Chapter 8 - Capital Allowances Flashcards
Purpose of capital allowances
Depreciation isn’t allowed, capital allowances are used instead
Who can claim capital allowances
Not available for unincorporated business who use cash basis. Available for sole traders and companies who purchase qualifying assets e.g. Plant & Machinery
What qualifies as plant & machinery?
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
Main/General Pool
Capital allowances are given on the general pool and these are all bunched together
AIA
Not available on cars
Cannot be brought forward
Totals $1,000,000. Anything above $1m in 12 months is part of the WDA
WDA
18% is written down on additions exceeding the $1m limit, or not covered by the AIA of FYA
FYA - NEW Zero CO2 cars
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
Sale and disposal of plant & machinery
Deduct the correct (usually main) pool with the lower of:
Sale proceeds
Original cost
If period of trading is mid year
Adjust the WDA % and the AIA value by the correct amount
Varying periods of account
Time apportion to period of trading
The WDA of 18%
And the AIA will be apportioned accordingly
If disposals exceed the TWDV - Balancing charge
It is a balancing charge
No WDA, remove it and take off allowances
and is added to tax adjusted trading profit
Cessation of trade
The only allowances are the WDA and balancing charge
Calculate disposals
There is no AIA or FYA
Cars
If above 50 g/km = special rate pool
Can’t be private usage
Private usage of assets
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.
Special rate pool 6%
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
If subtotals for WDA are or less than $1,000
Written down - it’s proportionate for 12 months
Short life assets
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
Exam remember: VAT
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
Structures and Building Allowances SBA
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
Balancing charge or allowance
If disposal higher than TWDV, it’s a charge
