How can Capital Allowances Help Me?

Most of us would like to save on the taxes that we pay to the government.

Businesses pay taxes on their business profits. By reducing the amount of profit that is taxable, we can save on taxes.

You cannot show reduced profits by resorting to creative accounting because creativity is not appreciated in this field, particularly by investors and tax authorities.

The only way you can reduce profits is by including all the expenses that tax authorities allow you to deduct from your revenue before arriving at the taxable profit. Capital allowance is one such expense that is legally allowed to be deducted.

Capital allowance can be seen as the writing down of long-term assets used in the business. These assets will typically be used for several years and the cost of the asset is spread over this useful life.

Tax authorities have estimated the useful lifetimes of the major classes of long-term assets and have also prescribed how to compute the capital allowance over this period.  For example, you can claim capital allowances at 20% of the “declining value” of Plant & Machinery every year.

While most businesses already claim allowed capital allowances on moveable assets such as plant, furniture and office equipment, that is not typically the case in the case of buildings. It is estimated that vast majority of buildings have not their capital allowances claimed.

This happens because the rules for computation of capital allowances on buildings are complex. You cannot claim a specified percentage of the total value of the building. Instead, you must identify the “moveable” items such as light and water supply fittings, air conditioning plant and so on, value them and claim capital allowances on this value.

There is no time limit for making capital allowance claims, and you can save a significant amount of tax by getting an expert on capital allowance claims help you make the claims.

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