Capital Allowances

  • Capital allowances are deductions claimable for the wear and tear of qualifying fixed assets such as industrial machinery, office equipment and sign boards. Capital allowances are generally granted in place of depreciation, which is not deductible.
  • Capital expenditure incurred by a person carrying on a trade, profession or business on the provision of machinery or plant for purposes of the trade, profession or business can qualify for capital allowances claim.

  • Businesses can claim capital allowances when the expense has been incurred. An expense is incurred when the legal liability to pay has arisen, regardless of the date of actual payment of the money. 

  • There are circumstances where you may wish to defer capital allowance claims. 

    Typically, companies defer capital allowance when: 

    (a) the company is in a loss position; or 

    (b) the company qualifies for tax exemption for new start-up companies.

  • When a fixed asset is sold or written off, you need to calculate balancing allowance (BA) or balancing charge (BC) if capital allowance has been claimed for the asset previously. BA is tax deductible whereas BC is taxable income.
  • When a company takes over or buys fixed assets from a related company where there are 50% or more common shareholders, both companies may "elect" to transfer the assets under Section 24 of the Income Tax Act.