the one people lose on: PR 6/2015 states plainly that a reconditioned vehicle cannot be categorised as new, even where it has been overhauled with high-quality parts and passed functional and safety tests.

Note the trap in the word new. For capital allowances it means never used. For benefits-in-kind it means something different — paragraph 3.3 of Public Ruling No. 11/2019 defines a new motorcar as including a reconditioned car at the time it was first registered in Malaysia. Same word, two regimes, opposite answers.

What is not qualifying expenditure

Public Ruling 6/2015 paragraph 5.2(a) excludes:

• road tax, insurance and hire-purchase interest — recurring expenses, allowable instead under s.33(1);
• reserve price for a personalised registration number, including tender and service fees — treated as private expenditure.

Cash price including basic accessories and the mandatory JPJ registration fee do qualify. Optional accessories offered only by some dealers do not.

Leasing instead of buying does not escape it

Section 39(1)(k) disallows lease rentals on a non-commercial motor vehicle above RM50,000, or RM100,000 where the vehicle was unused before the rental and its total cost does not exceed RM150,000. The further proviso makes the ceiling aggregate across the year of assessment and all subsequent years for that vehicle — so a long lease exhausts the allowance and every later rental on the same car is disallowed.

Electric vehicles

There is a distinct gazetted rule for rentals. The Income Tax (Deduction for Rental Payments) (Electric Motor Vehicles) Rules 2026, P.U.(A) 232/2026, allow a Malaysian-incorporated resident company a deduction for EV rental payments, including insurance and processing fees connected to the lease. The rules have effect from YA2023 to YA2027.

The conditions are strict:

• the vehicle must be an electric motor vehicle within s.2 of the Road Transport Act 1987;
• it must be new and never used by any person before the rental;
• it must not be licensed for the commercial carriage of goods or passengers;
• the aggregate deduction must not exceed RM300,000 per vehicle across all years;
• the Director General may disallow any excess over what is reasonable in the ordinary course of business.

Rule 2(5) is the part to read twice. Where a company claims under these Rules, no claim may be made under s.39(1)(k) or Schedule 3 for the same expenditure. You choose one route.

No corresponding instrument raising the purchase cap for electric vehicles was found — an EV bought outright appears to sit under the ordinary paragraph 2(2) limits.

Common mistakes

Reading RM100,000 as the default. It is the exception. Most guides lead with RM100,000 and bury the two conditions; the statutory default is RM50,000.

Treating a reconditioned import as new. It is the single most common reclassification on audit.

Assuming a four-wheel drive used to carry goods is commercial. Example 5 of PR 6/2015 restricts exactly that vehicle to RM100,000 because it was not licensed as a commercial vehicle. The test is the licence, not the use.

Claiming EV rentals and Schedule 3 allowances on the same vehicle. Rule 2(5) of P.U.(A) 232/2026 forbids it.

Capitalising road tax and insurance into the cost. They are revenue, and including them inflates a figure that is capped anyway.

What’s next

Reprice the decision before you sign. Above roughly RM150,000, a purchase gives tax relief on RM50,000 while an EV lease can give relief on up to RM300,000 through YA2027 — and the employee still pays benefit-in-kind tax either way.