What is the difference between accounting depreciation and capital allowances?
Depreciation is the accountant's charge in the financial statements, spreading an asset's cost over its useful life. Capital allowances are the tax law's own rates for claiming that cost against taxable income. The two usually differ, so the tax computation adds back depreciation and deducts allowances.
Accounting depreciation
- Set by the company within the accounting standard (method, life, residual value)
- Shown in the profit or loss statement
Capital allowance
- Prescribed by the Income Tax Act 1967 (Schedule 3): fixed rates by asset type
- Not tied to what the accounts show
- Claimed in the tax computation
How they connect
- Accountant records depreciation in the accounts
- In the tax computation, depreciation is added back to profit as non-deductible
- Capital allowances are then deducted
- The gap creates a timing difference, which may need deferred tax under the accounting standard in some frameworks
What the bookkeeper must do
- Keep the fixed asset register with the data the tax agent needs: date of purchase, cost, whether used for business, and disposal details
- Record disposal proceeds
- Do not change accounting depreciation to "match" tax; keep the two separate
Allowance rates are not listed here; see the tax section for current rates and claims.
Legal basis
- Income Tax Act 1967, Schedule 3
- MPERS Section 17
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- How long must a Malaysian company keep its accounting records?A company must keep accounting records for seven years after the transactions they record were completed. For tax, documents must be kept for seven years from the end of the relevant year of assessment. Use whichever period ends later.
- How soon must transactions be recorded in the books?Under section 245 of the Companies Act 2016, entries must be made in the accounting records within 60 days after the transaction is completed. Leaving the books for a full year-end rush is therefore not compliant.
- What do a company's financial statements contain?A company's financial statements normally include a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows and notes with accounting policies. The set must give a true and fair view.
- Who prepares and approves a company's financial statements?Directors are legally responsible for the financial statements. An in-house accountant or external firm often drafts them, but the board approves them by resolution and signs a directors' statement. The statements are then presented to the members.
- What is the difference between MPERS and MFRS?MFRS is the full set of Malaysian standards, aligned with IFRS, used by listed and regulated entities. MPERS is a shorter, simplified framework based on the IFRS for SMEs standard, designed for private entities. Both give a true and fair view; MPERS has fewer disclosures and simpler rules.