Lecture Notes
Capital Allowances –
Chapter 9
Today’s Objectives
• Students should be able to:
• Understand why Capital allowances are
applied in Jamaican Taxation
• Determine when to utilize the different types
of allowances and the general operations of
the revised system.
Capital Allowances - defined
• Capital allowances are given on capital
expenditure to individuals conducting
business, partnerships, and corporations
instead of depreciation (for taxation purposes)
• Effectively, it is the method used by the
revenue of a country to assess depreciation of
assets.
FIMPA (2013) Revisions
• Fiscal Incentives Miscellaneous Provisions Act
(FIMPA) 2013 has revised the capital
allowances set-up for capital expenditure
incurred after Jan 1, 2014. These includes;
 Buildings: Industrial & Commercial
 Plant & Machinery
 Motor Vehicles
 Intangible Assets
Initial Allowance
• Initial Allowance is given prior to use of the
asset.
• This implies that more than the cost price of
the asset can be recovered with assets that
get this particular allowance.
• Rationale: the government seeks to give
incentives to enter certain industries to
encourage production. (agriculture etc.)
Annual Allowance
• Annual Allowance is given to all assets just like
ordinary depreciation.
• Therefore, all categories that we will examine
will have their special annual allowances rates.
Balancing Allowance/Charge
• This is given on disposal of an asset i.e. on sale
or demolishing of the asset etc.
• If the selling price < the written down value on
disposal = balancing allowance. (less tax)
• If selling price > the written down value on
disposal = balancing charge. (more tax)
• The latter will be restricted to the total of all
capital allowances given over an assets usage.
Buildings: Industrial & Commercial
• Industrial Buildings get 20% IA and 4%
AA(concrete structures); 10% AA (metal
structures); 12.5% AA (wooden structures).
• See page 236 in the text to determine which
structures are considered industrial buildings.
• Commercial Buildings get no IA and the
annual allowances divisions are the same.
• Both IB & CB are prorated based on time of
acquisition.
Plant & Machinery
• Cat. 1 – P &M used for production of primary
products get 25% IA and 12.5%AA
• Cat. 2 – Comp. equip. gets 25% IA and 20% AA
• Cat. 3 – Typewriters, adding machines etc. get
no IA and 20% AA
• Cat. 4 – Telephones systems etc get no IA and
20% AA
• Cat. 5 – other P & M gets no IA and 12.5%AA
• No proration for all categories. Full AA at YE.
Motor Vehicles
• Private vehicles get no IA and 12.5% AA. There
is a max. limit of 35,000 USD since the FIMPA
revision. Prior to that the max was 3,200 JMD.
• Trade vehicles get no IA and 20 % AA with no
max limit.
• Rent-a-car/tour bus/taxi – this group of
vehicles get no IA and 20% AA.
• All categories are prorated based on time of
acquisition.
Intangible Assets
• Research and development – no IA and 20%
AA.
• Intellectual property < 10,000 USD – no IA and
20% AA.
• Intellectual property > 10,000 USD – no IA but
you can get up to 1/14*100 AA i.e. they give
allowances up to 14 years for this category.
SUMMARY
• Capital allowances are given instead of
depreciation.
• Initial allowance is given to certain assets to
encourage production industries.
• Annual allowances are given on all assets.
• Balancing allowance/charge is computed on
disposal of assets.
• Buildings and motor vehicles are prorated.