Chapter 8 - Capital Allowances

Question 1

Purpose of capital allowances

Answer 1

Depreciation isn’t allowed, capital allowances are used instead

Question 2

Who can claim capital allowances

Answer 2

Not available for unincorporated business who use cash basis. Available for sole traders and companies who purchase qualifying assets e.g. Plant & Machinery

Question 3

What qualifies as plant & machinery?

Answer 3

Computers and software
Machinery
Cars and Lorries (cars between 1g/km and 50g/km
Office furniture
Movable partitions
Air conditioning
Alterations needed to install plant & machinery
Expenditure acquiring computer software

Question 4

Main/General Pool

Answer 4

Capital allowances are given on the general pool and these are all bunched together

Question 5

AIA

Answer 5

Not available on cars
Cannot be brought forward
Totals $1,000,000. Anything above $1m in 12 months is part of the WDA

Question 6

WDA

Answer 6

18% is written down on additions exceeding the $1m limit, or not covered by the AIA of FYA

Question 7

FYA - NEW Zero CO2 cars

Answer 7

FYA can be used instead of the WDA. However, if used even just a little bit, the remainder goes into the main pool but cannot be used for any other allowance

Question 8

Sale and disposal of plant & machinery

Answer 8

Deduct the correct (usually main) pool with the lower of:
Sale proceeds
Original cost

Question 9

If period of trading is mid year

Answer 9

Adjust the WDA % and the AIA value by the correct amount

Question 10

Varying periods of account

Answer 10

Time apportion to period of trading
The WDA of 18%
And the AIA will be apportioned accordingly

Question 11

If disposals exceed the TWDV - Balancing charge

Answer 11

It is a balancing charge
No WDA, remove it and take off allowances
and is added to tax adjusted trading profit

Question 12

Cessation of trade

Answer 12

The only allowances are the WDA and balancing charge
Calculate disposals
There is no AIA or FYA

Question 13

Cars

Answer 13

If above 50 g/km = special rate pool
Can’t be private usage

Question 14

Private usage of assets

Answer 14

Calculate as normal with the WDA, but the allowance column is only BUSINESS USE
Add a column in for private use assets, and then another column with the percent for business use.

Question 15

Special rate pool 6%

Answer 15

Long life assets: $100k plus over 12 months and 25 year useful life or more from date brought into use
Intergral features of a building or structure
Thermal insulation of a building
High emission cars > 50g/km

Question 16

If subtotals for WDA are or less than $1,000

Answer 16

Written down - it’s proportionate for 12 months

Question 17

Short life assets

Answer 17

Must have intention to sell within 8 years of the chargeable period of acquisition

Goes into another column, in year of disposal, take the C/F on the asset, put disposal in (lower of disposal of cost or SP), then the remainder is fully allowed.

Each asset disposed of gets it own column

Question 18

Exam remember: VAT

Answer 18

Capital allowances must be calculated net of VAT
If businesses have charged VAT on the sal, proceeds in the computation must be net of VAT

Only if cars are used 100% for business

Question 19

Structures and Building Allowances SBA

Answer 19

Separate calculation
Allowances is 3%
Land levelling and Buildings are allowed
Extensions to office buildings are allowed
Land and planning permission are not
Start from date of use
This is a capital allowance that gets removed

Question 20

Balancing charge or allowance

Answer 20

If disposal higher than TWDV, it’s a charge