Capital Allowance Powerpoint Presentation

Download as pptx, pdf, or txt
Download as pptx, pdf, or txt
You are on page 1of 21

TAXATION THEORY AND

PRACTICE

UNIT 4: CAPITAL ALLOWANCE


COURSE CODE : ACT 205
LECTURE NUMBER 4
LEARNING OUTCOMES
• Define the term capital a. Plant and Equipment
allowances

b. Machinery
• Explain the categories of capital
allowances
c. Industrial Building

• Explain the circumstances


d. Motor Vehicle
under which special allowances
may be granted.
e. Intangibles
• Compute the capital
allowances for a ‘given’
industry for the following:
1.1 WHAT IS CAPITAL
ALLOWANCES?

• Reduction in the amount of tax payable.

• Offered as an incentive for investment in large-


scale projects / capital assets.

N.B. These projects are those that increase a


country's production capacity and stock of capital.
1.1 WHAT IS CAPITAL
ALLOWANCES?
Capital Allowance vs Depreciation

• The cost of an asset is usually spread over its


estimated useful life (Depreciation)

• Represents a writing off of a portion of the cost


of the asset overtime

• N.B. Considered when calculating accounting


profit but not a tax-deductible expense
1.1 WHAT IS CAPITAL
ALLOWANCES?
• Businesses and Individuals can claim tax allowances, on
certain assets acquired and used in earning their income.

• These allowances are given for income tax purposes


instead of depreciation for the wear and tear of particular
assets.

• This means you can deduct a portion of the cost from


your taxable profit and reduce your tax obligations.
1.2 There are seven (7) types of Capital
Allowances :

• Initial Allowances: This is given for one year only, the year of
purchase to businesses that are not apart of the basic industries.

• Investment Allowances: This is given in place of an Initial


Allowance to some types of expenditure in the basic industries.

• Special Capital Allowance: This is given to entities in one of the


qualifying businesses on the purchase of certain machinery.

• Annual Allowances: Is given year by year as long as the asset


continues to be used for the purpose of the taxpayer business until
the capital expenditure is written off.
1.2 There are seven (7) types of Capital
Allowances :

• Special Capital Allowance: A business in a qualifying


industry may be granted a special annual allowance in
addition to the regular annual allowance.

• Balancing Allowances: May be given when the Asset is


sold or ceases to exist.

• Balancing Charges: May be taken back when the asset is


sold. These allowances are designed to ensure that over
the life of the asset the total allowed by way of Initial and
Annual Allowance does not exceed the original cost less
the selling price on disposal.
1.3 CATEGORIES OF CAPITAL
ALLOWANCES :
Capital Allowances may be applied to an Asset over three(3)
stages of its life.

Stage 1. Acquisition: When asset is purchased it may


qualify for INITIAL, INVESTMENT or SPECIAL
ALLOWANCE.

Stage 2. Period of Use: An Asset which was in use during


the year of Assessment qualifies for ANNUAL
ALLOWANCE or SPECIAL ANNUAL ALLOWANCE .

Stage 3 . Disposal: Sale or disposal of an Asset may qualify


for BALANCING ALLOWANCE or BALANCING
CHARGE.
1.4 Circumstances under which special allowances
are given :
The following conditions must be satisfied to receive special capital
allowance:

1. The business must be certified by the Minister responsible for that trade.

2. The asset must be new machinery including computers and, where


applicable, has been calibrated in the metric system.

3. The asset must be used for the purposes of the qualifying business.

The following conditions must be satisfied to receive special annual


allowance:

4. The plant and machinery should be used in the production process of a


factory for two or more shifts per day.

2. The shifts must have been operating throughout the working year and the
claim must be supported by a certificate from a registered public
accountant.
1.5 Important notes:

Investment Allowance:
 Investment allowance is not deducted in arriving at the
written down value, nor is it included in the computation
of the balancing allowance or charge.

 Investment allowance does not apply to expenditure on


secondhand machinery.

Balancing Charge:
 Balancing charge is restricted to the total amount of
capital allowance given over the life of the asset.
1.6 Plant and Machinery:

Criteria for determining what is a plant:


1. Fixtures and fittings of a durable nature are generally
regarded as plant.
2. An asset actively used in the business is generally
regarded as plant if it is seen as having a function which
contributes to earning the income of the business.

Points:
 If an item is part of the setting then the capital allowance
for a building would apply.

 Annual allowance for plant and machinery is usually not


apportioned as to time. If they are in use at the end of the
basis period a full year’s annual allowance is usually
given.
1.7 Motor Vehicle:
Trade Vehicles:
A motor vehicle is a trade vehicle if any of the following applies:
1. It is of a type not commonly used as a private vehicle and is
unsuitable to be so used.
2. It is used wholly or mainly for the transport of members of the
public.
3. It is of a construction primarily suited fro the transport of goods
or burdens of any description.
4. It is fitted with dual controls and used for instruction purposes.

Private Vehicles:
 Private vehicles do not qualify for an initial allowance and the
annual allowance is 12.5% of the capital expenditure restricted to
a maximum amount.

 For income tax purposes a private motor vehicle is deemed to cost


J$3,200 if it was purchased before January 1, 2014 and US$35,000
if it was purchased after January 1, 2014.
1.8 Buildings:

INDUSTRIAL BUILDINGS:

The definition of industrial building has been extended to include:

 A building or structure used directly in the production of primary products;

 A hotel or resort cottage within the meaning of Section 2 of the Tourist Board Act;

 A hospital or other healthcare facility primarily for the care of in-patients;

 A multi-storey car park constructed exclusively for parking motor vehicles;


 A building located in a free zone defined in Section 2 of the Jamaica Export Free
Zones Act (or in due course, a Special Economic Zone); or

 Subject to the approval of the Commissioner General, a building or structure


constructed pursuant to an arrangement between a public authority and another
person for the provision of public goods or services.
1.8 Buildings:

NON-INDUSTRIAL BUILDINGS:

 There is no initial allowance for non-industrial buildings, but the


annual allowance is the same at the industrial building.

 Examples of non-industrial buildings:


 A dwelling house
 Retail shop
 Show room
 Office

Point to note:
 Industrial building does not include the cost of land.
2.0 Intangibles

The new regime extends the definition for scientific research and makes
provision for annual allowances for intellectual property rights.

 Pure or applied scientific research when done other-wise than in


connection with a trade;
 Development – being activities aimed at discovering new knowledge
about products, processes and services and applying that knowledge to
create new and improved products, processes and services.
2.0 Intangibles
INTELLECTUAL PROPERTY
This covers expenditure on intellectual property rights being the rights of
ownership, use or other exploitation of any of the following –
(a) A patent or utility model
(b) An industrial design
(c) A layout-design of an integrated circuit
(d) A trademark, service mark, collective mark, certification mark or a brand
(e) A geographical indication of source
(f) A trade secret, know-how or technology transfer
(g) An internet domain name or a publishing title
(h) A copyright
(i) A licence to conduct activities that are regulated by the Office of Utilities
Regulation (OUR), the Spectrum Management Authority or the Broadcasting
Commission.
(j) A right to use a submarine communications cable, a fibre optic network,
2.0 Intangibles
INTELLECTUAL PROPERTY
This covers expenditure on intellectual property rights being the rights of
ownership, use or other exploitation of any of the following –
(a) A patent or utility model
(b) An industrial design
(c) A layout-design of an integrated circuit
(d) A trademark, service mark, collective mark, certification mark or a brand
(e) A geographical indication of source
(f) A trade secret, know-how or technology transfer
(g) An internet domain name or a publishing title
(h) A copyright
(i) A licence to conduct activities that are regulated by the Office of Utilities
Regulation (OUR), the Spectrum Management Authority or the Broadcasting
Commission.
(j) A right to use a submarine communications cable, a fibre optic network,
Capital Allowance Rates as at January 2014
Capital Allowance Rates as at January 2014
Capital Allowance Rates as at January 2014
Questions & Answers

THE END

You might also like