Development Charge & Capital Allowance Q7

Thomas Sim PEA2066

Q.
a) As an estate agent you are invited to give an opinion in a discussion regarding legislation that give an impact to property owners. Discuss development charge under the Town and Country Planning Act, 1976. (15 marks)

b) Capital allowance is an allowance allowed by the Inland Revenue Board to replace the fixed asset depreciation deductible from the gross business income.

Explain two (2) following components of capital allowance:

  • Initial allowance
  • Yearly allowance (10 marks)

(25 marks, 2014 Q7)

A.
TCPA impact to property owners, can refer to:

TCPA - Planning Control
TCPA - Material Change

a) Development charge under TCPA 1976 was earlier posted in 2011 Q1 here. However, the question here specifically mentioned about impact of TCPA development charge on the property owners. Therefore, the answer would be more tailored to impact rather than mere explanation of how it is calculated.

The three factors which determines the development charge under TCPA are:

  1. Change of Use
  2. Change of Density
  3. Change of Area

Change of Use:-
When a plot of land is used for residential dwelling upon convertion into a commercial use.

Change of Density:-
When a plot of land for residential development has increased in numbers, or increase in levels more than permitted under the plot ratio e.g. 30,000 sqf of residential apartment floor area ratio to 10,000 sqf of land - plot ratio of 1:3. Now, the developer wants to build high rise condo with 80,000 sqf floor space on the same piece of 10,000 sqf of land. This is change of density and hence development charge is imposed.

Change of Area:-
When a plot of land has increased in area used, e.g. usage of 70% of the land, instead of the usual residential density of say, 50%. The remaining 50% is for recreational park and common areas. This is called 'Plinth Area', which means the proportion of the area of any lot to be covered by building.

Development charge increases the value of the land because it increases the type of use and usage of the property, otherwise not possible without the modification. For example, a plot of private land besides a busy commercial centre can be used for commercial purpose to generate business income. The increase in utilization of the same land means enhanced features and thus, increase in value which can demand better rental rate. This rate is used in the calculation of the development charge in TCPA.

Examples of calculations can be obtained from  Shah Alam Municipal Council (Majlis Bandaraya Shah Alam) MBSA here (extract  below).

​DEVELOPMENT CHARGE​
​Introduction

Development Charges are charges given by the local authorities to any applicant for development if there is a Local Plan or Local Plan Alteration of land owners on the approval of the planning that leads to the increase of value of the land for the following reasons: -

  1. ​​​​Approval of the development involved with rezone land use which causes the increase of the value of the land.
  2. There is an excessive floor from the ratio plot that is stated in the development plan. ​
  3. There is an excessive units above the residential average density that is stated in the order of development.
  4. The purpose of the development charge is to cover the cost of the provision of providing and improving infrastructure and facilities in the area as a result of the approval of the given planning. Shah Alam City Council has adopted the 2010 Development Charges on 25 November 2010.

Methods of 2010 Development Charges were gazette by the Selangor State Government via Gazette No. Sel.PU36 on 25 November 2010.​


Act / Enactment / By-Laws (UUK)

Town and Country Planning Act 1976 Under the 2010 Development Charges Methods. Methods of 2010 Development Charges were gazetted by the Selangor State Government via Gazette No. Sel.PU36 on 25 November 2010.

How To Apply

Application in determining the rate of development charges is based on the direction of the Planning Department.

Assessment Method
 
  1. Each case obtained must be determined when the RT Gazette Plan approved and when KM was sent to the Planning Department.
  2. In all MBSA cases, everything is based on the 2020 MBSA RT changes that were gazetted in 2010 and 2020 (P1) MBSA RT in 2012.
  3. The Property Market Value determination is based on land usage. For the purpose of this meaning, sell-and-purchase proofs will be obtained from per-comparison property and on the last date of the sale-and-purchase transaction’s date.
  4. Proofs of sale-and-purchase will be obtained from the help of the Department of Selangor State Property Evaluation Service (Selangor JPPH) and other sources.​

Evaluation is made based on the Land Usage Change.

These changes are caused by land usage changes in which its status has been changed from agricultural land to industrial land or residential or trade. In addition, this change has caused the increase of the market value of the land.


Example 1

Land Usage Changes from agricultural land to residence:

Increase of plot ratio:

The change of land usage from agricultural land to residential land.

Agricultural land value per acre is RM 522,720.OO (RM 12 psf)

Commercial land value per acre is RM 1,089,000.00 (RM 25 psf)

(Evidence of the sale and purchase of Property Valuation and purchase Information via the MBSA PROGRAM (Form I)

​Land size 0.5 acres @ RM 522, 720.00/acre = RM261, 360.00 closing (the value of the agriculture category)(Proofs of the sale and purchase from the Department of Selangor State Property Evaluation Service and sale and purchase information through MBSA JPPH (I Form)

Land area of 0.5 acres @ RM 522,720.00 / acre = RM 261,360.00 (Agricultural Category Value)

Land area of 0.5 acres @ RM 1,089,000. 00 / acre = RM 544,500.00 (Residential Value)

[The Development Charge levied is 30% of the increase in value.]

​
Example 2.

 

Calculation of development charge.

Difference (ratio plot)

Floor area = ​14,868.65 SM - 12,393.143 SM ​= 2,475.507 SM​ (26,646.10 ​sf)

Total increase of floor area = 26,646.10 sf

26,646.10 sq. @ RM 40.00 / psf (difference in value = RM 110 psf - RM 70 psf) = RM 1,065,800.00

30% Development Charge from RM 1,065,800.00 = RM 319,740.00​

​​​​TOTAL DEVELOPMENT CHARGE IS​ RM 3​19,740.00​​​​​


[The Development Charge is levied at 30% of the increase in value.] ​​

Note: * / ** Proof of sale and purchase were obtained from sources; Selangor JPPH, MBSA JPPH, the Land Office / Ownership Registration Office.


Conditions

​​Early information that is needed to determine the Development Charge is as follow:

  1. The planning permission policy approval
  2. A copy of the land ownership.
  3. The development layout plan.
  4. The local plan that was gazetted. For example 2020 MBSA RT and (P1) 2020 MBSA RT.
  5. Copy of project proposal as a reference to determine the proposed selling price and development costs that are involved.
  6. Copy of land premium payment.

Evaluation report from the developer if they have made a report to determine the market value of the property.

Payment Period

Refer to the method of the Development Charges 2010.​

​
Contact

Majlis Bandaraya Shah Aalm,
​Department of Valuation and Property Management,
Lif B,​ Level 2, Wisma MBSA, Persiaran Perbandaran,40000 Shah Alam, Selangor.​No. Tel​​ ​: ​​03 - 5522 2769/ 2754/ 2753/ 2751
​No. Fax ​:​ ​​03 - 5513 8511
​Email ​: penilaian@mbsa.gov.my

Ref:
http://www.mbsa.gov.my/en-my/mbsa/perkhidmatan/penilaiancukaitaksiran/Pages/caj_pemajuan.aspx
[X] Own account.

b) See earlier post on Past Year 2011 Q3.