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U10_DA_Plant_rev 08/09 1 THE UNIVERSITY OF HONG KONG SCHOOL OF BUSINESS BUSI 0018 – Hong Kong Taxation Unit 10 – Depreciation Allowance: Plant and Machinery Coverage 1 Introduction 2 Definition of plant and machinery 3 Qualifying person for depreciation allowance 4 Qualifying expenditure 5 Pooling system 6 Non-pooling system 7 P&M under hire purchase 8 P&M only partly for business use 9 Prescribed fixed assets 10 Environmental protection facilities 11 Miscellaneous matters Learning Objectives After completing this unit, you should be able to: distinguish between plant and machinery and building for tax purpose compute initial allowance, annual allowance, balancing allowance and balancing charge in respect of plant and machinery under the ‘pooling system’ determine the depreciation allowances available for plant and machinery under hire purchase or not used wholly for business purpose identify ‘prescribed fixed assets’ and ‘environmental protection facilities’ and explain the tax treatments 1 INTRODUCTION Three classes of assets qualify for depreciation allowances under Part VI of the IRO: - Plant and machinery - Industrial buildings - Commercial buildings 2 DEFINITION OF PLANT AND MACHINERY Plant and machinery is "whatever apparatus used by a businessman for carrying on his trade … which he keeps for permanent employment in his business" ( Yarmouth v France ) Distinction between ‘plant and machinery’ and ‘buildings’ - Plant and machinery is the "tool" with which the business is carried on - Building is the "environment" in which the business is carried on - Functional test vs Setting test
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U10_DA_Plant_rev 08/09 2 Examples (not conclusive): Plant and machinery Building Movable partitioning Wiring & electrical fixtures & fittings Furniture and fixtures Telephone cable & wiring Office equipments e.g. fax machine, photocopier Decoration (initial painting, cement work, etc) Computer hardware/software/system Air conditioners Air conditioning plant False ceiling Motor vehicles 3 QUALIFYING PERSON FOR DEPRECIATION ALLOWANCE – S.12(1)(b), S.18F and S.19E Person chargeable to salaries tax and the use of plant & machinery is essential for the production of assessable income Person carrying on a trade, profession or business, and plant and machinery are used in the production of assessable profits 4 QUALIFYING EXPENDITURE – S.40(1) Qualifying expenditure is capital expenditure incurred on the provision of plant and machinery Capital expenditure includes purchase price, freight, insurance, delivery/installation expenses, alteration cost, interest and commitment fees incurred on a loan, etc. Capital expenditure excludes those allowed under s.16B, s.16F, s.16G,
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This note was uploaded on 04/07/2012 for the course TAX 101 taught by Professor Ng during the Spring '12 term at HKU.

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