Wear & Tear Allowances

Capital allowances are a relief from income tax and are based on the capital expenditure incurred on the provision and installation of certain assets within a building that suffer wear and tear, usually plant and machinery, as well as on various types of properties, including certain commercial and industrial buildings, hotels and others.

Every building contains an element of depreciable plant and machinery, which will qualify for capital allowances, such as air-conditioning equipment, hot water installations, lifts and escalators, fitted carpets, furniture and fittings, to name a few. However, other less obvious assets may also qualify, for example, emergency lighting, fire alarm systems and security equipment.

Following the Revenue Laws Amendment Bill 2007, allowances are available on capital expenditure contracted for and incurred on or after 1^st April 2007 on the development of qualifying commercial buildings, where the qualifying building is being used by the taxpayer in the course of their trade.  The annual writing down allowances are currently 5% per annum.

Where allowances on commercial and industrial buildings and hotels are concerned, there is often very significant scope for increasing the benefits available by separately assessing the wear and tear allowances on qualifying fixed assets.  By proper planning the tax savings resulting from such an exercise can be too great to ignore.

To qualify for capital allowances, the property owner or occupier must be a taxpayer and must:-

• Incur capital expenditure on qualifying assets.
• Use the qualifying assets in the course of its trade, either as an investor or as an occupier of a building.
• Demonstrate that it owns the qualifying assets.

By claiming capital allowances you are easing your tax burden, thereby improving the net return of a property and increasing cash flow. Capital allowances planning should therefore form a vital part of ensuring the viability of any property transaction.