Capital Allowance
TOPIC 6: CAPITAL ALLOWANCES
Learning outcomes:
At the end of this topic, students should be able to: i. Understand and identify the qualifying plant expenditure for plant and machinery. ii. Compute initial allowance, annual allowance, notional allowance and accelerated capital allowance. iii. Determine the balancing charge or balancing allowance on disposal of assets.
1.0 Introduction * Capital expenditure is not tax deductible. So, depreciation or amortization is also not deductible as there is no outgoing. * However, a person can claim tax relief on capital expenditure in the form of capital allowance (CA). * CA is deductible against adjusted business income. * Qualifying criteria: 1. The person is carrying on a business. 2. He incurred qualifying plant expenditure or qualifying building expenditure. 3. He used such assets in business.
Adjusted business income xxx
+ Balancing charge xxx xxx (A) * Capital allowance:
Unabsorbed CA b/f xx
Current year CA xx
Balancing allowance xx (xx) (B)
Statutory Business Income xxx
* Deduction of (B) is restricted to (A). Any excess is carried forward to be set off against same business.
2.0 Qualifying Plant Expenditure (QPE) * QPE is incurred on provision of machinery/ plant used in business. * It includes: * Alteration of existing building for installation of plant and machinery. * Preparing, cutting, tunneling or leveling land to prepare a site for installation provided that the installation cost is less than 10% of the cost of plant + cost of installation. * Fish ponds, animal pens, chicken houses, structural improvements and building. Exclude: living accommodation for directors / individuals controlling the business / members of management, administration or clerical staff.
3.0 Plant and Machinery * Refers to material or instrument that the employer must use for the purpose of carrying on his business and
Learning outcomes:
At the end of this topic, students should be able to: i. Understand and identify the qualifying plant expenditure for plant and machinery. ii. Compute initial allowance, annual allowance, notional allowance and accelerated capital allowance. iii. Determine the balancing charge or balancing allowance on disposal of assets.
1.0 Introduction * Capital expenditure is not tax deductible. So, depreciation or amortization is also not deductible as there is no outgoing. * However, a person can claim tax relief on capital expenditure in the form of capital allowance (CA). * CA is deductible against adjusted business income. * Qualifying criteria: 1. The person is carrying on a business. 2. He incurred qualifying plant expenditure or qualifying building expenditure. 3. He used such assets in business.
Adjusted business income xxx
+ Balancing charge xxx xxx (A) * Capital allowance:
Unabsorbed CA b/f xx
Current year CA xx
Balancing allowance xx (xx) (B)
Statutory Business Income xxx
* Deduction of (B) is restricted to (A). Any excess is carried forward to be set off against same business.
2.0 Qualifying Plant Expenditure (QPE) * QPE is incurred on provision of machinery/ plant used in business. * It includes: * Alteration of existing building for installation of plant and machinery. * Preparing, cutting, tunneling or leveling land to prepare a site for installation provided that the installation cost is less than 10% of the cost of plant + cost of installation. * Fish ponds, animal pens, chicken houses, structural improvements and building. Exclude: living accommodation for directors / individuals controlling the business / members of management, administration or clerical staff.
3.0 Plant and Machinery * Refers to material or instrument that the employer must use for the purpose of carrying on his business and