New capital allowance incentives for businesses
Businesses and individuals are now able to benefit from expanded capital allowance incentives, under the Government's income tax reform.
The changes have come about under the Fiscal Incentives Act and have standardised and streamlined capital allowances to become more beneficial to business operators.
But how is capital allowance actually applied? Businesses and individuals can claim tax allowances on certain assets acquired and used in earning their income. These allowances are given for income tax purposes instead of depreciation and for the wear and tear of particular assets.
This means business operators can deduct a portion of their cost from their taxable profit, thereby reducing their tax obligations.
As a general rule, capital expenditure on specified assets incurred on or after January 1, 2014 will now be written off, using the straight-line method, in accordance with the new capital allowance regime. Capital expenditure incurred prior to January 1 will however continue to be written off using the rules which existed prior to January 1.
One of the key changes in the new regime is that the definition of industrial buildings, which now qualify for a 20 per cent initial allowance, has been expanded.
For capital allowance purposes, industrial buildings now include buildings or structures used directly in the production of primary products; hotels licensed by the Jamaica Tourist Board; hospitals and certain other health-care facilities; multi-storey car parks; buildings located in an export free zone area designated as such under the Jamaica Export Free Zones Act; and buildings or structures constructed under public-private partnership arrangements.
BUILDINGS AND VEHICLES
The amendment also enhances the write-off rates of non-industrial buildings from 2.5 per cent on the reducing balance to four per cent on the straight-line basis.
Another significant change under the new capital allowance regime is that the rate of initial allowance for machinery used directly in the production of primary products or in the manufacture and automated packaging of goods has been increased to 25 per cent. The rates for automatic data-processing equipment, etc., have also been increased.
Business operators using a private motor vehicle, as opposed to a trade vehicle, can access increased capital allowances. For private vehicles, the allowable base cost on which annual allowances of 12.5 per cent are calculated has been significantly increased to the Jamaican dollar equivalent of US$35,000. Previously, this stood at J$4,800.
Persons using a trade vehicle, such as a pick-up truck, will also benefit from an increase to 20 per cent in the annual allowance rate.
The new regime also makes provisions for intangible assets such as scientific research and intellectual property.
The definition of scientific research has been extended to include pure or applied scientific research when done otherwise than in connection with a trade; as well as activities aimed at discovering new knowledge about products, processes and services and applying that knowledge to create new and improved products, processes and services.
The new capital allowance regime also makes provisions for annual allowances for intellectual property rights. It now covers expenditure on intellectual property, being the rights of ownership, use or other exploitation of things such as a patent, a trademark, a trade secret, an internet domain name or a publishing title, a copyright, an industrial design, among others.
The amendments to the capital allowance regime are an added incentive to business operators, whether they are operating as a company, sole trader or in partnership.
Persons are advised to keep proper schedules of their assets and proof of expenditure, so they may benefit from the improved capital allowances.
This is the fourth in the 'Tax Educator' series by Tax Administration Jamaica on the new revenue measures and other tax policy changes aimed at the business reader.
Prepared by the TAJ Communications Unit.Phone: 1-888-TAX-HELP (829-4357)Website: jamaicatax.gov.jm Email: firstname.lastname@example.org